-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VYzWbn8lplGBl/yE8tzxFpSoYtBtWiGUihO+LOtkA38NeDovS3+zxDiAq8Y/flLd c3WCANOjqii6w5C54zL2SQ== 0001015402-98-000028.txt : 19980220 0001015402-98-000028.hdr.sgml : 19980220 ACCESSION NUMBER: 0001015402-98-000028 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980219 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPAQ COMPUTER CORP CENTRAL INDEX KEY: 0000714154 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 760011617 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09026 FILM NUMBER: 98545560 BUSINESS ADDRESS: STREET 1: 20555 S H 249 CITY: HOUSTON STATE: TX ZIP: 77070 BUSINESS PHONE: 7133700670 MAIL ADDRESS: STREET 1: POST OFFICE BOX 692000 MS 110701 STREET 2: POST OFFICE BOX 692000 MS 110701 CITY: HOUSTON STATE: TX ZIP: 77269-2000 10-K 1 ------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 1-9026 COMPAQ COMPUTER CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0011617 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 20555 SH 249, HOUSTON, TEXAS 77070 (281) 370-0670 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ---------------------- ----------------- Common Stock, $.01 par value New York Stock Exchange Debt Securities None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant on January 30, 1998 (assuming all officers and directors are affiliates and based on the last sale price on the New York Stock Exchange as of such date) was approximately $45 billion. The number of shares of the registrant's Common Stock, $.01 par value, outstanding as of January 30, 1998, was approximately 1.5 billion. DOCUMENTS INCORPORATED BY REFERENCE There is incorporated by reference in Part II and Part III of this Annual Report on Form 10-K certain of the information contained in the registrant's proxy statement for its annual meeting of stockholders to be held April 23, 1998, which will be filed by the registrant within 120 days after December 31, 1997. ------------------------------------------------ PART I ITEM 1. BUSINESS GENERAL Founded in 1982, Compaq Computer Corporation is a worldwide information technology company and is the largest global supplier of personal computers. Compaq develops and markets hardware, software, solutions and services, including industry-leading enterprise computing solutions, fault-tolerant business-critical solutions, networking and communication products, commercial desktop and portable products and consumer PCs. Compaq products are sold and supported in more than 100 countries through a network of authorized Compaq marketing partners. Compaq markets its products primarily to business, home, government, and education customers. References to the "Company" mean Compaq Computer Corporation and its subsidiaries. Compaq reinforced its position as the largest supplier of personal computers in the world in 1997. It increased its market share of the expanding worldwide PC market from approximately 10% to approximately 12% by focusing its business activities on expanding sales to new customers while augmenting sales to its existing customer base. In April 1997, Compaq shipped its 30 millionth PC. Business customers account for the largest portion of Compaq's sales. Business customers are attracted to Compaq's products for a variety of reasons, including Compaq's reputation for reliability, price, product performance and technological excellence, the availability of a wide variety of application software products, ease of use and connectivity solutions. In 1997, Compaq maintained its world leadership position in servers with an approximate 30% worldwide market share. Over the last few years, Compaq has expanded its servers to new levels of high-range class functionality, availability, fault tolerance and manageability for both mainstream and mission-critical applications. In addition, as presented more fully below, Compaq became the number one Windows NT-based workstation vendor in 1997, less than one year after introducing its first product. Also in 1997, and for the third consecutive year, Compaq maintained and increased its number one worldwide market share position in the shipment of branded computer monitors. In the future, Compaq will continue to integrate hardware and software to furnish the building blocks of personal and corporate computing while participating in software and communications markets either directly or through business alliances. Through this strategy, Compaq expects to become a leading provider of enterprise-wide solutions for business as well as information appliances for the home by offering the products and services that customers need to easily access and manage information. Compaq believes its key to success is leveraging Compaq's marketing skills, engineering talent, purchasing power, manufacturing capabilities, distribution strengths and brand name to bring to market high-quality, cost-competitive products in different price ranges with features that appeal to a wide variety of customers. PENDING AND RECENT ACQUISITIONS On January 26, 1998, Compaq announced the execution of an agreement to acquire Digital Equipment Corporation ("Digital"). Under the terms of the transaction, shareholders of Digital will receive $30 in cash and 0.945 shares of Compaq common stock for each share of Digital common stock. Compaq will issue approximately 150 million shares of Compaq common stock and $4.8 billion in cash. This transaction will be accounted for as a purchase. It is subject to the approval of Digital's shareholders as well as clearance under antitrust laws and other customary closing conditions, and is expected to be completed in the second quarter of 1998. In August 1997, Compaq merged with Tandem Computers Incorporated ("Tandem") in a stock-for-stock transaction accounted for as a pooling of interests. Tandem provides its customers with reliable, scaleable, fault-tolerant enterprise computer systems and client/server solutions. In connection with the merger, Compaq issued approximately 126 million shares of Compaq common stock, based upon an exchange ratio of 1.05 shares of Compaq common stock for each share of Tandem common stock. In May 1997, Compaq completed a cash tender offer for Microcom, Inc. ("Microcom"), a manufacturer of remote access technologies and solutions, for $288 million. COMPAQ PRODUCTS Compaq's products are available with a broad variety of functions and features designed to accommodate a wide range of user needs. Compaq operates through five customer-focused, global product groups: PC Products, Enterprise Computing, Consumer Products, Communication Products and Tandem Computers, as well as a worldwide sales, marketing, service and support organization. This structure allows Compaq to focus on sales, marketing, brand management and service and support on a global level. PC Products Group. The PC Products Group accounted for 47% of Compaq sales in 1997. The Compaq Deskpro was again the world's most popular PC in 1997, while Compaq monitors were the number one leader worldwide. Compaq also introduced a new broad range of portable computers, including the Armada 1500 family, a fully-integrated value line, and the Armada 7700 family, with one of the highest performance and most advanced technologies available. Demonstrating our ongoing commitment to innovation, Compaq delivered products in 1997 that used the latest technologies, like the Deskpro 4000N, one of the first Net PCs on the market, and the Deskpro 4000S, with a new smaller desktop form factor. Taking a lead in the industry, Compaq introduced several new technologies, such as Intel's Pentium and Pentium II with MMX technology, new graphics capabilities, enhanced Intelligent Manageability, a flat panel monitor and a suite of products and services tailored for the small and medium business market. As we look to 1998, Compaq plans to continue its leadership role with products that address new technologies, high performance, competitive price points, and new markets. Enterprise Computing Group. The Enterprise Computing Group had sales of server products, professional workstations and enterprise storage and options that accounted for 36% of Compaq's sales in 1997 (including Tandem's sales). Compaq's servers range from the aggressively priced ProSignia 200 to the high-availability ProLiant 7000 with PCI Hot Plug technology, capable of powering the most demanding business-critical environments. As evidenced by our approximately 30% server market share, Compaq's powerful server platforms deliver industry-leading price performance coupled with partner-based software solutions to give customers tightly integrated, reliable solutions that reduce cost, deployment time and risk. Compaq currently is the leading provider of key NT solutions. In 1997, Compaq became the second largest vendor of multi-user storage systems and expanded its product offering of enterprise class storage, backup and options to over 600 models. In addition, the workstation business, which was launched less than 18 months ago, grew rapidly by broadening its product line, forging additional partnerships with application vendors and entering new vertical markets to achieve the number one share position in the third quarter of 1997 in the Windows NT workstation market. In 1998, the Enterprise Computing Group plans to further strengthen its leadership in the mainstream server, options, and workstation markets and aggressively expand platform offerings and presence in the distributed enterprise market. The new E2000 Platform Architecture will enable powerful, flexible, and cost-effective solutions to meet today's enterprise needs by utilizing standards-based components like high availability ProLiant servers, fibre channel-based storage, and scalable ServerNet Systems Area Networks (SAN) interconnects. To provide enterprise customers more complete solutions to their business problems and to take advantage of the significant growth in shrink-wrapped enterprise applications, we are broadening our partnerships and developing better tools and methodologies for delivering value-added solutions and services to our customers and solutions partners. The integration of Tandem will further strengthen our solution offerings for the retail, telecommunication and finance segments, as well as broaden Compaq's Decision Support Services (DSS) and E-commerce solutions. We will build on our leadership position in storage by offering our customers new Fibre Channel, DLT library and Enterprise storage solutions that will allow them to build highly available, scalable storage networks. In workstations, we expect to expand our segment solutions as well as introduce new products offering the latest graphic and high-performance computing technologies. Consumer Products Group. In 1997, the Consumer Products Group, which markets computers and related options aimed at the consumer and home office market, accounted for 16% of Compaq's sales. In 1997, Compaq introduced its spring lineup of home multimedia PCs that included the Presario 2000 series, the first series of products in the market to combine leading-edge technology at prices below $1000. In June, Compaq expanded its consumer line in many significant ways, incorporating the latest processor technologies with new low-cost form factors, easy internet access capabilities, DVD-ROM capabilities, and a creativity imaging center that supports video and digital image capture, editing and communications. Compaq also expanded its line of home notebook PCs with the latest processor and screen technologies enhanced with multimedia applications and consumer-oriented CD playback features, marketed as DisqPlay. The combination of innovative portables and low cost high technology desktop products resulted in Compaq's number one worldwide consumer market share position in the third quarter of 1997. Tandem Computers. Compaq's merger with California-based Tandem Computers in August 1997 extended the reach of its enterprise products and solutions into the mission-critical computing space. Well-known for the reliability and scalability of its systems, Tandem provides valuable expertise in advanced clustering technology, service, and support to Compaq. During 1997, Tandem released its ServerNet technology-based NonStop Himalaya S-series range of systems, demonstrated the enterprise-class capability of clustered Windows NT servers with a 2-terabyte decision support system running NonStop Software, and continued to enhance its telecommunications-focused UNIX system products and leading wireless applications. In 1998, Tandem will focus on delivering targeted solutions for key vertical markets, as well as high-end horizontal solutions in decision support and electronic commerce, in accordance with the joint strategy developed with the Enterprise Computing Group. Communication Products Group. Compaq has a broad line of local area network (LAN) and remote access products. The LAN product line consists of network interface cards, hubs and switches to provide a range of scaleable, network solutions for small-to-medium businesses and work groups/departments in large corporations. During 1997, Compaq introduced multiple new LAN products including enhanced 10/100 Ethernet and Token Ring network interface cards; an industry first-of-its kind, port-level, auto-sensing, dual-speed, stackable 10/100 Ethernet hub; and, three cost effective 10 and 10/100 Ethernet switches. Remote access products include modems, an ISDN router, modem pools and remote access concentrators. Recently introduced remote access products include new K56flex protocol modems and a small-office-home-office, ISDN router with an integrated 8 port Ethernet hub ("network in a box"). Modem pools and remote access concentrators were added to the portfolio through Compaq's 1997 acquisition of Microcom. Compaq's remote access solutions scale from small businesses to large enterprises and telecom service providers. PRODUCT DEVELOPMENT Compaq is actively engaged in the design and development of additional products and enhancements to its existing products. During 1997, 1996 and 1995, Compaq expended $817 million, $695 million and $552 million, respectively, on research and development. In addition, Compaq spent $208 million and $241 million on in-process research and development in connection with acquisitions in 1997 and 1995, respectively. Since personal computer technology develops rapidly, Compaq's continued success is dependent on the timely introduction of new products with the right price and features. Its engineering effort focuses on new and emerging technologies as well as design features that will increase manufacturing efficiency and lower production costs. In 1997, Compaq focused significant attention on technological developments for enterprise computing, high-availability and failover solutions, storage technology, enterprise systems management, integration and configuration optimization, internet and intranet technologies, as well as networking and communications products. In the portable area, Compaq focused on developing leading solutions for high performance desktop replacement users, including integrated high performance notebooks. Compaq's product development efforts are centered on aggressively developing new areas in which Compaq can differentiate its products and add value, focusing on innovative platform features, the integration of hardware and software, and new related products and services. Because Compaq's business now intersects with a number of areas in which other companies have significantly greater technological, marketing and service expertise, Compaq has focused on alliances with third parties that have complementary products and skills as well as acquisitions that target incremental business opportunities. MANUFACTURING AND MATERIALS Compaq's PC manufacturing operations consist of manufacturing finished products and various circuit boards from components and subassemblies that Compaq acquires from a wide range of vendors. Certain of Compaq's products are manufactured by third party original equipment manufacturers. Compaq is in the process of developing the capacity to build products to order ("BTO") and configure products to order ("CTO"). This approach entails manufacturing products upon receipt of a sales order, as opposed to building to stock or sales forecast. BTO capabilities are employed to maximize manufacturing efficiencies by producing high volumes of basic product configurations. CTO permits configuration of units to the particular hardware and software customization requirements of certain customers. Both BTO and CTO are designed to generate cost efficiencies relating to just-in-time manufacturing, inventory management and distribution practices. Compaq believes that there is a sufficient number of competent vendors for most components and subassemblies. A significant number of components, however, is purchased from single sources due to technology, availability, price, quality or other considerations. Order lead times and cancellation requirements vary by supplier and component. Key components and processes currently obtained from single sources include certain of Compaq's displays, operating systems, microprocessors, application-specific integrated circuits and other custom chips and certain processes relating to construction of the housing for Compaq's computers. In addition, new products introduced by Compaq often initially utilize custom components obtained from only one source until Compaq has evaluated whether there is a need for additional suppliers. Like other participants in the personal computer industry, Compaq ordinarily acquires materials and components through purchase orders typically covering Compaq's requirements for periods averaging 90 to 120 days. From time to time Compaq has experienced significant price increases and limited availability of certain components that are available from multiple sources. At times Compaq has been constrained by parts availability in meeting product orders and future constraints could have an adverse effect on Compaq's operating results. On occasion, Compaq acquires component inventory in anticipation of supply constraints. A restoration of component availability and resulting decline in component pricing more quickly than anticipated could have an adverse effect on Compaq's operating results. MARKETING AND DISTRIBUTION Compaq distributes its products principally through third-party computer resellers. Compaq's products are sold to large and medium-sized business and government customers primarily through dealers, value-added resellers and systems integrators and to small business and home customers principally through dealers and consumer channels. In response to changing industry practices and customer preferences, Compaq is continuing its expansion of distribution establishments. Compaq also sells products directly through its sales force and directly to small business and home customers through Compaq's Internet web page at www.compaq.com and its mail order business that feature a -------------- variety of personal computers, printers and software products. In 1997, North American sales constituted 55% of Compaq's total sales and Europe, Middle East and Africa sales constituted 32%. Compaq's North America Division markets its products in the United States and Canada, while Compaq's Europe, Middle East and Africa Division, based in Munich, Germany, focuses on opportunities in Europe as well as in parts of Africa and the Middle East. The sales of Compaq's Asia/Pacific, Japan, Greater China and Latin America Divisions, which focus on opportunities in these high growth areas, constitute the remaining 13% of Compaq's total sales. Compaq's products are now sold by dealers in more than 100 countries. For further geographic information for 1997, 1996 and 1995, see Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 9 of the Notes to Consolidated Financial Statements. In 1997, Compaq created a leasing company, Compaq Capital Corporation, to provide financing to facilitate and enhance the sale of Compaq products and services on a worldwide basis. Compaq Capital has been staffed with experienced leasing/financing specialists who are moving rapidly to create a worldwide leasing/financing network through de novo operations and joint venture relationships with other lessors. On July 10, 1997, Compaq Capital commenced leasing operations in North America and on October 1, 1997, Compaq Capital implemented leasing operations in Europe. Additional Compaq Capital leasing operations are scheduled to be rolled out to the Asia/Pacific and Latin America regions in 1998. It is anticipated that Compaq Capital's dedicated leasing/financing operations will provide additional capabilities to help meet customer needs on a global basis. SERVICE AND SUPPORT Compaq provides support and warranty repair to its customers principally through full-service computer dealers and independent third-party service companies. Compaq offers its customers CompaqCare, which includes a number of customer service and support programs, most notably one- to three-year limited warranties on PC products and in the U.S., round-the-clock telephone technical support for Compaq hardware products. PATENTS, TRADEMARKS, AND LICENSES Compaq and its subsidiaries held 910 patents, had 139 patents allowed and awaiting issuance and had 1090 patent applications pending with the United States Patent and Trademark Office at the close of 1997, as well as related international patents and patent applications. In addition, Compaq has registered certain trademarks in the United States and in a number of foreign countries. While Compaq believes that patent and trademark protection plays an important part in its business, Compaq relies primarily upon the technological expertise, innovative talent and marketing abilities of its employees. Compaq has from time to time entered into cross-licensing agreements with other companies holding patents to technology used in Compaq's products as well as with companies using patents to technology held by Compaq. Compaq holds a license from IBM for all patents issuing on applications filed prior to July 1, 1993, and has entered into a patent cross-license agreement with Texas Instruments, Inc., for all patents issuing on applications filed prior to December 31, 2005. In January 1996, Compaq and Intel Corporation entered into a ten-year patent cross-license agreement. SEASONALITY General economic conditions have an impact on Compaq's business and financial results. From time to time, the markets in which Compaq sells its products experience weak economic conditions that may negatively affect sales. Although Compaq does not consider its business to be highly seasonal, Compaq in general experiences seasonally higher sales and earnings in the second half of the year. Should Compaq's retail business expand relative to its other businesses, Compaq could experience an increase in the seasonality of its business and financial results could become more dependent on retail business fluctuations. CUSTOMERS One customer accounted for 11% of sales for 1997. During this period, no other customer of Compaq accounted for 10% or more of sales. In 1997, Compaq's five largest resellers represented approximately 25% of Compaq's 1997 sales. BACKLOG Compaq's resellers typically purchase products on an as-needed basis and resellers frequently change delivery schedules and order rates depending on market conditions. Unfilled orders can be, and often are, canceled at will and without penalties. In Compaq's experience, however, the actual amount of unfilled orders at any particular time is not a meaningful indication of its future business prospects since orders rapidly become balanced as soon as supply begins meeting demand. Forecasting demand for newly introduced products is complicated by the availability of different product models, which may include various types of built-in peripherals and software, and the configuration requirements, such as language localization, in certain markets. As a result, while overall demand may be in line with Compaq's projections and manufacturing implementation, local market variations can lead to differences between expected and actual demand and resulting delays in shipment. Should Compaq be unable to meet demand for its products on a timely basis, customer satisfaction and sales could be adversely affected. COMPETITION The computer industry is intensely competitive with many U.S., Japanese and other international companies vying for market share. The market continues to be characterized by rapid technological advances in both hardware and software developments that have substantially increased the capabilities and applications of information management products and have resulted in the frequent introduction of new products. The principal elements of competition are price, product performance, product quality and reliability, service and support, marketing and distribution capability and corporate reputation. While Compaq believes that its products compete favorably based on each of these elements, Compaq could be adversely affected if its competitors introduce innovative or technologically superior products or offer their products at significantly lower prices than Compaq. Compaq's results could also be adversely affected should it be unable to implement effectively its technological and marketing alliances with other companies, such as Microsoft, Intel, Novell, Oracle, SAP and Texas Instruments, among others, and to manage the competitive risks associated with these relationships. ENVIRONMENTAL LAWS AND REGULATIONS Compaq recognizes that operating in a manner that is compatible with the environment is good for its community, employees, customers and business. Compaq integrates numerous environmental features in the product design and manufacturing process that reduce the potential environmental impact during the lifecycle of its products and its products are designed and manufactured to meet a variety of the world's environmental standards and expectations. Compaq uses no chlorofluorocarbons (CFCs) in its worldwide manufacturing operations and undertakes ongoing environmental programs, including waste reduction, energy conservation, recycling and design for environment. Compaq maintains a worldwide environmental health and safety audit program. The audit program includes management system and compliance evaluations. Compliance with laws enacted for protection of the environment to date has had no material effect upon Compaq's capital expenditures, earnings or competitive position. Although Compaq does not anticipate any material adverse effects in the future based on the nature of its operations and the purpose of environmental laws and regulations, there can be no assurance that such laws or future laws will not have a material adverse effect on Compaq. YEAR 2000 TRANSITION The media has given much attention to the Year 2000 transition, focusing primarily on the ability of older, proprietary mainframe and minicomputer systems and their software to handle the transition. New, open systems like those sold and used by Compaq also face associated issues. In 1997, Compaq established a task force to address its PC product and customer concerns, and a separate task force to address Compaq's internal information systems and those of its suppliers. A third task force addresses all such issues for Tandem products. Compaq announced a Year 2000 product readiness program for its PC system products on October 7, 1997. Compaq systems covered by the program sold on or after that date pass the NSTL YMARK2000 test for Year 2000 hardware readiness. NSTL, a division of the McGraw Hill Companies, uses a strict definition of Year 2000 readiness for x86-based PCs. The hardware clock must be compatible to the Motorola MC146818 real-time clock (RTC) and the BIOS must report the occurrence of the Year 2000 in real time and recognize leap years, when appropriate, for the Years 2000 through 2009 inclusive. Compaq implemented firmware changes to enable its new systems to pass the test. Systems sold by Compaq prior to October 7, 1997 may require firmware updates to pass the test. Older systems sold by Compaq may not have upgradeable firmware and thus may not be able to pass the test. Compaq continues to evaluate testing techniques for its software and options. Additional information is available on Compaq's Web site at www.compaq.com/year2000. ----------------------- A second Year 2000 product readiness program covers Tandem products. Compaq defines Year 2000 compliance for Tandem products as "the capability of a product, when used in accordance with its associated documentation, to correctly receive, process, and provide date data within and between the 20th and 21st centuries, provided that all other products (for example, hardware, software, and firmware) used with the product properly exchange accurate date data with the product." New Tandem products meet this definition. Older systems sold by Tandem may not be capable of meeting this definition. Testing of new and older systems is ongoing. Additional information is available on Tandem's Web site at www.tandem.com. -------------- For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors That May Affect Future Results - Year 2000 Compliance." EMPLOYEES At December 31, 1997, Compaq had approximately 32,565 full-time regular employees and 8,878 temporary and contract workers engaged in manufacturing operations, engineering, research and development, marketing, sales, service and administrative activities. Compaq believes that its ability to attract and retain skilled personnel appropriately is critical to its success. Accordingly, Compaq has developed competitive human resources policies consistent with its business plan. ITEM 2. PROPERTIES Compaq's principal administrative facilities and a manufacturing facility are located in Houston, Texas, on the 1,000-acre Compaq Center in Houston. Tandem's administrative facilities are located in Cupertino, California and a principal manufacturing site is in Fremont, California. Compaq leases sales offices in 101 cities in the United States as well as certain administrative and warehouse facilities. Compaq leases a manufacturing facility in Irving, Texas, that is used in the manufacture of hubs and high speed switches. In addition, Compaq leases customer service call centers in Atlanta, Georgia; Houston, Texas; and Dublin, Ireland. Compaq also owns or leases administrative and sales offices and manufacturing facilities internationally and has its principal international manufacturing facilities in Scotland, Singapore, Brazil, Australia and China. ITEM 3. LEGAL PROCEEDINGS Compaq is subject to legal proceedings and claims that arise in the ordinary course of its business. Management does not believe that the outcome of any of those matters will have a material adverse effect on Compaq's financial condition, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET FOR COMMON STOCK. Compaq's common stock is listed on the New York Stock Exchange and trades under the symbol CPQ. As of January 30, 1998, Compaq had approximately 23,000 shareholders of record. The reported high and low closing stock prices, as reported on the NYSE Composite Transaction Tape, were as follows:
1997 1996 =========================================== High Low High Low -------------- -------------- 1st Quarter $17.35 $14.40 $10.60 $ 7.30 2nd Quarter 21.63 14.40 9.95 7.53 3rd Quarter 39.13 20.38 12.95 8.30 4th Quarter 38.63 26.66 17.15 12.88
DIVIDENDS AND DIRECT STOCK PURCHASE PLAN. Compaq paid its first quarterly dividend of $ 0.015 per share to shareholders of record on December 31, 1997. Compaq anticipates that the cash dividend will be paid on a quarterly basis. Compaq has established a direct stock purchase plan through which stockholders may reinvest their dividends and invest additional amounts directly in Compaq common stock. Additional information about the direct stock purchase plan is available at www.compaq.com/corporate/ir/shareplan.html. ------------------------------------------ ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following income statement and balance sheet data have been derived from consolidated financial statements that have been audited by Price Waterhouse LLP, independent accounts. The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K.
Year ended December 31, In millions except per share amounts 1997 1996 1995 1994 1993 ========================================================================================================== STATEMENT OF INCOME Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,584 $20,009 $16,675 $12,605 $8,873 Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . 17,833 14,855 12,291 8,885 6,188 -------- ------- ------- ------- ------ 6,751 5,154 4,384 3,720 2,685 -------- ------- ------- ------- ------ Selling, general and administrative expense . . . . . . . . . 2,947 2,507 2,186 1,859 1,549 Research and development costs. . . . . . . . . . . . . . . . 817 695 552 458 436 Purchased in-process technology(1). . . . . . . . . . . . . . 208 - 241 - - Restructuring charge(2) . . . . . . . . . . . . . . . . . . . - 52 - - 270 Merger-related costs. . . . . . . . . . . . . . . . . . . . . 44 - - - - Other income and expense, net(3). . . . . . . . . . . . . . . (23) 17 79 50 269 -------- ------- ------- ------- ------ 3,993 3,271 3,058 2,367 2,524 -------- ------- ------- ------- ------ Income before provision for income taxes. . . . . . . . . . . 2,758 1,883 1,326 1,353 161 Provision for income taxes. . . . . . . . . . . . . . . . . . 903 565 433 365 142 -------- ------- ------- ------- ------ Net income. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,855 $ 1,318 $ 893 $ 988 $ 19 ======== ======= ======= ======= ====== Earnings per common share:(4)(5) Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.23 $ 0.90 $ 0.62 $ 0.70 $ 0.01 ======== ======= ======= ======= ====== Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.19 $ 0.87 $ 0.60 $ 0.68 $ 0.01 ======== ======= ======= ======= ====== Shares used in computing earnings per common share: (4)(5) Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,505 1,472 1,442 1,405 1,348 ======== ======= ======= ======= ====== Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . 1,564 1,516 1,492 1,463 1,388 ======== ======= ======= ======= ====== FINANCIAL POSITION Current assets. . . . . . . . . . . . . . . . . . . . . . . . $12,017 $10,089 $ 7,462 $ 6,037 $4,142 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . 14,631 12,331 9,637 7,862 5,752 Current liabilities . . . . . . . . . . . . . . . . . . . . . 5,202 4,741 3,356 2,739 2,098 Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . - 300 300 300 - Stockholders' equity. . . . . . . . . . . . . . . . . . . . . 9,429 7,290 5,757 4,644 3,468 (1) Represents a $208 million and a $241 million non-recurring, non-tax-deductible charge for purchased in-process technology in connection with acquisitions in 1997 and 1995, respectively. (2) Includes a restructuring charge of $52 million in 1996 and $258 million in 1993 for Tandem. (3) 1993 amount includes Tandem loss from discontinued operations of $222 million. (4) All common share and per common share data reflect the five-for-two stock split in July 1997 and the two-for-one stock split in January 1998. (5) The Company adopted FAS 128 in 1997. All prior period earnings per common share data have been restated to conform to the provisions of this statement.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements. Except as specifically indicated, the forward-looking statements contained in this discussion do not take into consideration the impact of Compaq's agreement to merge with Digital Equipment Corporation as described in Item 1, which is subject to the approval of Digital's shareholders as well as certain regulatory approvals. We expect to consummate the merger in the second quarter of 1998. RESULTS OF OPERATIONS The following table presents, as a percentage of sales, selected consolidated financial data for each of the three years in the period ended December 31.
Year ended December 31, 1997 1996 1995 ==================================================================== Sales. . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% Cost of sales. . . . . . . . . . . . . . . . 72.5 74.2 73.7 ------ ------ ------ Gross margin . . . . . . . . . . . . . . . . 27.5 25.8 26.3 ------ ------ ------ Selling, general and administrative expense. 12.0 12.5 13.1 Research and development costs . . . . . . . 3.3 3.5 3.3 Purchased in-process technology(1) . . . . . 0.9 - 1.4 Restructuring charge(2). . . . . . . . . . . - 0.3 - Merger-related costs(3). . . . . . . . . . . 0.2 - - Other income and expense, net. . . . . . . . (0.1) 0.1 0.5 ------ ------ ------ 16.3 16.4 18.3 ------ ------ ------ Income before provision for income taxes . . 11.2% 9.4% 8.0% ====== ====== ====== (1) Represents a $208 million and a $241 million non-recurring, non-tax-deductible charge for purchased in-process technology in connection with acquisitions in 1997 and 1995, respectively. (2) Represents a $52 million charge related to restructuring actions taken by Tandem during 1996. (3) Represents a $44 million non-recurring, non-tax-deductible charge related to costs associated with the Tandem merger during 1997.
SALES Sales for 1997 increased approximately $4.6 billion or 23% over the prior year as compared with an increase of $3.3 billion or 20% during 1996. North American sales, which include Canada, increased 26% during 1997, compared with an increase of 29% during 1996. International sales, excluding Canada, represented 45% of total sales in 1997 as compared with 47% in 1996. European sales increased 21% during 1997 compared to an increase of 10% during 1996. Other international sales increased 15% during 1997, compared with an increase of 14% during 1996. Other international markets experienced adverse market conditions in 1997. In particular, the weakness in the Asian and Japanese markets resulted in an aggressive pricing environment throughout 1997. The personal computer industry is highly competitive and marked by frequent product introductions, continual improvement in product price/performance characteristics and a large number of competitors. Approximately 58% of Compaq's CPU sales in 1997 were derived from products introduced in 1997. These new products have been designed to allow us to achieve low product costs while maintaining the quality and reliability for which our products have been known, thereby increasing our ability to compete on price and value. The significant increase in sales in 1997 stemmed primarily from an increase in the number of units sold and an increase in sales of options associated with CPU products. In 1997, Compaq's worldwide unit sales increased 43% while they increased 23% in 1996. The 1997 increase included a 35% expansion in unit sales of commercial CPU products, a 62% increase for consumer CPU products and a 65% increase for enterprise CPU products. According to third-party estimates, worldwide unit sales of personal computers increased approximately 15% to 16% in 1997, in contrast to a 16% to 18% increase in 1996. Competition continues to have a significant impact on prices of our products, especially those aimed at the consumer market, and additional pricing actions may occur as we attempt to maintain our competitive mix of price/performance characteristics. We attempt to mitigate the effect of any pricing actions through implementation of design-to-cost goals, the aggressive pursuit of reduced component costs, manufacturing efficiencies and control of operating expenses. GROSS MARGIN Gross margin as a percentage of sales was 27.5% in 1997, up from 25.8% in 1996. The increase in gross margins primarily resulted from a higher portion of sales of enterprise products and options, production and logistics cost savings, and overall asset management improvements. Compaq operates in a very aggressive pricing environment that will continue to put pressure on gross margins. Despite this pressure, we expect that the combination of changes in product mix, continued improvements in logistics and asset management, reductions in the cost of materials, and higher margins on new products should allow Compaq to maintain relatively stable gross margin levels in 1998. OPERATING EXPENSES Research and development costs increased 18% in absolute dollars (to $817 million from $695 million) and fell as a percentage of sales (to 3.3% from 3.5%) in 1997 as compared to 1996. In addition, Compaq spent $208 million on in-process research and development in connection with an acquisition in 1997. We are committed to continuing a significant research and development program, and research and development costs are likely to increase in absolute dollars in 1998. Selling, general and administrative expense increased 18% in absolute dollars in 1997 while slightly declining as a percentage of sales. The decrease as a percentage of sales reflects our ongoing efforts to manage operating expense growth relative to sales and gross margin levels. The increase in the amount of expense resulted from domestic and international selling expense associated with higher unit volumes as well as expense incurred in connection with the introduction of new products, the entry into new markets, the expansion of distribution channels and a greater emphasis on customer service and technical support. We anticipate that in 1998 selling, general and administrative expense will increase in absolute dollars as Compaq supports significant new product introductions, expands into new markets and increases investment in the area of service and support, especially in support of Compaq's enterprise business. OTHER ITEMS In 1997, Compaq had other income of $23 million, compared to other expense of $17 million and $79 million in 1996 and 1995, respectively. The difference was primarily due to an increase in interest and dividend income related to higher combined cash and short-term investment balances, partially offset by increased interest expense. The translation gains and losses relating to the financial statements of Compaq's international subsidiaries, net of offsetting gains and losses associated with hedging activities relating to the net monetary assets of these subsidiaries, are included in other income and expense and resulted in net losses of $31 million, $14 million and $33 million in 1997, 1996 and 1995, respectively. LIQUIDITY AND CAPITAL RESOURCES Compaq's cash, cash equivalents and short-term investments increased to $6.8 billion at December 31, 1997, from $4.1 billion at December 31, 1996, primarily due to positive cash flow from operating activities, including improved management of inventory, accounts receivable and accounts payable. Accounts receivable decreased to $2.9 billion at December 31, 1997, from $3.7 billion at December 31, 1996, primarily as a result of improved asset management and the sale of $1.1 billion of accounts receivable at the end of 1997. Inventory levels increased to $1.6 billion from $1.3 billion during that period, primarily due to increased unit volumes. Inventory turns increased to 12.6 in 1997, from 8.3 in 1996. Cash used in 1997 for the purchase of property, plant and equipment totaled $729 million. Capital expenditures for land, buildings and equipment during 1998 are estimated to be $770 million. Compaq has committed for only a small portion of such amounts and the actual level of spending will depend on a variety of factors, including general economic conditions and Compaq's business. Accounts payable increased to $2.8 billion from $2.1 billion and days payable outstanding increased to 54 days from 40 days at December 31, 1997 and 1996, respectively, due to improved accounts payable management. In addition, in May 1997, Compaq completed a cash tender offer for substantially all of its outstanding $150 million 6-1/2% Senior Notes Due March 15, 1999 and $150 million 7-1/4% Senior Notes Due March 15, 2004. Compaq paid approximately $298 million (excluding accrued interest) for the tendered notes. Also in May 1997, Compaq completed its cash tender offer for Microcom for $288 million. We currently expect to fund expenditures for capital requirements as well as liquidity needs from a combination of available cash balances, internally generated funds and financing arrangements. Compaq from time to time may borrow funds for actual or anticipated funding needs or because it is economically beneficial to borrow funds instead of repatriating funds in the form of dividends from Compaq's foreign subsidiaries. On September 22, 1997, Compaq entered into a five-year $3 billion unsecured revolving credit facility and a one-year $1 billion unsecured revolving credit facility. In conjunction with the closing of the new facilities, Compaq retired its two existing secured revolving credit facilities totaling $1.5 billion. Compaq had no borrowings outstanding under either of the new facilities at December 31, 1997. Compaq has established a commercial paper program, supported by the syndicated credit facility, which was unused at December 31, 1997. We believe that these sources of credit provide sufficient financial flexibility to meet foreseeable future funding requirements. We continually evaluate the need to establish other sources of working capital and will pursue those we consider appropriate based upon Compaq's needs and market conditions. FACTORS THAT MAY AFFECT FUTURE RESULTS Compaq participates in a highly volatile industry that is characterized by fierce industry-wide competition for market share. Industry participants confront aggressive pricing practices, continually changing customer demand patterns, growing competition from well-capitalized high technology and consumer electronics companies, and rapid technological development carried out in the midst of legal battles over intellectual property rights. In accordance with the provisions of the Private Securities Litigation Reform Act of 1995, the cautionary statements set forth below discuss important factors that could cause actual results to differ materially from the projected results contained in the forward-looking statements in this report. Competitive Environment. We expect the personal computer market to continue to expand in 1998 in line with third party research organizations' forecasts of unit growth in the range of 15% to 16%. We expect the enterprise market to expand in line with the development of internet and intranet enterprise applications and the corporate MIS migration from legacy systems to client/server systems. With the Tandem merger and the anticipated Digital merger, Compaq confronts a challenge in building its high-end UNIX solutions product market while continuing to advance the sphere of NT-based solutions to achieve the lowest cost of ownership and highest computing value for its customers. Industry competition remains fierce with a large number of competitors vying for market share. This competition creates an aggressive pricing environment, which continues to put pressure on Compaq's gross margins. Although Compaq has programs and products focused on meeting market demand, gaining market share profitably and maintaining gross margins, Compaq's ability to achieve these goals is subject to the risks set forth in this discussion. Risks of Newly Acquired Businesses. Compaq plans to use strategic acquisitions and mergers to assist in the growth of its business. During the third quarter 1997, Compaq completed its merger with Tandem. Tandem's core competencies have historically centered around providing reliable, scaleable hardware and software solutions for business critical applications, such as online transaction processing. With the advent of the internet and expanding corporate intranets, Compaq believes that computer applications will emerge that will result in media-rich high volume transactions, causing online transaction processing to be expanded to include internet transaction processing. As a result of the Tandem merger, Compaq is engaged in direct sales of computer systems with software developed to meet customers' specific needs. The longer-term nature of fulfilling such contracts may expose Compaq to new risks associated with customized specifications. Compaq believes that through its Tandem and enterprise products, it is well positioned to provide computing solutions to meet this demand as well as other needs for enterprise computing. Subject to certain regulatory approvals and approval by Digital shareholders, Compaq will expand its service offerings and enterprise solutions through the merger with Digital. At that time, Compaq will confront a number of risks associated with Digital's business. Compaq believes that the Digital merger will enhance its operating results, but as with any significant acquisition or merger, Compaq confronts challenges in retaining key employees, synchronizing product roadmaps and business processes, and integrating logistics, marketing, product development, and manufacturing operations to achieve greater efficiencies. Inventory. In the event of a drop in worldwide demand for computer products, demand for one or more of Compaq's products is lower than anticipated, difficulties arise in managing product transitions, or component pricing movements affect the value of raw material inventory, there could be an adverse impact on inventory levels, cash, and related profitability. Third Party Relationships. We work with third parties as suppliers in arrangements to provide services in areas other than core competencies and ensure the service and support of our customers, and in strategic alliances to facilitate product offerings, product development, compatibility, and the adoption of industry standards. Although we try to achieve strong working relationships with parties who share our industry goals and have adequate resources to fulfill their responsibilities, these relationships lead to a number of risks. First, these companies may suffer financial or operational difficulties that affect their performance at the speed and volumes required by Compaq's business, which could lead to delays in product development and gaps in component supplies. Second, major companies from which we purchase components or services (such as Intel, Microsoft, Cisco and IBM) may be competitors in other areas, which could affect pricing, new product development or future performance. Finally, difficulties in coordinating activities may lead to gaps in delivery and performance of our products. Rapid Technology Cycles. We believe the computer industry will continue to drive rapid technology cycles. In planning product transitions, we evaluate the speed at which customers are likely to switch to newer products. The contrast between prices of old and new products, which is related to component costs, is a critical variable in predicting customer decisions to move to the next generation of products. Because of the lead times associated with our volume production, should we be unable to gauge the rate of product transitions accurately, there could be an adverse impact on inventory levels, cash, and profitability. Product Transitions. In each product cycle, we confront the risk of delays in production that could impact sales of newer products while we manage the inventory of older products and facilitate the sale of older inventory held by resellers. To ease product transitions, we carry out pricing actions and marketing programs to increase sales in reseller channels. We provide currently for estimated product returns and price protection that may occur under reseller programs and under floor planning arrangements with third-party finance companies. Should we be unable to sell the inventory of older products at anticipated prices or if dealers hold higher than expected amounts of inventory subject to price protection at the time of planned price reductions, there could be a resulting adverse impact on sales, gross margins, and profitability. Systems Implementation. Compaq continues to focus on making its business and information management processes more efficient in order to increase customer satisfaction, improve productivity, and lower costs. In the event of a delay in implementing improvements, there could be an adverse impact on inventory levels, cash, and related profitability. In connection with these efforts, we are moving many of our systems from a legacy environment of proprietary systems to client-server architectures as well as integrating systems from newly acquired businesses. Should the transition to new systems not occur in a smooth and orderly manner, we could experience disruptions in operations, which could have an adverse financial impact. Technology Standards and Key Licenses. Participants in the computer industry generally rely on the creation and implementation of technology standards to win the broadest market acceptance for their products. Compaq must successfully manage and participate in the development of standards while continuing to differentiate its products in a manner valued by customers. While industry participants generally accept, and may encourage, the use of their intellectual property by third parties under license, when intellectual property owned by competitors or suppliers becomes accepted as an industry standard, Compaq must obtain a license, purchase components utilizing such technology from the owners of such technology or their licensees, or otherwise acquire rights to use such technology, which could result in increased costs. Compaq has entered into license agreements with key industry participants, including Intel, Texas Instruments and Microsoft. Compaq has been negotiating with IBM and Microsoft for the successors to the current agreements. There can be no assurance that Compaq will be able to negotiate terms under such license agreements that offer it competitive market advantages. Production Forecasts. In managing production, we must forecast customer demand for our products. Should we underestimate the supplies needed to meet demand, we could be unable to meet customer demand. Should we overestimate the supplies needed to meet customer demand, cash and profitability could be adversely affected. Many of the components used in our products, particularly microprocessors and memory, experience steep price declines over their product lives. If we are unable to manage purchases and utilization of such components efficiently to maintain low inventory levels immediately prior to major price declines, we could be unable to take immediate advantage of such declines to lower product costs, which could adversely affect our sales and gross margins. In addition, should prices for components increase unexpectedly, Compaq's gross margin could be adversely affected. In 1997, Compaq established a variety of programs designed to increase its manufacturing, distribution, and business process efficiencies. The success of these programs depends upon the implementation of more efficient component supply, manufacturing, and distribution strategies to increase overall efficiencies, which will lead to lower prices being offered to its end users. Credit Risks. Compaq's primary means of distribution remains third-party resellers. We continually monitor and manage the credit we extend to resellers and attempt to limit credit risks by broadening distribution channels, utilizing certain risk transfer arrangements and obtaining security interests. Our business could be adversely affected in the event that the financial condition of third-party computer resellers erodes. Upon the financial failure of a major reseller, we could experience disruptions in distribution as well as the loss of the unsecured portion of any outstanding accounts receivable. Geographic expansion, particularly the expansion of manufacturing operations in developing countries, such as Brazil and China, and the expansion of sales into economically volatile areas such as Asia, Latin America and other emerging markets, subject Compaq to a number of economic and other risks, such as financial instability among resellers in these regions. Compaq generally has experienced longer accounts receivable cycles in emerging markets, in particular Asia/Pacific and Latin America, when compared to U.S. and European markets. In addition, geographic expansion subjects Compaq to political and financial instability of the countries into which Compaq expands, including currency devaluation and interest rate fluctuations. Compaq continues to evaluate its business operations in these regions and attempts to take measures to limit risks in these areas. Year 2000 Compliance. Compaq believes the cost of administering its Year 2000 readiness program described above, exclusive of any customer claims, will not have a material adverse impact on future earnings. Since there is no uniform definition of Year 2000 "compliance" and since all customer situations cannot be anticipated, particularly those involving third party products, Compaq may see an increase in warranty and other claims as a result of the Year 2000 transition. Such claims, if successful, could have a material adverse impact on future results. See "Item 1. Business - Year 2000 Transition" for additional information. Projects to address Compaq's internal information systems currently are underway, and Compaq is in the process of replacing some of its older systems with new systems that are able to handle the Year 2000 transition. Compaq will continue to review internal system requirements and to correct further issues as they are identified. Although Compaq's evaluation of these systems is still in process, we believe that the impact of the Year 2000 transition on its internal systems will not have a material adverse impact on future results. In addition, Compaq's task force is evaluating the impact of Year 2000 compliance of its suppliers, is asking its suppliers about compliance, and is establishing Year 2000 compliance requirements for suppliers. Since the compliance of suppliers depends upon their cooperation, failures remain a possibility, and could have a material adverse impact on future results. Tax Rate. Compaq currently has a 30% effective tax rate, before the effect of non-deductible purchased in-process technology and merger-related costs and expects this rate will continue at approximately the same level in 1998. Compaq benefits from a tax holiday in Singapore that expires in 2001, with a potential extension to August 2004 if certain cumulative investment levels and other conditions are met. Compaq's tax rate is heavily dependent upon the proportion of earnings that is derived from its Singaporean manufacturing subsidiary and its ability to reinvest those earnings permanently outside the U.S. If the earnings of this subsidiary as a percentage of Compaq's total earnings were to decline significantly from anticipated levels, or should Compaq's ability to reinvest these earnings be reduced, Compaq's effective tax rate would exceed the current estimate. In addition, should Compaq's intercompany transfer pricing with respect to its Singaporean manufacturing subsidiary require significant adjustment due to audits or regulatory changes, Compaq's overall effective tax rate could increase. Currency Fluctuations. Compaq's risks associated with currency fluctuations are discussed in Item 7A below. Because of the foregoing factors, as well as other variables affecting Compaq's operating results, past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. ITEM 7A. MARKET RISKS Compaq is exposed to market risks, which include changes in U.S. and international interest rates as wells as changes in currency exchange rates as measured against the U.S. dollar and each other. We attempt to reduce these risks by utilizing financial instruments, including derivative transactions, pursuant to company policies. Compaq uses market valuations and value-at-risk valuation methods to assess market risk of its financial instruments and derivative portfolios. It uses J.P. Morgan's RiskMetrics to estimate the value-at-risk based on estimates of volatility and correlation of market factors drawn from J.P. Morgan's RiskMetrics data sets as of December 31, 1997. Our measured value-at-risk from holding derivative and other financial instruments, using a 95% confidence level and assuming normal market conditions at December 31, 1997, was immaterial. The value of the U.S. dollar affects Compaq's financial results. Changes in exchange rates may positively or negatively affect Compaq's sales (as expressed in U.S. dollars), gross margins, operating expenses, and retained earnings. Compaq engages in hedging programs aimed at limiting in part the impact of currency fluctuations. Using primarily forward exchange contracts, Compaq hedges those assets and liabilities that, when remeasured according to generally accepted accounting principles, impact the income statement. For certain markets, particularly Latin America, Compaq has determined that ongoing hedging of non-U.S. dollar net monetary assets is not cost effective and instead attempts to minimize currency exposure risk through working capital management. There can be no assurance that such an approach will be successful, especially in the event of a significant and sudden decline in the value of local currencies. From time to time, Compaq purchases foreign currency option contracts as well as short-term forward exchange contracts to protect against currency exchange risks associated with the anticipated sales of Compaq's international marketing subsidiaries, with the exception of Latin America. These hedging activities provide only limited protection against currency exchange risks. Factors that could impact the effectiveness of Compaq's hedging programs include accuracy of sales forecasts, volatility of the currency markets, and availability of hedging instruments. All currency contracts that are entered into by Compaq are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure, not for speculation. Although Compaq maintains these programs to reduce the impact of changes in currency exchange rates, when the U.S. dollar sustains a strengthening position against currencies in which Compaq sells products or a weakening exchange rate against currencies in which Compaq incurs costs, Compaq's sales or costs are adversely affected. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements Financial Statements: Page ---- Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . 20 Consolidated Balance Sheet at December 31, 1997 and 1996 . . . . . . . . . . . . 21 Consolidated Statement of Income for the three years ended December 31, 1997 . . 22 Consolidated Statement of Cash Flows for the three years ended December 31, 1997 23 Consolidated Statement of Stockholders' Equity for the three years ended December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 25 Financial Statement Schedules: For the three years ended December 31, 1997 Schedule II - Valuation and Qualifying Accounts. . . . . . . . . . . . . . 43
ITEM 9: DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Compaq Computer Corporation In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Compaq Computer Corporation and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /S/ PRICE WATERHOUSE LLP - ------------------------ PRICE WATERHOUSE LLP Houston, Texas January 21, 1998, except as to Note 11, which is as of January 26, 1998
COMPAQ COMPUTER CORPORATION CONSOLIDATED BALANCE SHEET December 31, In millions, except par value 1997 1996 ================================================================================================ ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,418 $ 3,008 Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 344 1,073 Accounts receivable, less allowance of $243 and $247. . . . . . . . . . . . . 2,891 3,718 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,570 1,267 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595 836 Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 187 ------- ------- Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,017 10,089 Property, plant and equipment, less accumulated depreciation . . . . . . . . . 1,985 1,753 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629 489 ------- ------- $14,631 $12,331 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,837 $ 2,098 Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 533 Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 2,170 2,110 ------- ------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 5,202 4,741 ------- ------- Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 300 ------- ------- Commitments and contingencies (Note 10) Stockholders' equity: Preferred stock, $.01 par value (authorized: 10 million shares; issued: none) Common stock and capital in excess of $.01 par value (authorized: 3 billion shares; issued and outstanding: 1,519 million shares at December 31, 1997 and 1,492 million shares at December 31, 1996). . . . . . . . . . . . . . . . . 2,096 1,779 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,333 5,511 ------- ------- Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . 9,429 7,290 ------- ------- $14,631 $12,331 ======= ======= The accompanying notes are an integral part of these financial statements.
COMPAQ COMPUTER CORPORATION CONSOLIDATED STATEMENT OF INCOME Year ended December 31, In millions, except per share amounts 1997 1996 1995 ========================================================================================= Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,584 $20,009 $16,675 Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . 17,833 14,855 12,291 -------- ------- ------- 6,751 5,154 4,384 -------- ------- ------- Selling, general and administrative expense . . . . . . . . . 2,947 2,507 2,186 Research and development costs. . . . . . . . . . . . . . . . 817 695 552 Purchased in-process technology . . . . . . . . . . . . . . . 208 - 241 Restructuring charge. . . . . . . . . . . . . . . . . . . . . - 52 - Merger-related costs. . . . . . . . . . . . . . . . . . . . . 44 - - Other income and expense, net . . . . . . . . . . . . . . . . (23) 17 79 -------- ------- ------- 3,993 3,271 3,058 -------- ------- ------- Income before provision for income taxes. . . . . . . . . . . 2,758 1,883 1,326 Provision for income taxes. . . . . . . . . . . . . . . . . . 903 565 433 -------- ------- ------- Net income. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,855 $ 1,318 $ 893 ======== ======= ======= Earnings per common share: Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.23 $ 0.90 $ 0.62 ======== ======= ======= Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.19 $ 0.87 $ 0.60 ======== ======= ======= Shares used in computing earnings per common share: Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,505 1,472 1,442 ======== ======= ======= Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,564 1,516 1,492 ======== ======= ======= The accompanying notes are an integral part of these financial statements.
COMPAQ COMPUTER CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31, In millions 1997 1996 1995 ========================================================================================= Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 1,855 $ 1,318 $ 893 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . . . . . 545 483 384 Provision for bad debts. . . . . . . . . . . . . . . . . . 19 160 47 Deferred income taxes. . . . . . . . . . . . . . . . . . . 202 (405) (24) Purchased in-process technology. . . . . . . . . . . . . . 208 - 241 Restructuring charge . . . . . . . . . . . . . . . . . . . - 52 - Changes in operating assets and liabilities: Accounts receivable. . . . . . . . . . . . . . . . . . . 614 (228) (910) Inventories. . . . . . . . . . . . . . . . . . . . . . . (335) 1,014 (144) Other current assets . . . . . . . . . . . . . . . . . . 63 34 (9) Accounts payable . . . . . . . . . . . . . . . . . . . . 756 562 479 Income taxes payable . . . . . . . . . . . . . . . . . . (319) 131 (66) Other current liabilities. . . . . . . . . . . . . . . . 80 445 142 -------- -------- ------- Net cash provided by operating activities. . . . . . . . . 3,688 3,566 1,033 -------- -------- ------- Cash flows from investing activities: Purchases of property, plant and equipment, net. . . . . . (729) (484) (565) Purchases of short-term investments. . . . . . . . . . . . (2,405) (1,401) - Proceeds from short-term investments . . . . . . . . . . . 3,134 328 - Acquisition of businesses, net of cash acquired. . . . . . (268) (22) (318) Other, net . . . . . . . . . . . . . . . . . . . . . . . . (31) (75) (29) -------- -------- ------- Net cash used in investing activities. . . . . . . . . . . (299) (1,654) (912) -------- -------- ------- Cash flows from financing activities: Repayment of long-term debt. . . . . . . . . . . . . . . . (293) - - Issuance of common stock pursuant to stock option plans. . 188 131 123 Tax benefit associated with stock options. . . . . . . . . 156 91 65 Other, net . . . . . . . . . . . . . . . . . . . . . . . . (37) - - -------- -------- ------- Net cash provided by financing activities. . . . . . . . . 14 222 188 -------- -------- ------- Effect of exchange rate changes on cash and cash equivalents 7 21 (42) -------- -------- ------- Net increase in cash and cash equivalents. . . . . . . . . 3,410 2,155 267 Cash and cash equivalents at the beginning of the year . . . 3,008 853 586 -------- -------- ------- Cash and cash equivalents at the end of the year . . . . . . $ 6,418 $ 3,008 $ 853 ======== ======== ======= SUPPLEMENTAL CASH FLOW INFORMATION Year ended December 31, In millions. . . . . . . . . . . . . 1997 1996 1995 ========================================================================================= Interest paid. . . . . . . . . . . . . . . . . . . . . . . . $ 164 $ 106 $ 113 Income taxes paid. . . . . . . . . . . . . . . . . . . . . . $ 804 $ 953 $ 560 The accompanying notes are an integral part of these financial statements.
COMPAQ COMPUTER CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Common Stock ------------------------------ Par Value Number of and Capital Retained In millions Shares in Excess of Par Earnings Total ============================================================================================== Balance, December 31, 1994. . . . . . . . 1,427 $ 1,341 $ 3,303 $4,644 Issuance pursuant to stock option plans . 33 123 - 123 Tax benefit associated with stock options - 65 - 65 Other . . . . . . . . . . . . . . . . . . (2) 14 18 32 Net income. . . . . . . . . . . . . . . . - - 893 893 ---------- ------------------ ---------- ------- Balance, December 31, 1995. . . . . . . . 1,458 1,543 4,214 5,757 Issuance pursuant to stock option plans . 34 131 - 131 Tax benefit associated with stock options - 91 - 91 Other . . . . . . . . . . . . . . . . . . - 14 (21) (7) Net income. . . . . . . . . . . . . . . . - - 1,318 1,318 ---------- ------------------ ---------- ------- Balance, December 31, 1996. . . . . . . . 1,492 1,779 5,511 7,290 Issuance pursuant to stock option plans . 30 188 - 188 Tax benefit associated with stock options - 156 - 156 Other . . . . . . . . . . . . . . . . . . (3) (27) (33) (60) Net income. . . . . . . . . . . . . . . . - - 1,855 1,855 ---------- ------------------ ---------- ------- Balance, December 31, 1997. . . . . . . . 1,519 $ 2,096 $ 7,333 $9,429 ========== ================== ========== ======= The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS. Founded in 1982, Compaq Computer Corporation is a worldwide information technology company and is the largest global supplier of personal computers. Compaq develops and markets hardware, software, solutions and services, including industry-leading enterprise computing solutions, fault-tolerant business-critical solutions, networking and communication products, commercial desktop and portable products and consumer PCs. Compaq products are sold and supported in more than 100 countries through a network of authorized Compaq marketing partners. Compaq markets its products primarily to business, home, government, and education customers. References to the "Company" mean Compaq and its subsidiaries. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Compaq and its subsidiaries. All significant intercompany transactions have been eliminated. ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. Cash equivalents primarily include money market instruments, commercial paper and other investments having maturities of three months or less at date of acquisition. Short-term investments include certificate of deposits, commercial paper and other investments having maturities longer than three months at date of acquisition. For reporting purposes, such cash equivalents and short-term investments are stated at cost plus accrued interest which approximates fair value. The total amount of time deposits outstanding at December 31, 1997 included in cash and cash equivalents was $707 million. INVENTORIES. Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out basis. Inventories at December 31, 1997 and 1996 were comprised of raw material and work-in progress of $767 million and $634 million, and finished goods of $803 million and $633 million, respectively. PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost. Major renewals and improvements are capitalized; minor replacements, maintenance and repairs are charged to current operations. Depreciation is computed by applying the straight-line method over the estimated useful lives of the related assets, which are 30 years for buildings and range from three to ten years for machinery and equipment. Leasehold improvements are amortized over the shorter of the useful life of the improvement or the life of the related lease. LONG-LIVED ASSETS. Compaq reviews for the impairment of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Compaq has not identified any such impairment losses. SALES RECOGNITION. Compaq recognizes sales at the time products are shipped to its customers. Provision is made currently for estimated product returns and price protection which may occur under programs Compaq has with its customers. Compaq provides for the estimated cost that may be incurred for post-sales support and product warranties upon shipment. When other significant obligations remain after products are delivered, revenue is recognized only after such obligations are fulfilled. Product support and other revenues are recognized ratably over the contractual period or as the services are provided. ADVERTISING COSTS. Advertising costs are charged to operations when incurred. The cost of direct-response advertising is not significant. Advertising expenses for 1997, 1996 and 1995 were $223 million, $175 million and $224 million, respectively. FOREIGN CURRENCY. Compaq's foreign subsidiaries (other than those acquired in the merger with Tandem Computers Incorporated-Note 2) have the U.S. dollar designated as their functional currency. Financial statements of these foreign subsidiaries are translated to U.S. dollars for consolidation purposes using current rates of exchange for monetary assets and liabilities and historical rates of exchange for nonmonetary assets and related elements of expense. Sales and other expense elements are translated at rates that approximate the rates in effect on the transaction dates. Translation gains and losses are included in Compaq's consolidated statement of income. The foreign subsidiaries acquired in the merger with Tandem have designated the local currency as their functional currency. For these subsidiaries, the assets and liabilities are translated into U.S. dollars for consolidation purposes at current exchange rates. Sales and other expense elements are translated at rates that approximate the rates in effect on the transaction dates. To date all ongoing adjustments resulting from the process of translating such subsidiaries' financial statements into U.S. dollars have not been significant and have been accumulated and recorded within retained earnings. INCOME TAXES. The provision for income taxes is computed based on the pretax income included in the Consolidated Statement of Income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. EARNINGS PER COMMON SHARE. Compaq adopted Statement of Financial Accounting Standard No. 128 ("FAS 128"), Earnings Per Share beginning with Compaq's fourth quarter of 1997. All prior period earnings per common share data have been restated to conform to the provisions of this statement. Basic earnings per common share is computed using the weighted average number of shares outstanding. Diluted earnings per common share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributed to outstanding options to purchase common stock. Incremental shares of 59 million, 44 million and 50 million in 1997, 1996 and 1995 respectively, were used in the calculation of diluted earnings per common share. Options to purchase 9 million, 28 million and 1 million shares of common stock in 1997, 1996 and 1995, respectively, were not included in the computation of diluted earnings per common share because the option exercise price was greater than the average market price of the common stock. COMPREHENSIVE INCOME. Compaq adopted Statement of Financial Accounting Standard No. 130 ("FAS 130"), Comprehensive Income beginning with Compaq's fourth quarter of 1997. The components of comprehensive income which are excluded from net income are not significant, individually or in the aggregate, and therefore no separate statement of comprehensive income has been presented. STOCK-BASED COMPENSATION. Compaq measures compensation expense for its stock-based employee compensation plans using the intrinsic value method and has provided in Note 8 pro forma disclosures of the effect on net income and earnings per share as if the fair value-based method had been applied in measuring compensation expense. RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform to the 1997 presentation. NOTE 2. ACQUISITIONS On August 29, 1997, Compaq merged with Tandem Computers Incorporated ("Tandem") in a stock-for-stock transaction accounted for as a pooling of interests. Tandem provides its customers with reliable, scaleable, fault-tolerant enterprise computer systems and client/server solutions. In connection with the merger, Compaq issued 126 million shares of common stock, based upon an exchange ratio of 1.05 shares of Compaq common stock for each share of Tandem common stock. Merger-related costs of $44 million are reflected in the Consolidated Statement of Income as a result of the transaction. The financial data included in these financial statements have been restated to reflect the merger with Tandem. There were no material transactions between Compaq and Tandem during the periods prior to the merger. The consolidated financial data for the years ended December 31, 1996 and 1995 includes the results of Tandem for the years ended September 30, 1996 and 1995. For 1997, Tandem's fiscal year end was changed from September 30 to December 31. As permitted by Securities and Exchange Commission regulations, Tandem's three-month period ended December 31, 1996 has been omitted from the Consolidated Statement of Income and recorded as an adjustment to retained earnings in 1997. Tandem's sales and net income were $436 million and $12 million, respectively, for that period. Tandem also generated a $40 million increase in cash and cash equivalents during the quarter ended December 31, 1996. The following information presents certain income statement data of the separate companies for the periods preceding the acquisition:
Six months ended, Year ended, ------------------ In millions June 30, 1997 1996 1995 ========================================================== Sales: Compaq . . . . . . $ 9,817 $18,109 $14,755 Tandem . . . . . . 970 1,900 1,920 ------------------ -------- -------- $ 10,787 $20,009 $16,675 ------------------ -------- -------- Net Income (Loss): Compaq . . . . . . $ 601 $ 1,313 $ 789 Tandem . . . . . . 70 (22) 107 Adjustments. . . . - 27 (3) ------------------ -------- -------- $ 671 $ 1,318 $ 893 ================== ======== ========
The consolidated financial results presented above include adjustments to Tandem's deferred tax valuation allowance related to realization of certain deferred tax assets as a combined entity with Compaq. In May 1997, Compaq completed a tender offer for Microcom, Inc., a manufacturer of remote access technologies and solutions. The aggregate purchase price of $288 million consisted of $278 million in cash and the assumption of certain employee stock options. The transaction was accounted for as a purchase. Accordingly, the results of operations of the acquired business and the fair market values of the acquired assets and liabilities were included in Compaq's financial statements from the date of acquisition. The aggregate purchase price has been allocated to the assets and liabilities acquired. The aggregate purchase price included $208 million, representing the value of in-process technology that had not yet reached technological feasibility and had no alternative future use. This amount was expensed in Compaq's Consolidated Statement of Income during 1997. In addition, the aggregate purchase price included approximately $58 million representing purchased technology and other identifiable intangibles which are being amortized over a three year period. Pro forma statements of operations reflecting the acquisition of Microcom are not shown as they would not differ materially from reported results. During 1995, Compaq acquired two companies that develop, manufacture, and supply fast ethernet hubs, switches and related products, and a small software company. The aggregate purchase price of $386 million consisted of the issuance of 1.2 million shares of Compaq common stock, $359 million in cash, of which $22 million was paid in 1996, and the assumption of certain stock options. The acquisitions were accounted for as purchases. The aggregate purchase price included $241 million which represented the value of in-process technology that had not yet reached technological feasibility and had no alternative future use. This amount was expensed in Compaq's Consolidated Statement of Income during 1995. In addition, the aggregate purchase price included $126 million representing purchased technology, other identifiable intangibles and goodwill which are being amortized over a three to seven year period. NOTE 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are summarized below:
December 31, In millions 1997 1996 ==================================================== Land . . . . . . . . . . . . . . . . $ 185 $ 212 Buildings and leasehold improvements 1,076 1,002 Machinery and equipment. . . . . . . 2,392 2,010 Construction-in-process and other. . 373 272 ------ ------ 4,026 3,496 Less accumulated depreciation. . . . 2,041 1,743 ------ ------ $1,985 $1,753 ====== ======
Depreciation expense totaled $447 million, $387 million and $326 million in 1997, 1996 and 1995, respectively. NOTE 4. OTHER CURRENT LIABILITIES The estimated costs which may be incurred for post-sales support and product warranties of $450 million and $478 million were included in other current liabilities at December 31, 1997 and 1996, respectively. During 1996, Tandem took a restructuring action including a reduction in headcount, consolidation of facilities and disposal of assets. The restructuring action resulted in a charge to income of $52 million. No significant restructuring accruals remain at December 31, 1997. NOTE 5. CREDIT AGREEMENTS AND FINANCING ARRANGEMENTS At December 31, 1996, Compaq had long-term debt consisting of $150 million 6 1/2% Senior Notes Due March 15, 1999 and $150 million 7 1/4% Senior Notes Due March 15, 2004. In May 1997, Compaq completed a cash tender offer for substantially all of these outstanding notes. The remaining amount outstanding is included in other current liabilities. On September 22, 1997, Compaq entered into a five-year $3 billion unsecured revolving credit facility and a one-year $1 billion unsecured revolving credit facility. In conjunction with the closing of the new facilities, Compaq retired two existing secured revolving credit facilities totaling $1.5 billion. There were no borrowings outstanding under these facilities in 1997 and 1996. NOTE 6. OTHER INCOME AND EXPENSE Other income and expense consisted of the following components:
Year ended December 31, In millions 1997 1996 1995 ========================================================================= Interest and dividend income. . . . . . . . . . . $(266) $(126) $ (71) Interest (income) expense associated with hedging (4) (3) 18 Other interest expense. . . . . . . . . . . . . . 168 106 94 Currency losses, net. . . . . . . . . . . . . . . 31 14 33 Other, net. . . . . . . . . . . . . . . . . . . . 48 26 5 ------ ------ ------ $ (23) $ 17 $ 79 ====== ====== ======
NOTE 7. PROVISION FOR INCOME TAXES The components of income before provision for income taxes were as follows:
Year ended December 31, In millions 1997 1996 1995 =========================================================== Domestic. . . . . . . . . . . . . . $1,789 $ 929 $ 504 Foreign . . . . . . . . . . . . . . 969 954 822 ------ ------ ------ $2,758 $1,883 $1,326 ====== ====== ======
The provision for income taxes charged to operations was as follows: Year ended December 31, In millions 1997 1996 1995 ========================================================== Current tax expense U.S. federal. . . . . . . . . . . $ 430 $ 672 $ 274 State and local . . . . . . . . . 30 34 12 Foreign . . . . . . . . . . . . . 241 238 183 ----- ------ ------ Total current . . . . . . . . . 701 944 469 ----- ------ ------ Deferred tax expense U.S. federal. . . . . . . . . . . 194 (332) (8) State and local . . . . . . . . . 2 (19) (2) Foreign . . . . . . . . . . . . . 6 (28) (26) ----- ------ ------ Total deferred. . . . . . . . . 202 (379) (36) ----- ------ ------ Total provision . . . . . . . . $ 903 $ 565 $ 433 ===== ====== ======
Total income tax expense for 1997, 1996 and 1995 resulted in effective tax rates of 33%, 30% and 33%, respectively. The reasons for the differences between these effective tax rates and the U.S. statutory rate of 35% are as follows:
Year ended December 31, In millions 1997 1996 1995 ====================================================================== Tax expense at U.S. statutory rate . . . . . . $ 965 $ 659 $ 464 Foreign tax effect, net. . . . . . . . . . . . (88) (105) (73) Non-deductible purchased in-process technology 73 - 85 Other, net . . . . . . . . . . . . . . . . . . (47) 11 (43) ------ ------ ------ $ 903 $ 565 $ 433 ====== ====== ======
In connection with Compaq's 1997 and 1995 acquisitions, Compaq recorded a $208 million and a $241 million non-recurring, non-tax-deductible charge for purchased in-process technology, respectively. In connection with the Tandem merger, Compaq incurred $44 million of non-recurring, non-tax-deductible merger expenses. These non-taxable charges and expenses resulted in an increase to the 1997 and 1995 effective tax rate from 30% to 33% and 28% to 33%, respectively. Compaq benefits from a tax holiday in Singapore which expires in 2001, with a potential extension to August 2004 if certain cumulative investment levels and other conditions are met. Compaq has determined that the undistributed earnings of its Singaporean manufacturing subsidiary would be reinvested indefinitely. As a result of this determination, no provision for U.S. income tax is reflected in Compaq's accounts for the earnings of this subsidiary. These earnings would become subject to U.S. tax if they were actually or deemed to be remitted to Compaq as dividends or if Compaq should sell its stock in this subsidiary. Compaq estimates an additional tax provision of approximately $690 million would be required at such time if the full amount of these accumulated earnings became subject to U.S. tax. Deferred tax assets (liabilities) at December 31, 1997 and 1996 are comprised of the following:
December 31, In millions 1997 1996 ========================================================================================= Post sales support and warranty accruals. . . . . . . . . . . . . . . . $ 154 $ 159 Receivable allowances . . . . . . . . . . . . . . . . . . . . . . . . . 353 239 Inventory adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 99 137 Capitalized research and development costs. . . . . . . . . . . . . . . 95 - Loss carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . . 50 121 Credit carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . 119 107 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 282 ------- ------- Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . 1,056 1,045 ------- ------- Difference arising from different tax and financial reporting year ends (254) - Capitalized software. . . . . . . . . . . . . . . . . . . . . . . . . . (64) (54) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73) (69) ------- ------- Gross deferred tax liabilities. . . . . . . . . . . . . . . . . . . (391) (123) ------- ------- Deferred tax asset valuation allowance. . . . . . . . . . . . . . . . . (134) (121) ------- ------- $ 531 $ 801 ======= =======
Net operating loss carryforwards will generally expire between 2002 through 2004. Tax credit carryforwards will generally expire between 1998 through 2011. NOTE 8. STOCKHOLDERS' EQUITY AND EMPLOYEE BENEFIT PLANS Equity incentive plans - At December 31, 1997, there were 230,765,000 shares of common stock reserved by the Board of Directors for issuance under Compaq's employee stock option plans. Options are generally granted at the fair market value of the common stock at the date of grant and generally vest over four to five years. Options granted under the plans must be exercised not later than ten years from the date of grant. Options on 68,415,000, 70,334,000 and 74,010,000 shares were exercisable at December 31, 1997, 1996 and 1995 with a weighted average exercise price of $6.53, $5.57 and $4.82, respectively. Compaq has a Stock Option Plan for Non-Employee Directors (the "Director Plan"). At December 31, 1997, there were 4,887,000 shares of common stock reserved for issuance under the Director Plan. Pursuant to the terms of the plan, each non-employee director is entitled to receive options to purchase common stock upon initial appointment to the Board (initial grants) and upon subsequent reelection to the Board (annual grants). Initial grants are exercisable during the period beginning one year after initial appointment to the Board and ending ten years after the date of grant. Annual grants vest over two years and are exercisable thereafter until the tenth anniversary of the date of grant. Both initial grants and annual grants have an exercise price equal to the fair market value of Compaq's common stock on the date of grant. Additionally, pursuant to the terms of the Director Plan, non-employee directors may elect to receive stock options in lieu of all or a portion of the annual retainer to be earned. Such options are granted at 50% of the price of Compaq's common stock at the date of grant and are exercisable during the period beginning one year after the grant date and ending ten years after the grant date. Options on 2,354,000, 2,714,000 and 2,310,000 shares were exercisable under the Director Plan at December 31, 1997, 1996 and 1995 with a weighted average exercise price of $6.36, $4.59 and $3.43, respectively. The expense resulting from options granted at 50% of the price of Compaq's common stock at the grant date is charged to operations over the vesting period. The following table summarizes activity under the stock option plans for each of the three years ended December 31, 1997:
Shares Weighted Average In Thousands Price Per Share Price Per Share ============================================================================================= OPTIONS OUTSTANDING, DECEMBER 31, 1994 166,966 $ 4.71 Options granted . . . . . . . . . . . 36,334 $1.30 - $18.81 9.61 Options lapsed or canceled. . . . . . (7,208) 6.72 Options exercised . . . . . . . . . . (31,796) 0.20 - 18.10 3.51 -------------- OPTIONS OUTSTANDING, DECEMBER 31, 1995 164,296 5.94 Options granted . . . . . . . . . . . 47,406 4.71 - 22.39 14.11 Options lapsed or canceled. . . . . . (15,620) 8.61 Options exercised . . . . . . . . . . (32,720) 0.38 - 13.46 3.50 -------------- OPTIONS OUTSTANDING, DECEMBER 31, 1996 163,362 8.53 Options granted . . . . . . . . . . . 46,184 2.55 - 37.38 27.17 Options lapsed or canceled. . . . . . (9,346) 11.57 Options exercised . . . . . . . . . . (28,770) 0.79 - 25.96 6.26 -------------- OPTIONS OUTSTANDING, DECEMBER 31, 1997 171,430 13.63 ==============
There were 64,117,000, 100,664,000 and 130,760,000 shares available for grant under the plans at December 31, 1997, 1996 and 1995, respectively. The following table summarizes significant ranges of outstanding and exercisable options at December 31, 1997:
Options Outstanding Options Exercisable -------------------------------------- ----------------------- Weighted Weighted Weighted Average Average Average Ranges of Shares Remaining Exercise Shares Exercise Exercise Prices In thousands Life in Years Price In thousands Price ================================================================================== under $5.00. . 42,682 4.2 $ 3.13 39,348 $ 3.02 5.01 to 10.00. 42,588 7.3 8.59 18,599 8.58 10.01 to 15.00 18,880 7.8 12.38 6,897 12.29 15.01 to 20.00 29,202 8.8 15.88 5,575 16.10 20.01 to 25.00 970 8.7 22.01 191 22.32 25.01 to 30.00 27,771 9.9 28.20 99 26.34 over $30.00 . 9,337 9.7 35.96 60 34.23
Prior to the merger with Compaq, Tandem had an employee stock purchase plan which entitled employees to purchase Tandem common stock at 85% of fair market value as of the first or last trading day for each quarterly participating period. Employees purchased 726,000, 1,352,000 and 920,000 shares as converted into Compaq's common stock for aggregate proceeds of $9 million, $11 million and $11 million, respectively in 1997, 1996 and 1995. The weighted average fair value per share of stock based compensation issued during 1997, 1996 and 1995 was $9.74, $6.55 and $5.09, respectively. The fair value was estimated using the Black-Scholes model with the following weighted average assumptions:
1997 1996 1995 ============================================= Expected life (in years) 4 5 5 Interest rate. . . . . . 6.0% 6.1% 5.8% Volatility . . . . . . . 33.3% 44.0% 46.4% Dividend yield . . . . . 0.2% - -
Stock based compensation costs would have reduced pretax income by $91 million, $48 million and $12 million in 1997, 1996 and 1995 ($59 million, $31 million and $8 million after tax and $.04, $.02 and $.01 per share) if the fair values of such compensation in that year had been recognized as compensation expense on a straight-line basis over the vesting period of the grant. The pro forma effect on net income for 1997, 1996 and 1995 is not representative of the pro forma effect on net income in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995. Investment Plans - Compaq has investment plans available to all domestic employees and intended to qualify as deferred compensation plans under Section 401(k) of the Internal Revenue Code of 1986. Compaq employees may contribute to the plan up to 14% of their salary with a yearly maximum not to exceed the maximum allowable by the Internal Revenue Service. Compaq will match employee contributions for an amount up to 6% of each employee's base salary. Tandem employees may contribute up to 18% of their salary with a company match up to 2.5% of the employees' earnings. Contributions are invested at the direction of the employee in one or more funds or can be directed to purchase common stock of Compaq at fair market value. Company contributions generally vest over three years although Company contributions for those employees having five years of service vest immediately. Company contributions are charged to expense over their vesting period. Amounts charged to expense were $48 million, $36 million and $30 million in 1997, 1996 and 1995, respectively. Incentive Compensation Plan - Compaq has an incentive compensation plan for the majority of its employees. Payments under the plan are based on 6% of net income from operations, as defined, and are made semiannually. The amount expensed under the plan was $109 million, $76 million and $59 million in 1997, 1996 and 1995, respectively. Stock Splits - On July 28, 1997 and January 20, 1998, Compaq effected a five-for-two and a two-for-one stock split, respectively, both in the form of a stock dividend. Shareholders of record as of July 14, 1997 and December 31, 1997 received three additional shares of common stock for every two shares they owned and one additional share of common stock for every share they owned on those dates, respectively. Share and per share data for all periods presented herein have been adjusted to give effect to both splits. Dividends - On October 16, 1997, Compaq announced that the Board of Directors approved a cash dividend of $0.015 per share of common stock, or $23 million, to shareholders of record as of December 31, 1997. Compaq also made available to stockholders a dividend reinvestment plan whereby dividends can be directly reinvested in Compaq stock. Direct Stock Purchase Plan - In 1997, Compaq announced a direct stock purchase plan whereby investors can purchase stock directly from the Company. Amounts purchased under this plan in 1997 have not been significant. NOTE 9. CERTAIN MARKET AND GEOGRAPHICAL DATA The Company has subsidiaries in various foreign countries that manufacture and sell the Company's products in their respective geographic areas. Summary information with respect to the Company's geographic operations in 1997, 1996 and 1995 follows:
United States Other In millions And Canada Europe Countries Eliminations Consolidated ================================================================================================ 1997 Sales to customers. . . . . $ 13,431 $ 7,850 $ 3,303 $ - $ 24,584 Intercompany transfers. . . 2,017 311 1,856 (4,184) - -------------- ------- ---------- -------------- -------------- $ 15,448 $ 8,161 $ 5,159 $ (4,184) $ 24,584 ============== ======= ========== ============== ============== Income from operations. . . $ 1,740 $ 771 $ 336 $ 45 $ 2,892 ============== ======= ========== ============== Corporate expenses, net (1) (134) -------------- Pretax income $ 2,758 ============== Identifiable assets . . . . $ 4,005 $ 2,223 $ 1,556 $ 83 $ 7,867 ============== ======= ========== ============== General corporate assets 6,764 -------------- Total assets $ 14,631 ============== 1996 Sales to customers. . . . . $ 10,654 $ 6,480 $ 2,875 $ - $ 20,009 Intercompany transfers. . . 2,467 380 1,674 (4,521) - -------------- ------- ---------- -------------- -------------- $ 13,121 $ 6,860 $ 4,549 $ (4,521) $ 20,009 ============== ======= ========== ============== ============== Income from operations. . . $ 1,162 $ 396 $ 332 $ 18 $ 1,908 ============== ======= ========== ============== Corporate expenses, net (25) -------------- Pretax income $ 1,883 ============== Identifiable assets . . . . $ 4,532 $ 2,241 $ 1,570 $ (93) $ 8,250 ============== ======= ========== ============== General corporate assets 4,081 -------------- Total assets $ 12,331 ============== 1995 Sales to customers. . . . . $ 8,256 $ 5,890 $ 2,529 $ - $ 16,675 Intercompany transfers. . . 2,009 330 1,681 (4,020) - -------------- ------- ---------- -------------- -------------- $ 10,265 $ 6,220 $ 4,210 $ (4,020) $ 16,675 ============== ======= ========== ============== ============== Income from operations. . . $ 687 $ 740 $ 295 $ 8 $ 1,730 ============== ======= ========== ============== Corporate expenses, net (1) (404) -------------- Pretax income $ 1,326 ============== Identifiable assets . . . . $ 4,980 $ 2,215 $ 1,686 $ (97) $ 8,784 ============== ======= ========== ============== General corporate assets 853 -------------- Total assets $ 9,637 ============== (1) Includes a $208 million and a $241 million non-recurring, non-tax-deductible charge for purchased in-process technology in connection with acquisitions in 1997 and 1995, respectively, and $44 million of non-tax-deductible merger-related costs incurred in 1997.
NOTE 10. COMMITMENTS, CONTINGENCIES, FINANCIAL INSTRUMENTS AND FACTORS THAT MAY AFFECT FUTURE OPERATIONS Derivative financial instruments and fair value of financial instruments Compaq utilizes primarily forward contracts and purchased foreign currency options to reduce its exposure to potentially adverse changes in foreign currency exchange rates. Compaq does not hold or issue financial instruments for trading purposes nor does it hold or issue interest rate or leveraged derivative financial instruments. Compaq's program to reduce currency exposure associated with the net monetary assets of Compaq's international subsidiaries using the U.S. dollar as the functional currency includes agreements to exchange various foreign currencies for U.S. dollars. At December 31, 1997 and 1996, such agreements to sell foreign currencies included forward contracts aggregating $1.4 billion and $1.2 billion, respectively. Generally, gains and losses associated with currency rate changes on these forward contracts are recorded currently to income and are reflected in accounts receivable or other current liabilities in Compaq's balance sheet, while the interest element is recognized over the life of each contract. The amount recorded in the balance sheet approximates the fair value of such contracts at December 31, 1997 and 1996. The maturity dates of the forward contracts which were outstanding at December 31, 1997 extended from two days to six months. From time to time, Compaq hedges a portion of its anticipated but not firmly committed sales of its international marketing subsidiaries using purchased foreign currency options. Realized and unrealized gains and the net premiums on these options are deferred and recognized as a component of sales in the same period that the related sales occur. Option contracts aggregating $311 million and $127 million were outstanding at December 31, 1997 and 1996, respectively, related to the hedge of such sales for a nine-month period. The unrealized gains deferred on these contracts were not material. In addition, Compaq frequently utilizes forward contracts to protect Compaq from the effects of currency fluctuations on anticipated but not firmly committed sales which are expected to occur within a three-month period. These forward contracts generally do not extend beyond the end of any quarter or year. Any gains or losses and the interest element on these forward contracts are recognized as a component of sales during each quarter. Compaq may, from time to time, hedge commitments for inventory purchases and capital expenditures and other items constituting firm commitments. Any gain or loss, if realized, or cost related to these contracts are recorded as part of inventory or capital items upon acquisition. At December 31, 1997 and 1996, forward contracts related to these commitments totaled $100 million and $92 million, respectively. In the event of a failure to honor one of these forward contracts by one of the banks with which Compaq has contracted, management believes any loss would be limited to the exchange rate differential from the time the contract was made until the time it was compensated. To the extent Compaq has option contracts outstanding, the amount of any loss resulting from a breach of contract would be limited to the amount of premiums paid for the options and the unrealized gain, if any, related to such contracts. Compaq enters into various other types of financial instruments in the normal course of business. Fair values for certain financial instruments are based on quoted market prices. For other financial instruments, fair values are based on the appropriate pricing models using current market information. The amounts ultimately realized upon settlement of these financial instruments will depend on actual market conditions during the remaining life of the instruments. Fair values of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and other current liabilities reflected in the December 31, 1997 and 1996 consolidated balance sheets approximate carrying value at these dates. The fair value of Compaq's long-term debt at December 31, 1996, was estimated to approximate the carrying value. Concentration of credit risk Compaq's cash, cash equivalents, short-term investments and accounts receivable are subject to potential credit risk. Compaq's cash management and investment policies restrict investments to low risk, highly-liquid securities and Compaq performs periodic evaluations of the relative credit standing of the financial institutions with which it deals. Compaq distributes products primarily through third-party resellers and as a result, maintains individually significant accounts receivable balances from various major resellers. If the financial condition and operations of these resellers deteriorate, Compaq's operating results could be adversely affected. One customer accounted for 11% of sales for 1997 and 12% of accounts receivable at December 31, 1997. During this period, no other customer of Compaq accounted for 10% or more of sales. In 1997, Compaq's five largest resellers represented approximately 25% of Compaq's 1997 sales. The receivable balances from Compaq's five largest resellers represented approximately 32% of accounts receivable at December 31, 1997. Compaq generally has experienced longer accounts receivable cycles in its emerging markets, in particular Asia/Pacific and Latin America, when compared to its U.S. and European markets. In the event that accounts receivable cycles in these developing markets lengthen further or one or more of Compaq's larger resellers in these regions fail, Compaq's operating results could be adversely affected. Contingencies Certain of Compaq's resellers finance a portion of their inventories through third-party finance companies. Under the terms of the financing arrangements, Compaq may be required, in limited circumstances, to repurchase certain products from the finance companies. Additionally, Compaq has on occasion guaranteed a portion of certain resellers' outstanding balances with third-party finance companies and financial institutions. Guarantees under these and other arrangements were not significant at December 31, 1997 and 1996, respectively. Compaq offers lease financing of selected products to its customers. Sales-type leases are originated by Compaq and either sold on a nonrecourse basis or used as collateral for borrowings from certain third-party financial institutions. Generally, Compaq receives all proceeds at the inception of the lease. The third-party financial institution assumes the credit risk and the administrative responsibility for the collection of the lease receivables. In the event of a default by a lessee, the financial institutions' only recourse is generally limited to the collaterized computer equipment. Compaq may be required to use its "best efforts" to remarket the computer equipment. Factors that may affect future operations Compaq participates in a highly volatile industry that is characterized by fierce industry-wide competition for market share. Industry participants confront aggressive pricing practices, continually changing customer demand patterns, growing competition from well-capitalized high technology and consumer electronics companies, and rapid technological development carried out in the midst of legal battles over intellectual property rights. Compaq's operating results could be adversely affected should Compaq be unable to successfully integrate acquired entities, anticipate customer demand accurately, maintain short design cycles while meeting evolving industry performance standards, manage its product transitions, inventory levels and manufacturing processes efficiently, distribute its products quickly in response to customer demand, differentiate its products from those of its competitors or compete successfully in the markets for its new products. Significant numbers of components are purchased from single sources due to technology, availability, price, quality or other considerations. Key components and processes currently obtained from single sources include certain of Compaq's displays, microprocessors, application specific integrated circuits and other custom chips, and certain processes relating to construction of the plastic housing for Compaq's computers. In addition, new products introduced by Compaq often initially utilize custom components obtained from only one source until Compaq has evaluated whether there is a need for additional suppliers. In the event that a supply of a key single-sourced material process or component were delayed or curtailed, Compaq's ability to ship the related product in desired quantities and in a timely manner could be adversely affected. Compaq attempts to mitigate these risks by working closely with key suppliers on product plans, strategic inventories and coordinated product introductions. Litigation Compaq is subject to legal proceedings and claims which arise in the ordinary course of its business. Management does not believe that the outcome of any of those matters will have a material adverse effect on Compaq's consolidated financial position, operating results or cash flows. Lease commitments Compaq leases certain manufacturing and office facilities and equipment under noncancelable operating leases with terms from one to 30 years. Rent expense for 1997, 1996 and 1995 was $135 million, $128 million and $123 million, respectively. Compaq's minimum rental commitments under noncancelable operating leases at December 31, 1997 were: $107 million in 1998, $81 million in 1999, $62 million in 2000, $54 million in 2001, $45 million in 2002 and $236 million thereafter. NOTE 11. SUBSEQUENT EVENT On January 26, 1998, Compaq announced the execution of an agreement to acquire Digital Equipment Corporation. Under the terms of the transaction, shareholders of Digital will receive $30 in cash and 0.945 shares of Compaq common stock for each share of Digital stock. Compaq will issue approximately 150 million shares of Compaq common stock and $4.8 billion in cash. This transaction will be accounted for as a purchase. The transaction is subject to the approval of Digital's shareholders as well as clearance under antitrust laws and other customary closing conditions, and is expected to be completed in the second quarter of 1998. SELECTED QUARTERLY UNAUDITED FINANCIAL DATA (NOT COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS): The table below sets forth selected unaudited financial information for each quarter of the last two years.
1ST 2ND 3RD 4TH In millions, except per share amounts QUARTER QUARTER QUARTER QUARTER ============================================================================= 1997 Sales . . . . . . . . . . . . . . . . $ 5,272 $ 5,515 $ 6,474 $ 7,323 Gross margin. . . . . . . . . . . . . 1,417 1,537 1,777 2,020 Net income(1) . . . . . . . . . . . . 414 257 517 667 Earnings per common share(1)(2)(3) Basic . . . . . . . . . . . . . . . $ 0.28 $ 0.17 $ 0.34 $ 0.44 Diluted . . . . . . . . . . . . . . $ 0.27 $ 0.17 $ 0.33 $ 0.43 1996 Sales . . . . . . . . . . . . . . . . $ 4,626 $ 4,471 $ 4,947 $ 5,965 Gross margin. . . . . . . . . . . . . 1,098 1,155 1,306 1,595 Net income(1) . . . . . . . . . . . . 242 224 365 487 Earnings per common share(1)(2)(3) Basic . . . . . . . . . . . . . . . $ 0.17 $ 0.16 $ 0.25 $ 0.33 Diluted . . . . . . . . . . . . . . $ 0.16 $ 0.15 $ 0.24 $ 0.32 Earnings per common share are computed independently for each of the quarters presented and therefore may not sum to the totals for the year. All quarters have been restated to reflect the merger with Tandem. (1) Includes a $208 million ($0.13 per share) non-recurring, non-tax-deductible charge for purchased in-process technology in connection with the Microcom acquisition in the second quarter of 1997, $44 million ($0.03 per share) of expenses related to the Tandem merger in the third quarter of 1997 and a restructuring charge of $52 million ($0.02 per share) for Tandem in the second quarter of 1996. (2) The Company adopted FAS 128 in 1997. All prior period earnings per common share data have been restated to conform to the provisions of this statement. (3) All per common share data reflect the five-for-two stock split in July 1997 and the two-for-one stock split in January 1998.
PART III ITEMS 10 TO 13 INCLUSIVE. These items have been omitted in accordance with the general instructions to Form 10-K Annual Report. The Registrant will file with the Commission in March 1998, pursuant to Regulation 14A, a definitive proxy statement that will involve the election of directors and approval of the 1998 Stock Option Plan. The information required by these items will be included in such proxy statement and are incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this report: 1. Financial Statements. Report of Independent Accountants Consolidated Balance Sheet at December 31, 1997 and 1996 Consolidated Statement of Income for the three years ended December 31, 1997 Consolidated Statement of Cash Flows for the three years ended December 31, 1997 Consolidated Statement of Stockholders' Equity for the three years ended December 31, 1997 Notes to Consolidated Financial Statements Schedule II: Valuation and Qualifying Accounts. 2. Exhibits. Exhibits identified in parentheses below, on file with the Securities and Exchange Commission (SEC), are incorporated by reference as exhibits. Except as indicated, Compaq filed these documents with the SEC.
EXHIBIT NO. DESCRIPTION OF EXHIBITS - ------- ----------------------- 3.1 Restated Certificate of Amendment. 3.2 Bylaws (Exhibit No. 3.2 to Form 10-Q for the quarter ended September 30, 1997). 10.1 1982 Stock Option Plan, as amended (Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 1989 ("1989 Second Quarter Form 10-Q")). * 10.2 1985 Stock Option Plan (Exhibit 10.3 to Form 10-K for the year ended December 31, 1991 ("1991 Form 10-K")). * 10.3 1985 Executive and Key Employees Stock Option Plan, as amended (Exhibit 10.3 to 1989 Second Quarter Form 10-Q). * 10.4 1985 Nonqualified Stock Option Plan, as amended (Exhibit 10.4 to 1989 Second Quarter Form 10-Q). * 10.5 Forms of Stock Option Agreements relating to Exhibits 10.1 through 10.5 (Exhibit 10.6 to Form 10-K for the year ended December 31, 1987). * 10.6 1989 Equity Incentive Plan, as amended. * 10.7 Form of Stock Option Notice relating to Exhibit 10.6, as amended (Exhibit 10.7 to 1996 Form 10-K). * 10.8 1995 Equity Incentive Plan, as amended. * 10.9 Form of Stock Option Notice relating to Exhibit 10.8, as amended (Exhibit 10.9 to 1996 Form 10-K). * 10.10 Bonus Incentive Plan (Exhibit 10.11 to Form 10-K for the year ended December 31, 1995). * 10.11 Stock Option Plan for Non-Employee Directors, as amended. * 10.12 Forms of Stock Option Notice relating to Exhibit 10.11 (Exhibit 10.9 to 1996 Form 10-K). * 10.13 Employment Agreement dated as of January 1, 1992 between Compaq and Eckhard Pfeiffer (Exhibit 10.15 to 1991 Form 10-K). * 10.14 Form of letter agreement between Compaq and its executive officers (Exhibit 10.16 to 1991 Form 10-K). * 10.15 Deferred Compensation and Supplemental Savings Plan (Exhibit 4.1 to Registration Statement No. 333-42375 on Form S-8). * 10.16 First Amendment to Deferred Compensation and Supplemental Savings Plan (Exhibit 4.2 to Registration Statement No. 333-4275 on Form S-8). * 10.17 Form of employment agreement between Tandem Computers, Incorporated and Roel Pieper (Exhibit 10.1 to Tandem Computers Incorporated's Form 10-Q for the quarter ended June 30, 1995). * 10.18 $1,000,000,000 Credit Agreement dated as of September 22, 1997, among Compaq Computer Corporation, the banks signatory thereto and Bank of America National Trust and Savings Association, as Administrative Agent. 10.19 $3,000,000,000 Credit Agreement dated as of September 22, 1997, among Compaq Computer Corporation, the banks signatory thereto and Bank of America National Trust and Savings Association, as Administrative Agent. 21 Subsidiaries. 23 Consent of Price Waterhouse LLP, independent accountants. 27 Financial Data Schedule (EDGAR version only). * Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K. Current Report on Form 8-K filed January 22, 1997. Current Report on Form 8-K filed April 10, 1997. Current Report on Form 8-K filed April 16, 1997. Current Report on Form 8-K filed May 14, 1997. Current Report on Form 8-K filed June 24, 1997. Current Report on Form 8-K filed June 26, 1997. Current Report on Form 8-K filed July 1, 1997. Current Report on Form 8-K filed July 11, 1997. Current Report on Form 8-K filed September 3, 1997. Current Report on Form 8-K filed October 16, 1997. Current Report on Form 8-K filed November 21, 1997. Current Report on Form 8-K filed January 21, 1998. Current Report on Form 8-K filed January 27, 1998. Current Report on Form 8-K filed February 11, 1998. Compaq, the Compaq logo, ProLiant, Deskpro, Armada, Compaq Insight Manager, LTE, Presario, ProSignia and SmartStart are registered trademarks of Compaq Computer Corporation. CompaqCare is a registered service mark of Compaq Computer Corporation. WINDOWS NT is a trademark of Microsoft Corporation. Other product names mentioned herein may be trademarks or registered trademarks of their respective companies. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 17th day of February, 1998. Compaq Computer Corporation By: /s/ ECKHARD PFEIFFER ------------------------------- Eckhard Pfeiffer, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ---------------------------- --------------------------------- ----------------- President and Director February 17, 1998 /s/ ECKHARD PFEIFFER (principal executive officer) - ---------------------------- (Eckhard Pfeiffer) Senior Vice President February 17, 1998 and Chief Financial Officer /s/ EARL L. MASON (principal financial officer and - ---------------------------- (Earl L. Mason) principal accounting officer) Chairman of the February 17, 1998 /s/ BENJAMIN M. ROSEN Board of Directors - ---------------------------- (Benjamin M. Rosen) /s/ LAWRENCE T. BABBIO, JR. Director February 17, 1998 - ---------------------------- (Lawrence T. Babbio, Jr.) /s/ ROBERT TED ENLOE, III Director February 17, 1998 - ---------------------------- (Robert Ted Enloe, III) /s/ GEORGE H. HEILMEIER Director February 17, 1998 - ---------------------------- (George H. Heilmeier) /s/ GEORGE E.R. KINNEAR II Director February 17, 1998 - ---------------------------- (George E.R. Kinnear II) /s/ PETER N. LARSON Director February 17, 1998 - ---------------------------- (Peter N. Larson) /s/ KENNETH L. LAY Director February 17, 1998 - ---------------------------- (Kenneth L. Lay) /s/ THOMAS J. PERKINS Director February 17, 1998 - ---------------------------- (Thomas J. Perkins) /s/ KENNETH ROMAN Director February 17, 1998 - ---------------------------- (Kenneth Roman) /s/ LUCILLE S. SALHANY Director February 17, 1998 - ---------------------------- (Lucille S. Salhany)
SCHEDULE II
COMPAQ COMPUTER CORPORATION VALUATION AND QUALIFYING ACCOUNTS Year ended December 31, In millions 1997 1996 1995 ============================================================== ALLOWANCE FOR DOUBTFUL ACCOUNTS Balance, beginning of period . . . . . $ 247 $ 118 $ 93 Additions charged to expense . . . . . 19 160 47 Reductions . . . . . . . . . . . . . . (23) (31) (22) ------ ------ ------ Balance, end of period . . . . . . . . $ 243 $ 247 $ 118 ====== ====== ====== DEFERRED TAX ASSET VALUATION ALLOWANCE Balance, beginning of period . . . . . $ 121 $ 119 $ 107 Additions charged to expense . . . . . 43 9 12 Reductions . . . . . . . . . . . . . . (30) (7) ------ ------ ------ Balance, end of period . . . . . . . . $ 134 $ 121 $ 119 ====== ====== ======
EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION OF COMPAQ COMPUTER CORPORATION Compaq Computer Corporation, a corporation duly organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify that: FIRST: The name of the Corporation is Compaq Computer Corporation, which was originally incorporated as GATEWAY TECHNOLOGY, Inc. SECOND: The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on February 16, 1982. THIRD: This Restated Certificate of Incorporation has been duly adopted in accordance with Section 245 of the General Corporation Law of the State of Delaware. FOURTH: This Restated Certificate of Incorporation of the Corporation only restates and integrates and does not further amend the provisions of the Corporation's Certificate of Incorporation as heretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. FIFTH: The Restated Certificate of Incorporation is hereby restated to read in its entirety as follows: Article 1 The name of the corporation is: Compaq Computer Corporation. Article 2 The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. Article 3 The purpose for which the Corporation is organized is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. Article 4 A. Authorized Shares and Classes of Stock: The total number of shares of stock which the Corporation shall have authority to issue is 3,010,000,000 shares composed of (i) 3,000,000,000 shares of common stock, par value $.01 per share (Common Stock); and (ii) 10,000,000 shares of preferred stock, par value $.01 per share (Preferred Stock). B. Designations, Rights, Preferences and Powers of Preferred Stock: The designations, rights, preferences and powers in respect of the shares of Preferred Stock shall be as follows: 1. Shares of Preferred Stock may be issued in one or more series which may have such voting powers, full or limited, or no voting power as the Board of Directors may determine. 2. Authority is hereby expressly granted to the Board of Directors to fix from time to time, by resolution or resolutions providing for the issuance of any series of Preferred Stock, the designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof. 3. Except as otherwise provided in any resolution or resolutions of the Board of Directors providing for the issue of any particular series of Preferred Stock, the number of shares of stock of any such series so set forth in such resolution or resolutions may be increased or decreased (but not below the number of shares of such series then outstanding) by a resolution or resolutions adopted by the Board of Directors. 4. Except as otherwise provided in any resolution or resolutions of the Board of Directors providing for the issue of any particular series of Preferred Stock, Preferred Stock redeemed or otherwise acquired by the Corporation shall assume the status of authorized but unissued Preferred Stock and shall be unclassified as to series and may thereafter, subject to the provisions of this Article 4 and to any restrictions contained in any resolution or resolutions of the Board of Directors providing for the issue of any such series of Preferred Stock, be reissued in the same manner as other authorized but unissued Preferred Stock. Article 5 The Board of Directors is authorized to adopt, amend or repeal the bylaws of the Corporation. Election of directors need not be by written ballot. Article 6 No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing clause shall not apply to any liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. This Article 6 shall not eliminate or limit the personal liability of a director for any act or omission occurring prior to the date this Article 6 becomes effective. If the Delaware General Corporation Law is hereafter amended to further eliminate or limit the liability of a director of a corporation, then a director of the Corporation, in addition to the circumstances set forth herein, shall have no liability as a director (or such liability shall be limited) to the fullest extent permitted by the Delaware General Corporation Law as so amended. No repeal or modification of the foregoing provisions of this Article 6 nor, to the fullest extent permitted by law, any modification of law, shall adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. IN WITNESS WHEREOF, Compaq Computer Corporation has caused this Certificate to be signed by Eckhard Pfeiffer, its President and Chief Executive Officer, this 15th day of December, 1997. Compaq Computer Corporation By: /s/ Eckhard Pfeiffer ------------------------------ Eckhard Pfeiffer, President and Chief Executive Officer EX-10.6 3 AMENDED AND RESTATED JANUARY 20, 1998 REFLECTS 5-FOR-2 STOCK SPLIT DATED JULY 14, 1997, 2-FOR-1 STOCK SPLIT DATED JANUARY 20, 1998 AND MERGERS & ACQUISITIONS THROUGH SEPTEMBER 1, 1997 COMPAQ COMPUTER CORPORATION 1989 EQUITY INCENTIVE PLAN SECTION 1. Purpose. The purposes of the Compaq Computer Corporation ------- 1989 Equity Incentive Plan (the "Plan") are to encourage eligible employees of Compaq Computer Corporation (the "Company") and its Affiliates, to acquire a proprietary and vested interest in the growth and performance of the Company, to generate an increased incentive to contribute to the Company's future success and prosperity, thus enhancing the value of the Company for the benefit of its stockholders, and to enhance the ability of the Company and its Affiliates to attract and retain talented and highly competent individuals upon whom, in large measure, the sustained progress, growth, and profitability of the Company depend. SECTION 2. Definitions. As used in the Plan, the following terms shall ----------- have the meanings set forth below: (a) "Affiliate" shall mean (i) any Person that directly, or through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company or (ii) any entity in which the Company has a significant equity interest, as determined by the Committee. (b) "Award" shall mean any Option, Stock Appreciation Right, Restricted Stock Award, or any other right, interest, or option relating to Shares granted pursuant to the provisions of the Plan. (c) "Award Notice" shall mean any written notice, agreement, or other instrument or document evidencing any Award granted by the Committee hereunder signed by the Company and delivered to the Participant. (d) "Board" shall mean the Board of Directors of the Company. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (f) "Committee" shall mean the Human Resources Committee of the Board of Directors, composed of not less than two directors each of whom is a Non-Employee Director. (g) "Common Stock" shall mean the common stock, $.01 par value, of the Company. (h) "Company" shall mean Compaq Computer Corporation. (i) "Employee" shall mean any employee of the Company or of any Affiliate. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934 as amended. (k) "Fair Market Value" shall mean (i) with respect to the Common Stock, the last sale price of the Common Stock on the date on which such value is determined, as reported on the consolidated tape of New York Stock Exchange issues or, if there shall be no trades on such date, on the date nearest preceding such date; (ii) with respect to any other property, or with respect to the Common Stock if it is not then listed for trading on the New York Stock Exchange, the market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. (l) "Incentive Stock Option" shall mean an Option granted under Section 6 hereof that is intended to meet the requirements of Section 422A of the Code or any successor provision thereto. (m) "Net After-Tax Amount" shall mean the net amount of compensation, assuming for this purpose only that all vested options are exercised upon such Change in Control, to be received (or deemed to have been received) by such optionee in connection with such Change of Control under any Award Agreement and under any other plan, arrangement or contract of the company to which such optionee is a party, after giving effect to all income and excise taxes applicable to such payments. (n) "Non-Employee Director" shall have the meaning set forth in Rule 13e-3(b)(3)(i) promulgated by the Securities and Exchange Commission under the Exchange Act. (o) "Nonqualified Stock Option" shall mean an Option granted under Section 6 hereof that is not intended to be an Incentive Stock Option. (p) "Option" shall mean any r ight granted to a Participant allowing such Participant to purchase Shares at such price or prices and during such period or periods as the Committee shall determine. (q) "Participant" shall mean an Employee who is selected by the Committee to receive an Award under the Plan. (r) "Person" shall mean any natural person, corporation, partnership, association, joint-stock company, trust, unincorpo-rated organization, or government or political subdivision thereof. (s) "Restricted Stock" shall mean any share of capital stock of the Company issued with the restriction that the holder may not sell, transfer, pledge, or assign such share and with such other restrictions as the Committee, in its sole discretion, may impose (including, without limitation, any restriction on the right to vote such shares and the right to receive any cash dividends), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate. (t) "Restricted Stock Award" shall mean an Award of Restricted Stock under Section 8 hereof. (u) "Shares" shall mean the Common Stock and such other securities of the Company as the Committee may from time to time determine. (v) "Stock Appreciation Right" shall mean any right granted to a Participant pursuant to Section 7 hereof to receive, upon exercise by the Participant, the excess of (i) the Fair Market Value of one Share on the date of exercise or, if the Committee shall so determine in the case of any such right other than one related to any Incentive Stock Option, at any time during a specified period before the date of exercise over (ii) the grant price of the right as specified by the Committee, in its sole discretion, on the date of grant. The grant price of a right granted to an individual subject to Section 16 of the Exchange Act shall not be less than 50% of the Fair Market Value of one Share on the date of grant. Any payment by the Company in respect of such right may be made in cash, Shares, other property, or any combination thereof, as the Committee, in its sole discretion, shall determine. (w) "Tandem" shall mean Tandem Computers Incorporated. (x) "Tandem Substitute Options" shall mean any Options issued under the Plan pursuant to that certain Agreement and Plan of Merger dated as of June 22, 1997 among Tandem, the Company and Compaq-Project, Inc. SECTION 3. Administration. The Plan shall be administered by the -------------- Committee. The Committee shall have full power and authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board, to: (i) select the Employees of the Company and its Affiliates to whom Awards may from time to time be granted hereunder; (ii) determine the type or types of Awards to be granted to each Participant hereunder; (iii) determine the number of Shares to be covered by each Award granted hereunder; (iv) determine the terms and conditions, not inconsistent with the provisions of the Plan, of any Award granted hereunder; (v) determine whether, to what extent, and under what circumstances Awards may be settled in cash, canceled, or suspended; (vi) determine whether, to what extent, and under what circumstances Shares and other amounts payable with respect to an Award under this Plan shall be deferred either automatically or at the election of the Participant; (vii) interpret and administer the Plan and any instrument or agreement entered into under the Plan; (viii) establish such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan. Decisions of the Committee shall be final, conclusive, and binding upon all persons, including the Company, any Participant, any stockholder of the Company, and any Employee. A majority of the members of the Committee may determine its actions and fix the time and place of its meetings. The Committee may delegate its power and authority under this Plan to a Chief Executive Officer of the Company who is a director of the Company with respect to the administration of the Plan for grants to persons other than executive officers. In the case of such delegation, the term "Committee" as used in this Plan shall be deemed to refer to the Chief Executive Officer of the Company. SECTION 4. Shares Subject to the Plan. ------------------------------ (a) Total Number. Subject to adjustment as provided in this Section, ------------ the total number of Shares available for grant under the Plan shall be 268,333,112 Shares. (b) Reduction of Shares Available. -------------------------------- (i) The grant of an Option or Restricted Stock Award will reduce the Shares available for grant by the number of Shares subject to such Award. (ii) The grant of Stock Appreciation Rights related to an Option will reduce the number of Shares available for grant only to the extent that the number of Stock Appreciation Rights granted exceeds the number of Shares subject to the related Option. (iii) The grant of Stock Appreciation Rights not related to an Option will reduce the number of Shares available for grant by the number of Stock Appreciation Rights granted. (iv) Any Shares issued by the Company through the assumption or substitution of outstanding grants from an acquired company shall not reduce the Shares available for grants under the Plan. (c) Increase of Shares Available. ------------------------------- (i) The lapse, cancellation, or other termination of an Option that has not been fully exercised shall increase the available Shares by the number of Shares that have not been issued upon exercise of such Option; provided that in the event the cancellation of an Option is due to the exercise of Stock Appreciation Rights related to such Option, the cancellation of such Option shall only increase the Shares available by the excess, if any, of the number of Shares subject to such Option over the number of Stock Appreciation Rights exercised. (ii) The lapse, cancellation, or other termination of Stock Appreciation Rights that have not been exercised shall increase the available Shares by the number of Stock Appreciation Rights so lapsed, canceled, or terminated; provided that in the event the cancellation of Stock Appreciation Rights is due to the exercise of an Option related to such Stock Appreciation Rights, the lapse, cancellation, or termination of such Stock Apprecia-tion Rights shall only increase the Shares available by the excess, if any, of the number of Stock Appreciation Rights so lapsed, canceled, or terminated over the number of Shares for which such Option is exercised. (iii) Any Restricted Shares forfeited by a Participant shall increase the available Shares by the number of Shares so forfeited. (d) Other Adjustments. The total number of shares of Common Stock ------------------ available for Awards under the Plan or which may be allocated to any one Participant, the number of shares of Common Stock subject to outstanding Options, the exercise price for such Options, the number of outstanding Stock Appreciation Rights, the base value of such rights, and the number of outstanding shares of Restricted Stock shall be appropriately adjusted by the Committee for any increase or decrease in the number of outstand-ing Shares resulting from a stock dividend, subdivision, or combination of Shares or reclassification, as may be necessary to maintain the proportionate interest of the Award holder. In the event of a merger or consolidation of the Company or a tender offer for shares of Common Stock, the Committee may make such adjustments with respect to Awards under the Plan and take such other action as it deems necessary or appropriate to reflect or in anticipation of such merger, consolidation, or tender offer including, without limitation, the substitution of new Awards, the termination or adjustment of outstanding Awards, the acceleration of Awards, or the removal of restrictions on outstanding Awards. The payment to the Participant of an amount in cash equal to the excess, if any, of the Fair Market Value of the number of shares subject to any Award over the aggregate grant price thereof, in consideration of the cancellation thereof pursuant to this Section 4(d), shall extinguish any rights of the Participant in connection with such Award. SECTION 5. Eligibility. Any Employee (excluding any member of the ----------- Committee) shall be eligible to be selected as a Participant. SECTION 6. Stock Options. Options may be granted hereunder to -------------- Participants either alone or in addition to other Awards granted under the Plan. The Company shall deliver an Award Notice to each Participant receiving an Option. Any such Option shall be subject to the following terms and conditions and to such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable: (a) Option Price. The purchase price per Share purchasable under an ------------- Option shall be determined by the Committee in its sole discretion and set forth in the applicable Award Notice; provided that such purchase price shall not be less than (i) 100% of the Fair Market Value of the Share on the date of the grant of the Option in the case of any Incentive Stock Option, or (ii) 50% of such Fair Market Value in the case of any Nonqualified Stock Option granted to an individual subject to Section 16 of the Exchange Act. (b) Option Period. The term of each Option shall be fixed by the -------------- Committee in its sole discretion and set forth in the applicable Award Notice; provided that no Option shall be exercisable after the expiration of ten years from the date the Option is granted. (c) Exercisability. Options shall be exercisable at such time or times -------------- as determined by the Committee in its sole discretion and set forth in the applicable Award Notice. An executive officer of the Company may not exercise an Option for a period of six months from the date of grant. (d) Method of Exercise. Any Option may be exercised by the Participant ------------------ in whole or in part at such time or times and by such methods as the Committee may specify. Unless otherwise specified in the applicable grant and Award Notice, the Participant may make payment in cash or by certified check, bank draft, or postal or express money order payable to the order of the Company, or, with the consent of the Board (or the Committee, if established by the Board), in whole or in part in Common Stock owned by the Optionee, valued at Fair Market Value. (e) Incentive Stock Options. In accordance with rules and procedures ------------------------ established by the Committee, the aggregate Fair Market Value (determined as of the time of grant) of the Shares with respect to which Incentive Stock Options held by any Participant become exercisable for the first time by such Participant during any calendar year under the Plan (and under any other benefit plans of the Company or of any parent or subsidiary corporation of the Company) shall not exceed $100,000 or, if different, the maximum limitation in effect at the time of grant under Section 422A of the Code, or any successor provision, and any regulations promulgated thereunder. The terms of any Incentive Stock Option granted hereunder shall comply in all respects with the provisions of Section 422A of the Code, or any successor provision, and any regulations promulgated thereunder. (f) Form of Settlement. In its sole discretion, the Committee may -------------------- provide, at the time of grant, that the Shares to be issued upon an Option's exercise shall be in the form of Restricted Stock or other similar securities. (g) Certificates. Upon the Company's determination that an Option has ------------ been validly exercised as to any of the Shares, the Secretary of the Company shall issue certificates in the Participant's name for such Shares. However, the Company shall not be liable to the Participant for damages relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves. SECTION 7. Stock Appreciation Rights. Stock Appreciation Rights may be ------------------------- granted hereunder to Participants either alone or in addition to other Awards granted under the Plan and may, but need not, relate to a specific Option granted under Section 6. The provisions of Stock Appreciation Rights need not be the same with respect to each recipient. Any Stock Appreciation Right related to a Nonqualified Stock Option may be granted at the same time such Option is granted or at any time thereafter before exercise or expiration of such Option. Any Stock Appreciation Right related to an Incentive Stock Option must be granted at the same time such Option is granted. In the case of any Stock Appreciation Right related to any Option, the Stock Appreciation Right Award or applicable portion thereof shall terminate and no longer be exercisable upon the termination or exercise of the related Option, except that a Stock Appreciation Right Award granted with respect to fewer than the full number of Shares covered by a related Option shall not be reduced until the number of Shares issued upon exercise or canceled upon termination of the related Option exceeds the number of shares not covered by the Stock Appreciation Right Award. Any Option related to any Stock Appreciation Right shall no longer be exercisable to the extent the related Stock Appreciation Right has been exer-cised. No Stock Appreciation Right unrelated to any Option shall be exercisable after the expiration of ten years from the date such Award is granted. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it shall deem appropriate. The Company shall deliver an Award Notice to each Participant receiving a Stock Appreciation Right. SECTION 8. Restricted Stock. ----------------- (a) Issuance. Restricted Stock Awards may be issued hereunder to -------- Participants, for no cash consideration or for such nominal consideration as may be required by applicable law, either alone or in addition to other Awards granted under the Plan. The provisions of Restricted Stock Awards need not be the same with respect to each recipient. The Company shall deliver an Award Notice to each Participant receiving a Restricted Stock Award. (b) Registration. Any Restricted Stock issued hereunder may be ------------ evidenced in such manner as the Committee in its sole discretion shall deem appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of shares of Restricted Stock awarded under the Plan, such certificate shall be registered in the name of the Partici-pant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award. Promptly after the lapse of restrictions with respect to any shares of Restricted Stock, the lapse of such restrictions shall be evidenced in such manner as the Committee shall deem appropriate. SECTION 9. Termination or Suspension of Employment. --------------------------------------------- (a) Nonqualified Stock Options and Stock Appreciation Rights. -------------------------------------------------------------- (i) If the Participant's employment with the Company or its Affiliates is terminated for any reason other than death, disability, or retirement, the Participant's right to exercise any Nonqualified Stock Option or Stock Appreciation Right shall terminate, and such Op-tion or Stock Appreciation Right shall expire, on the earlier of (A) the first anniversary of such termina-tion of employment or (B) the date such Option or Stock Appreciation Right would have expired had it not been for the termination of employment. The Participant shall have the right to exercise such Option or Stock Appreciation Right prior to such expiration to the extent it was exercisable at the date of such term-ination of employment and shall not have been exercised. (ii) If the Participant's employment with the Company or its Affiliates is terminated by reason of death, disability, or retirement, the Participant or his successor (if employment is terminated by death) shall have the right to exercise any Nonqualified Stock Option or Stock Appreciation Right to the extent it was exercisable at the date of such termination of employment and shall not have been exercised, but in no event shall such option be exercisable later than the date the Option would have expired had it not been for the termination of such employment. (iii) Notwithstanding the foregoing, the Committee may, in its discretion, provide (a) that an Option granted to a Participant may terminate at a date earlier than that set forth above, and (b) that an Option granted to a Participant not subject to Section 16 of the Exchange Act may terminate at a date later than that set forth above, provided such date shall not be beyond the date the Option would have expired had it not been for the termination of the Participant's employment. (iv) Any time spent by a Participant in the status of "leave without pay" shall be disregarded for purposes of determining the extent to which an Option or any portion thereof has vested. (b) Incentive Stock Options. Except as otherwise determined by the ------------------------- Committee at the time of grant, if the Participant's employ-ment with the Company is terminated for any reason, the Participant shall have the right to exercise any Incentive Stock Option and any related Stock Appreciation Right during the 90 days after such termination of employment to the extent it was exercisable at the date of such termination, but in no event later than the date the Option would have expired had it not been for the termina-tion of such employment. If the Participant does not exercise such Option or related Stock Appreciation Right to the full extent permitted by the preceding sentence, the remaining exercisable portion of such Option automatically will be deemed a Nonqualified Stock Option, and such Option and the related Stock Appreciation Right will be exercisable during the period set forth in Section 9(a) of the Plan, provided that in the event that employment is terminated because of death or the Participant dies in such 90-day period the Option will continue to be an Incentive Stock Option to the extent provided by Section 421 or Section 422A of the Code, or any successor provision, and any regulations promulgated thereunder. (c) Restricted Stock. Except as otherwise determined by the Committee ---------------- at the time of grant, upon termination of employment for any reason during the restriction period, all shares of Restricted Stock still subject to restriction shall be forfeited by the Participant and reacquired by the Company at the price (if any) paid by the Participant for such Restricted Stock; provided that in the event of a Participant's retirement, permanent disability, or death, or in cases of special circumstances, the Committee may, in its sole discretion, when it finds that a waiver would be in the best interests of the Company, waive, in whole or in part, any or all remaining restrictions with respect to such Participant's shares of Restricted Stock. (d) Disability and Retirement. The term "disability" means total and -------------------------- permanent disability. The meaning of the terms "total and permanent disability" and "retirement" shall be determined by the Committee. (e) Acceleration of Exercisability. Nothing contained herein shall in ------------------------------- any way limit the authority of the Committee in its sole discretion to cause any outstanding Option or Stock Appreciation Right to become immediately exercisable when it finds that such acceleration would be in the best interests of the Company. SECTION 10. Change in Control. ------------------- (a) Immediate Vesting. Notwithstanding any other provision of the Plan ----------------- to the contrary, upon a Change in Control, as defined below, all outstanding Awards shall vest, become immediately exercisable or payable, or have all restrictions lifted as may apply to the type of Award; provided, however, that unless otherwise determined by the Committee at the time of award or thereafter, if it is determined that the Net After-Tax Amount to be realized by any optionee, taking into account the accelerated vesting provided for by this paragraph 10(a) as well as all other payments to be received by such optionee in connection with such Change in Control, would be higher if options did not vest in accordance with the foregoing paragraph 10(a), then, and to such extent, the options shall not vest. The determination of whether any such option should not vest shall be made by a nationally recognized accounting firm selected by the Company, which shall be instructed to consider that (i) stock options shall be vested in the order in which they were granted and within each grant in the order in which they would otherwise have vested and (ii) unless and to the extent any other plan, arrangement or contract of the Company pursuant to which any such payment is to be received provides to the contrary, any other payment contingent upon a Change of Control shall be deemed to have occurred after any acceleration of options. Further, no outstanding Stock Appreciation Right may be terminated, amended, or suspended upon or after a Change in Control. (b) Change in Control. A "Change in Control" shall be deemed to have ------------------ occurred if: (i) any "person" as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of Stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securi-ties of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the adoption of the Plan), individuals who at the beginning of such period constitute the Board of Directors, and any new director (other than a director designated by a person who has entered into an agree-ment with the Company to effect a transac-tion described in clause (i), (iii), or (iv) of this Section 10(b)) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board of Directors; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corpora-tion, other than a merger or consolidation which would result in the voting securities of the Company out-standing immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securi-ties of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 30% of the combined voting power of the Company's then outstanding securities shall not constitute a Change in Control of the Company; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or sub-stantially all of the Company's assets. SECTION 11. Amendments and Termination. ---------------------------- (a) The Board may amend, alter, or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made that would impair the rights of a Participant under an Award theretofore granted, without the Participant's consent, or that without the approval of the stockholders would: (i) except as is provided in Section 4(b) of the Plan, increase the total number of Shares reserved for the purpose of the Plan; or (ii) change the employees or class of employees eligible to participate in the Plan. (b) The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights of any Participant without his consent. The Committee may also substitute new Awards for previously granted Awards, including without limitation previously granted Options and Stock Appreciation Rights having higher option prices. (c) Employee Status Change to Part-Time. At such time as a full-time ----------------------------------- employee becomes a part-time employee of the Company, on the next vesting date following such status change, all Awards previously granted to such employee will be automatically amended to reflect the vesting of all such Awards to be reduced by one-half with respect to any portion of the Awards not yet vested. SECTION 12. General Provisions. ------------------- (a) Nontransferability. No Award shall be assigned, alienated, ------------------ pledged, attached, sold or otherwise transferred or encumbered by a Participant, except by will or the laws of descent and distribution, provided, however, that an Award may be transferable, to the extent set forth in the applicable Award Notice and in accordance with procedures adopted by the Committee, (i) if such Award Notice provisions do not disqualify such Award for exemption under Rule 16b-3 or (ii) if such Award is not intended to qualify for exemption under such rule. (b) No Claims. No Employee or Participant shall have any claim to be ---------- granted any Award under the Plan and there is no obligation for uniformity of treatment of Employees or Participants under the Plan. (c) Notices. Any notice necessary under this Plan or any Award ------- hereunder shall be addressed to the Company in care of its Secretary at the principal executive office of the Company in Houston, Texas and to the Participant at the address appearing in the personnel records of the Company for such Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. (d) Unusual Events. The Committee shall be authorized to make --------------- adjustments in the terms and conditions of Awards in recog-nition of unusual or nonrecurring events affecting the Company or its financial statements or changes in applicable laws, regula-tions, or accounting principles. The Committee may correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry it into effect. In the event the Company shall assume outstanding employee benefit awards or the right or obligation to make such future awards in connection with the acquisition of another corporation or business entity, the Committee may, in its discretion, make such adjustments in the terms of Awards under the Plan as it shall deem appropriate. (e) Compliance Requirements. All certificates for Shares delivered ------------------------ under the Plan pursuant to any Award shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. The Company shall not be required to issue or deliver any Shares under the Plan prior (i) to the completion of any registration or qualification of such Shares under any federal or state law, or under any ruling or regulation of any governmental body or national securities exchange that the Committee in its sole discretion shall deem to be necessary or appropriate and (ii) to the Participant's entering into such written representations, warranties, and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Plan. (f) Dividends. Subject to the provisions of this Plan, the recipient --------- of an Award may, if so determined by the Committee at the time of grant, be entitled to receive, currently or on a deferred basis, interest or dividends, or interest or dividend equivalents, with respect to the number of shares covered by the Award, as determined at the time of the Award by the Committee, in its sole discretion, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. (g) No Other Consideration. Except as otherwise required in any ------------------------ applicable grant and Award Notice or by the terms of the Plan, recipients of Awards under the Plan shall not be required to make any payment or provide consideration other than the rendering of services. (h) Withholding. The Company shall be authorized to withhold from any ----------- Award granted or payment due under the Plan the amount of withholding taxes due in respect of an Award or payment hereunder and to take such other action as may be necessary in the opinion of the Company to satisfy any of its obligations with respect to the payment of such taxes. (i) Other Plans. Nothing contained in this Plan shall prevent the ----------- Board from adopting other or additional compensation arrangements, subject to stockholder approval, if such approval is required by applicable law, or the rules of any stock exchange on which the Common Stock is then listed; and such arrangements may be either generally applicable or applicable only in specific cases. (j) Governing Law. The validity, construction, and effect of the Plan ------------- and any rules and regulations relating to the Plan and any Award hereunder shall be determined in accordance with the laws of the State of Delaware and applicable federal law. (k) Conformity With Law. If any provision of this Plan is or becomes ------------------- or is deemed invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended in such jurisdiction to conform to applicable laws or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan, it shall be stricken and the remainder of the Plan shall remain in full force and effect. SECTION 13. Effective Date of Plan. The Plan shall be effective as of ---------------------- January 18, 1989 (the "Effective Date"), subject to approval by the Company's stockholders within one year thereafter. Awards may be granted at any time after the Effective Date and prior to termination of the Plan by the Board, except that no Incentive Stock Option shall be granted pursuant to the Plan after 10 years from the Effective Date, but any Award theretofore granted may extend beyond that date. The Plan will expire when no Shares are available for issuance. SECTION 14. Tandem Substitute Options. Tandem Substitute Options shall ------------------------- be governed by the terms of the Plan and the related option conversion notice, except that, notwithstanding any provision of the Plan or option conversion notice to the contrary, the terms and conditions set forth on Appendix A hereto shall govern such options to the extent set forth on such Appendix. APPENDIX A FOR TANDEM SUBSTITUTE OPTIONS ---------------------------------------- The term "Options" as used in this Appendix A means Tandem Substitute Options. Exercisability: Generally, Options may be exercised beginning six months from the vesting date or, with respect to certain Options, beginning six months from the original grant date. Optionees are not entitled to exercise Options if employment with the Company is terminated prior to six months from the vesting date or, with respect to certain Options, prior to six months from the original grant date. The original grant date and the vesting date are set forth on the related option conversion notice. Vesting: Vesting stops when the optionee's employment with the Company or any of its Affiliates terminates. The vesting schedule for each Option is as set forth on the related Option Conversion Notice. Death: If an optionee dies while an employee of the Company or its Affiliates, Options become fully vested regardless of length of service and expire one year after the date of death. Disability: If an optionee's employment terminates because of permanent disability, Options (i) become 20% vested, if more than the percentage actually vested on the termination date and (ii) expire 90 days after the termination date. Termination: If employment with the Company or its Affiliates ends for any reason other than death or permanent disability, Options expire on the 30th day after the termination date. Leave of Absence: Vesting during an approved leave of absence is governed by the applicable leave of absence policy in effect at the time an optionee goes on leave. Unvested Shares: Six months after the original grant date (as set forth on the related option conversion notice), optionees can purchase unvested option shares. Unvested option shares may not be sold or otherwise transferred until they become vested. The Company may buy back unvested shares at the price paid by the optionee for such shares upon optionee's termination from the Company or its Affiliates (except death). In such event, the Company must give notice to the optionee within 60 days after the termination date, provided, however, that upon termination due to permanent disability, the Company must provide notice within 60 days after the last date upon which the optionee's option is exercisable. Optionees must deliver the number of shares requested in such notice to the Company within 60 days after receipt of such notice, with the stock certificates fully endorsed or accompanied by a duly executed stock power. Certificates for unvested shares shall contain a legend referring to the Company's right to repurchase. As the optionee's vesting percentage increases, the optionee may request, at reasonable intervals, that the Company exchange those legended certificates for shares which have vested for certificates for shares without legends. No certificates shall be issued for partial shares. Form of Payment: A notice of exercise must include payment of the option price for the shares being purchased. Payment may be made by: (i) cashier's check or a money order, (ii) irrevocable directions on a Company approved form to a securities broker approved by the Company to sell the shares and deliver all or a portion of the sale proceeds to the Company in payment of the option price, or (iii) certificates for Common Stock, along with any forms needed to transfer the shares to the Company. The fair market value of the shares, on the effective date of the Option exercise will be applied to the Option price. Transfers: Options cannot be assigned or transferred, except by will or the laws of descent and distribution. Individual Provisions: To the extent that an optionee's option agreement with Tandem provides terms and conditions contrary to those set forth above, notwithstanding any other provision in the Plan, the option conversion notice or this Appendix A to the contrary, the terms and conditions of such option agreement shall govern the related Tandem Substitute Option (except with respect to the vesting schedule, trading restrictions and notice of exercise, in which case the terms and conditions contained in the related option conversion notice shall govern). EX-10.8 4 AMENDED AND RESTATED JANUARY 20, 1998 REFLECTS 5-FOR-2 STOCK SPLIT DATED JULY 14, 1997, 2-FOR-1 STOCK SPLIT DATED JANUARY 20, 1998 AND MERGERS & ACQUISITIONS THROUGH SEPTEMBER 1, 1997 COMPAQ COMPUTER CORPORATION 1995 EQUITY INCENTIVE PLAN SECTION 1. Purpose. The purposes of the Compaq Computer Corporation 1995 ------- Equity Incentive Plan are to promote the interests of Compaq Computer Corporation and its stockholders by (i) attracting and retaining exceptional executive personnel and other key employees of the Company and its Affiliates, as defined below; (ii) motivating such employees by means of performance-related incentives to achieve long-range performance goals; and (iii) enabling such employees to participate in the long-term growth and financial success of the Company. SECTION 2. Definitions. As used in the Plan, the following terms shall ----------- have the meanings set forth below: "Affiliate" shall mean (i) any entity that, directly or indirectly, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in either case as determined by the Committee. "Award" shall mean any Option, Stock Appreciation Right, Restricted Stock Award, Performance Award or other Stock-Based Award. "Award Agreement" shall mean any written agreement, contract, or other instrument or document evidencing any Award, which may, but need not, be executed or acknowledged by a Participant. "Board" shall mean the Board of Directors of the Company. "Change in Control" shall be deemed to have occurred if: (i) any "person" as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of Stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the adoption of the Plan), individuals who at the beginning of such period constitute the Board of Directors, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii), or (iv) of this paragraph whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board of Directors; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 30% of the combined voting power of the Company's then outstanding securities shall not constitute a Change in Control of the Company; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. If any of the events enumerated in clauses (i) through (iv) occur, the Board shall determine the effective date of the Change in Control resulting therefrom, for purposes of the Plan. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committee" shall mean a committee of the Board designated by the Board to administer the Plan and composed of not less than the minimum number of persons from time to time required by Rule 16b-3, each of whom, to the extent necessary to comply with Rule 16b-3 only, is a "Non-Employee Director " within the meaning of Rule 16b-3. Until otherwise determined by the Board, the Human Resources Committee designated by the Board shall be the Committee under the Plan. "Company" shall mean Compaq Computer Corporation, together with any successor thereto. "Employee" shall mean an employee of the Company or of any Affiliate. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Executive Officer" shall mean, at any time, an individual who is an executive officer of the Company within the meaning of Exchange Act Rule 3b-7 as promulgated and interpreted by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time, or who is an officer of the Company within the meaning of Exchange Act Rule 16a-1(f) as promulgated and interpreted by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time. "Fair Market Value" shall mean the fair market value of the property or other item being valued, as determined by the Committee in its sole discretion. "Incentive Stock Option" shall mean a right to purchase Shares from the Company that is granted under Section 6 of the Plan and that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. "Net After-Tax Amount" shall mean the net amount of compensation, assuming for this purpose only that all vested Awards and other forms of compensation subject to vesting upon such Change of Control are exercised upon such Change in Control, to be received (or deemed to have been received) by such Participant in connection with such Change of Control under any option agreement and under any other plan, arrangement or contract of the Company to which such Participant is a party, after giving effect to all income and excise taxes applicable to such payments. "Non-Qualified Stock Option" shall mean a right to purchase Shares from the Company that is granted under Section 6 of the Plan and that is not intended to be an Incentive Stock Option. "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option and shall include a Restoration Option. "Other Stock-Based Award" shall mean any right granted under Section 10 of the Plan. "Participant" shall mean any Employee selected by the Committee to receive an Award under the Plan. "Performance Award" shall mean any right granted under Section 9 of the Plan. "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. "Plan" shall mean this Compaq Computer Corporation 1995 Equity Incentive Plan. "Restoration Option" shall mean an Option granted pursuant to Section 6(e) of the Plan. "Restricted Stock" shall mean any Share granted under Section 8 of the Plan. "Restricted Stock Unit" shall mean any unit granted under Section 8 of the Plan. "Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time. "SEC" shall mean the Securities and Exchange Commission or any successor thereto and shall include the staff thereof. "Shares" shall mean shares of the common stock, $.0l par value, of the Company, or such other securities of the Company as may be designated by the Committee from time to time. "Stock Appreciation Right" shall mean any right granted under Section 7 of the Plan. "Substitute Awards" shall mean Awards granted in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by the Company or with which the Company combines. "Tandem" shall mean Tandem Computers Incorporated. SECTION 3. Administration. -------------- (a) Authority of Committee. The Plan shall be administered by the ------------------------ Committee. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to an eligible Employee; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property, and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (viii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. (b) Committee Discretion Binding. Unless otherwise expressly provided in ---------------------------- the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, any stockholder and any Employee. SECTION 4. Shares Available for Awards. ------------------------------ (a) Shares Available. Subject to adjustment as provided in Section 4(b), ---------------- the number of Shares with respect to which Awards may be granted under the Plan shall be 65,000,000 million. If, after the effective date of the Plan, any Shares covered by an Award granted under the Plan or by an award granted under any prior stock award plan of the Company, or to which such an Award or award relates, are forfeited, or if such an Award or award is settled for cash or otherwise terminates or is canceled without the delivery of Shares, then the Shares covered by such Award or award, or to which such Award or award relates, or the number of Shares otherwise counted against the aggregate number of Shares with respect to which Awards may be granted, to the extent of any such settlement, forfeiture, termination or cancellation, shall again become Shares with respect to which Awards may be granted. In the event that any Option or other Award granted hereunder or any award granted under any prior stock award plan of the Company is exercised through the delivery of Shares or in the event that withholding tax liabilities arising from such Award or award are satisfied by the withholding of Shares by the Company, the number of Shares available for Awards under the Plan shall be increased by the number of Shares so surrendered or withheld. Notwithstanding the foregoing and subject to adjustment as provided in Section 4(b), no Executive Officer of the Company may receive Awards under the Plan in any calendar year that relate to more than 2,500,000 Shares; provided, however, a new employee who begins service as Chief Executive Officer may receive Awards that relate to up to 5,000,000 Shares in the calendar year in which employment with the Company begins. (b) Adjustments. In the event that the Committee determines that any ----------- dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted, (ii) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards, and (iii) the grant or exercise price with respect to any Award, or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; provided, in each case, that (A) with respect to Awards of Incentive Stock Options no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b)(1) of the Code, as from time to time amended and (B) with respect to any Award no such adjustment shall be authorized to the extent that such authority would be inconsistent with the Plan's meeting the requirements of Section 162(m) of the Code, as from time to time amended. (c) Substitute Awards. Any Shares underlying Substitute Awards shall not, ----------------- except in the case of Shares with respect to which Substitute Awards are granted to Employees who are officers or directors of the Company for purposes of Section 16 of the Exchange Act or any successor section thereto, be counted against the Shares available for Awards under the Plan. (d) Sources of Shares Deliverable Under Awards. Any Shares delivered ------------------------------------------ pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares. SECTION 5. Eligibility. Any Employee, including any officer or ----------- employee-director of the Company or any Affiliate, who is not a member of the Committee, shall be eligible to be designated a Participant. SECTION 6. Stock Options. -------------- (a) Grant. Subject to the provisions of the Plan, the Committee shall ----- have sole and complete authority to determine the Employees to whom Options shall be granted, the number of Shares to be covered by each Option, the option price therefor and the conditions and limitations applicable to the exercise of the Option. The Committee shall have the authority to grant Incentive Stock Options, or to grant Non-Qualified Stock Options, or to grant both types of options. In the case of Incentive Stock Options, the terms and conditions of such grants shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code, as from time to time amended, and any regulations implementing such statute. (b) Exercise Price. Subject to the requirement set forth in Section 6(e) -------------- the Committee in its sole discretion shall establish the exercise price at the time each option is granted. (c) Exercise. Each Option shall be exercisable at such times and subject -------- to such terms and conditions as the Committee may, in its sole discretion, specify in the applicable Award Agreement or thereafter. The Committee may impose such conditions with respect to the exercise of options, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable. An executive officer of the Company may not exercise an Option for a period of six months from the date of grant. (d) Payment. No Shares shall be delivered pursuant to any exercise of an ------- Option until payment in full of the option price therefor is received by the Company. Such payment may be made in cash, or its equivalent, or, if and to the extent permitted by the Committee, by exchanging Shares owned by the optionee (which are not the subject of any pledge or other security interest), or by a combination of the foregoing, provided that the combined value of all cash and cash equivalents and the Fair Market Value of any such Shares so tendered to the Company as of the date of such tender is at least equal to such option price. (e) Restoration Options. In the event that any Participant delivers -------------------- Shares in payment of the exercise price of any Option granted hereunder in accordance with Section 6(d) or of any option granted under a prior stock award plan of the Company, or in the event that the withholding tax liability arising upon exercise of any such Option or option by a Participant is satisfied through the withholding by the Company of Shares otherwise deliverable upon exercise of the Option or option, the Committee shall have the authority to grant or provide for the automatic grant of a Restoration Option to such Participant. The grant of a Restoration Option shall be subject to the satisfaction of such conditions or criteria as the Committee in its sole discretion shall establish from time to time. A Restoration Option shall entitle the holder thereof to purchase a number of Shares equal to the number of such Shares so delivered or withheld upon exercise of the original Option or option. A Restoration Option shall have a per share exercise price of not less than 100% of the per Share Fair Market Value on the date of grant of such Restoration Option and such other terms and conditions as the Committee in its sole discretion shall determine. SECTION 7. Stock Appreciation Rights. --------------------------- (a) Grant. Subject to the provisions of the Plan, the Committee shall ------ have sole and complete authority to determine the Employees to whom Stock Appreciation Rights shall be granted, the number of Shares to be covered by each Stock Appreciation Right Award, the grant price thereof and the conditions and limitations applicable to the exercise thereof. Stock Appreciation Rights may be granted in tandem with another Award, in addition to another Award, or freestanding and unrelated to another Award. Stock Appreciation Rights granted in tandem with or in addition to an Award may be granted either at the same time as the Award or at a later time. Stock Appreciation Rights shall not be exercisable earlier than six months after grant, and shall have a grant price as determined by the Committee on the date of grant. (b) Exercise and Payment. A Stock Appreciation Right shall entitle the --------------------- Participant to receive an amount equal to the excess of the Fair Market Value of a Share on the date of exercise of the Stock Appreciation Right over the grant price thereof, provided that the Committee may for administrative convenience determine that, with respect to any Stock Appreciation Right that is not related to an Incentive Stock Option and that can only be exercised for cash during limited periods of time in order to satisfy the conditions of Rule 16b-3, the exercise of such Stock Appreciation Right for cash during such limited period shall be deemed to occur for all purposes hereunder on the day during such limited period on which the Fair Market Value of the Shares is the highest. Any such determination by the Committee may be changed by the Committee from time to time and may govern the exercise of Stock Appreciation Rights granted prior to such determination as well as Stock Appreciation Rights thereafter granted. The Committee shall determine whether a Stock Appreciation Right shall be settled in cash, Shares or a combination of cash and Shares. (c) Other Terms and Conditions. Subject to the terms of the Plan and any -------------------------- applicable Award Agreement, the Committee shall determine, at or after the grant of a Stock Appreciation Right, the term, methods of exercise, methods and form of settlement, and any other terms and conditions of any Stock Appreciation Right. Any such determination by the Committee may be changed by the Committee from time to time and may govern the exercise of Stock Appreciation Rights granted or exercised prior to such determination as well as Stock Appreciation Rights granted or exercised thereafter. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it shall deem appropriate. SECTION 8. Termination or Suspension of Employment. The following ----------------------------------------- provisions shall apply in the event of the Participant's termination of employment unless the Committee shall have provided otherwise, either at the time of the grant of the Award or thereafter. (a) Nonqualified Stock Options and Stock Appreciation Rights. -------------------------------------------------------------- (i) Termination of Employment. If the Participant's employment with the ------------------------- Company or its Affiliates is terminated for any reason other than death, permanent and total disability, or retirement, the Participant's right to exercise any Nonqualified Stock Option or Stock Appreciation Right shall terminate, and such Option or Stock Appreciation Right shall expire, on the earlier of (A) the first anniversary of such termination of employment or (B) the date such Option or Stock Appreciation Right would have expired had it not been for the termination of employment. The Participant shall have the right to exercise such Option or Stock Appreciation Right prior to such expiration to the extent it was exercisable at the date of such termination of employment and shall not have been exercised. (ii) Death, Disability or Retirement. If the Participant's employment ------------------------------- with the Company or its Affiliates is terminated by death, permanent and total disability, or retirement, the Participant or his successor (if employment is terminated by death) shall have the right to exercise any Nonqualified Stock Option or Stock Appreciation Right to the extent it was exercisable at the date of such termination of employment and shall not have been exercised, but in no event shall such option be exercisable later than the date the Option would have expired had it not been for the termination of such employment. The meaning of the terms "total and permanent disability" and "retirement" shall be determined by the Committee. (iii) Acceleration and Extension of Exercisability. Notwithstanding the -------------------------------------------- foregoing, the Committee may, in its discretion, provide (A) that an Option granted to a Participant may terminate at a date earlier than that set forth above, (B) that an Option granted to a Participant not subject to Section 16 of the Exchange Act may terminate at a date later than that set forth above, provided such date shall not be beyond the date the Option would have expired had it not been for the termination of the Participant's employment, and (C) that an Option or Stock Appreciation Right may become immediately exercisable when it finds that such acceleration would be in the best interests of the Company. (b) Incentive Stock Options. Except as otherwise determined by the ------------------------ Committee at the time of grant, if the Participant's employment with the Company is terminated for any reason, the Participant shall have the right to exercise any Incentive Stock Option and any related Stock Appreciation Right during the 90 days after such termination of employment to the extent it was exercisable at the date of such termination, but in no event later than the date the option would have expired had it not been for the termination of such employment. If the Participant does not exercise such Option or related Stock Appreciation Right to the full extent permitted by the preceding sentence, the remaining exercisable portion of such Option automatically will be deemed a Nonqualified Stock Option, and such Option and any related Stock Appreciation Right will be exercisable during the period set forth in Section 11(a) of the Plan, provided that in the event that employment is terminated because of death or the Participant dies in such 90-day period, the option will continue to be an Incentive Stock Option to the extent provided by Section 421 or Section 422 of the Code, or any successor provision, and any regulations promulgated thereunder. (d) Leave Without Pay. Any time spent by a Participant in the status of ----------------- "leave without pay" shall be disregarded for purposes of determining the extent to which any Award or portion thereof has vested or otherwise becomes exercisable or nonforfeitable. SECTION 9. Change in Control. Notwithstanding any other provision of the ----------------- Plan to the contrary, upon a Change in Control all outstanding Awards shall vest, become immediately exercisable or payable or have all restrictions lifted as may apply to the type of Award and no outstanding Stock Appreciation Right may be terminated, amended, or suspended upon or after a Change in Control; provided, however, that unless otherwise determined by the Committee at the time of award or thereafter, if it is determined that the Net After-Tax Amount to be realized by any Participant, taking into account the accelerated vesting provided for by this Section as well as all other payments to be received by such Participant in connection with such Change in Control, would be higher if Awards did not vest in accordance with this Section, then and to such extent the Awards shall not vest. The determination of whether any such Award should not vest shall be made by a nationally recognized accounting firm selected by the Company, which shall be instructed to consider that (i) Awards and other forms of compensation subject to vesting upon a Change of Control shall be vested in the order in which they were granted and within each grant in the order in which they would otherwise have vested and (ii) unless and to the extent any other plan, arrangement or contract of the Company pursuant to which any such payment is to be received provides to the contrary, such other payment shall be deemed to have occurred after any acceleration of Awards or other forms of compensation subject to vesting upon a Change of Control. SECTION 10. Amendment and Termination. --------------------------- (a) Amendments to the Plan. The Board may amend, alter, suspend, ------------------------- discontinue, or terminate the Plan or any portion thereof at any time; provided that no such amendment, alteration, suspension, discontinuation or termination shall be made without stockholder approval if such approval is necessary to comply with any tax or regulatory requirement, including for these purposes any approval requirement that is a prerequisite for exemptive relief from Section 16(b) of the Exchange Act, for which or with which the Board deems it necessary or desirable to qualify or comply. Notwithstanding anything to the contrary herein, the Committee may amend the Plan in such manner as may be necessary so as to have the Plan conform with local rules and regulations in any jurisdiction outside the United States. (b) Amendments to Awards. The Committee may waive any conditions or --------------------- rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation, or termination that would adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder, or beneficiary. (c) Adjustment of Awards Upon the Occurrence of Certain Unusual or ---------------------------------------------------------------------- Nonrecurring Events. The Committee is hereby authorized to make adjustments - -------------------- in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(b) hereof) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan; provided that no such adjustment shall be authorized to the extent that such authority would be inconsistent with the Plan's meeting the requirements of Section 162(m) of the Code, as from time to time amended. (d) Cancellation. Any provision of this Plan or any Award Agreement ------------ to the contrary notwithstanding, the Committee may cause any Award granted hereunder to be canceled in consideration of a cash payment or alternative Award made to the holder of such canceled Award equal in value to the Fair Market Value of such canceled Award. (e) Employee Status Change to Part-Time. At such time as a full-time ----------------------------------- employee becomes a part-time employee of the Company, on the next vesting date following such status change, all Awards previously granted to such employee will be automatically amended to reflect the vesting of all such Awards to be reduced by one-half with respect to any portion of the Awards not yet vested. SECTION 14. General Provisions. ------------------- (a) Nontransferability. No Award shall be assigned, alienated, pledged, ------------------ attached, sold or otherwise transferred or encumbered by a Participant, except by will or the laws of descent and distribution, provided, however, that an Award may be transferable, to the extent set forth in the applicable Award Agreement and in accordance with procedures adopted by the Committee. (b) No Rights to Awards. No Employee, Participant or other Person shall ------------------- have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Employees, Participants, or holders or beneficiaries of Awards. The terms and conditions of Awards need not be the same with respect to each recipient. (c) Share Certificates. All certificates for Shares or other securities ------------------ of the Company or any Affiliate delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares or other securities are then listed, and any applicable Federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (d) Delegation. Subject to the terms of the Plan and applicable law, the ---------- Committee may delegate to one or more officers or managers of the Company or any Affiliate, or to a committee of such officers or managers, the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to, or to cancel, modify or waive rights with respect to, or to alter, discontinue, suspend, or terminate Awards held by, Employees who are not officers or directors of the Company for purposes of Section 16 of the Exchange Act, or any successor section thereto, or who are otherwise not subject to such Section. (e) Withholding. A participant may be required to pay to the Company or ----------- any Affiliate and the Company or any Affiliate shall have the right and is hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to a Participant the amount (in cash, Shares, other securities, other Awards or other property) of any applicable withholding taxes in respect of an Award, its exercise, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes. The Committee may provide for additional cash payments to holders of Awards to defray or offset any tax arising from the grant, vesting, exercise, or payments of any Award. (f) Award Notice. Each Award hereunder shall be evidenced by an Award ------------ Notice that shall be delivered to the Participant and shall specify the terms and conditions of the Award and any rules applicable thereto. (g) No Limit on Other Compensation Arrangements. Nothing contained in the ------------------------------------------- Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of options, restricted stock, Shares and other types of Awards provided for hereunder (subject to stockholder approval if such approval is required), and such arrangements may be either generally applicable or applicable only in specific cases. (h) No Right to Employment. The grant of an Award shall not be construed ---------------------- as giving a Participant the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Notice. (i) No Rights as Stockholder. Subject to the provisions of the applicable ------------------------ Award, no Participant or holder or beneficiary of any Award shall have any rights as a stockholder with respect to any Shares to be distributed under the Plan until he or she has become the holder of such Shares. (j) Governing Law. The validity, construction, and effect of the Plan and ------------- any rules and regulations relating to the Plan and any Award Notice shall be determined in accordance with the laws of the State of Delaware. (k) Severability. If any provision of the Plan or any Award is or becomes ------------ or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect. (l) Other Laws. The Committee may refuse to issue or transfer any Shares ---------- or other consideration under an Award if, acting in its sole discretion, it determines that the issuance or transfer of such Shares or such other consideration might violate any applicable law or regulation or entitle the Company to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Award shall be promptly refunded to the relevant Participant, holder, or beneficiary. Without limiting the generality of the foregoing, no Award granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. federal securities laws and any other laws to which such offer, if made, would be subject. (m) No Trust or Fund Created. Neither the Plan nor any Award shall create ------------------------ or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. (n) No Fractional Shares. No fractional Shares shall be issued or ---------------------- delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated. (o) Headings. Headings are given to the Sections and subsections of the -------- Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. SECTION 15. Term of the Plan. ------------------- (a) Effective Date. The Plan shall be effective as of January 22, 1997, -------------- subject to approval by the stockholders of the Company within one year thereafter. (b) Expiration Date. No Incentive Stock Option shall be granted under the --------------- Plan after January 22, 1997. Unless otherwise expressly provided in the Plan or in an applicable Award Notice, any Award granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under any such Award shall, continue after the authority for grant of new Awards hereunder has been exhausted. EX-10.11 5 AMENDED AND RESTATED AS OF JANUARY 20, 1998 TO REFLECT 2-FOR-1 STOCK SPLIT EFFECTED JANUARY 20, 1998 COMPAQ COMPUTER CORPORATION NONQUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS SECTION 1. Amendment and Restatement. The Compaq Computer Corporation -------------------------- Nonqualified Stock Option Plan for Non-Employee Directors (the "Plan") amends and restates in its entirety the Compaq Computer Corporation 1987 Nonqualified Stock Option Plan for Non-Employee Directors. SECTION 2. Purpose. The purposes of the Plan are to attract and -------- retain the services of experienced and knowledgeable non-employee directors, to encourage eligible directors of Compaq Computer Corporation (the "Company") to acquire a proprietary and vested interest in the growth and performance of the Company, and to generate an increased incentive for directors to contribute to the Company's future success and prosperity, thus enhancing the value of the Company for the benefit of its stockholders. SECTION 3. Definitions. As used in the Plan, the following terms shall ------------ have the meanings set forth below: (a) "Amendment Date" shall mean December 12, 1996, the effective date of the amendment and restatement of the Plan. (b) "Annual Retainer" shall mean the amount that an Eligible Director would be entitled to receive for serving as a director in the year following an Election Date, but shall not include fees associated with service on any committee of the Board, any meeting fees, or any fees associated with other services to be provided to the Company. (c) "Board" shall mean the Board of Directors of the Company. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (e) "Company" shall mean Compaq Computer Corporation. (f) "Election Date" shall mean with respect to an Option hereunder the date of the appointment, election, or re-election of the director that prompted the grant of such Option. (g) "Eligible Director" shall mean each director of the Company who is not an employee of the Company or any of the Company's subsidiaries (as defined in Section 425(f) of the Code). (h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (i) "Fair Market Value" shall mean with respect to the Common Stock (i) the last sale price of the Common Stock on the date on which such value is determined, as reported on the consolidated tape of New York Stock Exchange issues or, if there shall be no trades on such date, on the date nearest preceding such date; (ii) if the Common Stock is not then listed for trading on the New York Stock Exchange, the last sale price of the Common Stock on the date on which such value is determined, as reported on another recognized securities exchange or on the NASDAQ National Market System if the Common Stock shall then be listed and traded upon such exchange or system or, if there shall be no trades on such date, on the date nearest preceding such date; or (iii) the mean between the bid and asked quotations for such stock on such date (as reported by a recognized stock quotation service) or, in the event that there shall be no bid or asked quotations on such date, then upon the basis of the mean between the bid and asked quotations on the date nearest preceding such date. (j) "Grant Notice" shall mean a written notice evidencing an Option granted hereunder. (k) "Option" shall mean any right granted to a Participant allowing such Participant to purchase Shares at such price or prices and during such period or periods as set forth under the Plan. All Options shall be nonqualified options not entitled to special tax treatment under Section 422A of Code. (l) "Participant" shall mean an Eligible Director who receives an Option under the Plan. (m) "Price Percentage" shall mean 50 percent unless adjusted in accordance with Section 8(e). (n) "Release Date" shall mean the fifth business day occurring after the Company's earnings release for the preceding fiscal period. In calculating the Release Date, the day of an earnings release shall be counted if the earnings release is made before the opening of trading on the New York Stock Exchange and shall not be counted if such release is made after the opening of trading. (o) "Share Percentage" shall be 50 percent unless adjusted in accordance with Section 8(e). (p) "Shares" shall mean shares of the common stock, $.01 par value, of the Company. (q) "Window" shall mean a period of time beginning on a Release Date and ending at the end of the second month of the fiscal quarter in which such Release Date occurs. SECTION 4. Administration. The Plan shall be administered by the Board. --------------- Subject to the terms of the Plan, the Board shall have the power to interpret the provisions and supervise the administration of the Plan. SECTION 5. Shares Subject to the Plan. ------------------------------- (a) Total Number. Subject to adjustment as provided in this Section, the total number of Shares as to which Options may be granted under the Plan shall be 7,500,000 Shares. Any Shares issued pursuant to Options hereunder may consist, in whole or in part, of authorized and unissued shares or treasury shares. (b) Reduction of Shares Available. (i) The grant of an Option will reduce the Shares as to which Options may be granted by the number of Shares subject to such Option. (ii) Any Shares issued by the Company through the assumption or substitution of outstanding grants from an acquired company shall not reduce the Shares available for grants under the Plan. (c) Increase of Shares Available. The lapse, cancellation, or other termination of an Option that has not been fully exercised shall increase the available Shares by the number of Shares that have not been issued upon exercise of such Option. (d) Other Adjustments. The total number and kind of shares available for Options under the Plan or which may be allocated to any one Participant, the number and kind of shares of Common Stock subject to outstanding Options, and the exercise price for such Options shall be appropriately adjusted by the Board for any increase or decrease in the number of outstanding Shares resulting from a stock dividend, subdivision, combination of Shares, reclassification, or other change in corporate structure affecting the Shares or for any conversion of the Shares into or exchange of the Shares for other shares as a result of any merger or consolidation (including a sale of assets) or other recapitalization as may be necessary to maintain the proportionate interest of the Option holder. SECTION 6. Initial Options. Initial Options shall be granted to ----------------- Eligible Directors as follows: (a) Initial Grants. Each Eligible Director who is first elected or appointed to the Board on or after April 25, 1996, shall be granted one Option to acquire 31,250 Shares. In the event that the Election Date occurs during the Window, such Option shall be granted on the Election Date with respect to such Option. In the event that such Eligible Director's election or appointment does not occur during the Window, then such Option shall be granted on the next Release Date. Any Eligible Director who is elected or appointed to the Board as the result of a merger of a subsidiary of the Company with Tandem Computers Incorporated ("Tandem") will not be eligible for an initial grant as provided in this Section 6(a). Any options to purchase common stock of Tandem held by such Eligible Director at the time of the merger will be converted into options to purchase Compaq Common Stock upon consummation of the merger. Such converted options shall be assumed under this Plan and shall be exercisable on the first anniversary date of the grant date of such options. This conversion to Options under this Plan shall not be considered an initial grant as provided in this Section 6(a). (b) Terms and Conditions. Any Option granted under this Section 6 shall be subject to the following terms and conditions: (i) Option Price. The purchase price per Share purchasable under an Option granted under Section 6 shall be 100% of the Fair Market Value of a Share on the date of the grant of the Option. (ii) Exercisability. An Option granted under Section 6(a) shall be exercisable on the first anniversary of the Election Date. SECTION 7. Annual Options. Annual Options shall be granted to Eligible --------------- Directors as follows: (a) Reelected Directors. Each Eligible Director who is reelected to the Board at an annual meeting of the Company's stockholders on or after the Amendment Date and who has not received a grant under Section 6 during the period since the most recent previous annual meeting of the Company's stockholders shall be granted an Option to acquire 25,000 Shares on each Election Date on which he is reelected. (b) Chairman of the Board. Each Eligible Director who is elected or re-elected Chairman of the Board by the Board at its meeting following an annual meeting of the Company's stockholders on or after the Amendment Date and who has not received a grant under Section 6 during the period since the most recent annual meeting of the Company's stockholders shall be granted on each Election Date on which he is elected or reelected Chairman of the Board an Option to acquire 6,250 Shares in addition to any applicable Option granted under Section 7(a). (c) Terms and Conditions. Any Option granted under this Section 7 shall be subject to the following terms and conditions: (i) Option Price. The purchase price per Share purchasable under an Option shall be 100% of the Fair Market Value of a Share on the date of the grant of the Option. (ii) Exercisability. An Option granted under this Section 7 shall be exercisable (A) with respect to 50% of the Shares thereunder on the first anniversary of the Election Date related to such Option and (B) with respect to the remaining 50% of the Shares thereunder on the second anniversary of such Election Date SECTION 8. Options in Lieu of Cash Compensation. Options shall be ------------------------------------- granted to Eligible Directors in lieu of cash compensation as follows: (a) Election to Receive Option. An option shall be granted automatically to any Eligible Director who prior to an Election Date on which such director is re-elected to the Board by the Company's stockholders, files with the Secretary of the Company an irrevocable election to receive an Option in lieu of all or a portion of his or her Annual Retainer. On the following Election Date, each Eligible Director making such a filing under this Section 8(a) shall be granted an Option for the number of Shares determined under Section 8(b) below. (b) Option Formula. The number of Option shares granted on an Election Date to any Eligible Director under this Section 8 shall be equal to the nearest number of whole shares determined in accordance with the following formula: (Elected Portion) (Annual Retainer) = Number of (Share Percentage) (Fair Market Value) Shares where Elected Portion refers to the portion of Annual Retainers elected under Section 8(a) and Fair Market Value refers to the Fair Market Value of a Share on the date of grant. (c) Option Price. The purchase price per Share covered by each Option granted under this Section 8 shall be the Fair Market Value of a Share on the date of grant multiplied by the Price Percentage. (d) Exercisability. An Option granted under this Section 8 shall be exercisable one year from the date of grant (e) Adjustment. In the event that any law, ruling, or regulation shall be proposed, promulgated, or adopted after the Amendment Date that provides that a higher Option price shall be required so that Options granted under Section 8 of the Plan will be treated as options for tax purposes, the Share Percentage and Price Percentage of Options granted hereafter under this Section 8 shall be automatically adjusted to comply therewith; provided, however, the sum of the Share Percentage and the Price Percentage shall remain 100 percent. SECTION 9. General Terms. The following provisions shall apply to any ------------- Option granted under the Plan. (a) Option Period. Each Option shall expire ten years from its date of grant. Each Option shall be subject to termination before its date of expiration as hereinafter provided. (b) Termination of Service as Director. If a Participant's service as a director is terminated for any reason other than death, disability or retirement due to a mandatory age retirement policy the Participant or his beneficiary shall have the right to exercise any Option to the extent it was exercisable at the date of such termination of service and shall not have been exercised. The right to exercise such Option to the extent set forth herein shall continue until the expiration of the Option. (c) Death or Disability. If the Participant's service as a director is terminated by death or disability, the Participant shall have the right to exercise a prorated number of the Shares under any Option that is not fully exercisable prior to such event, such number to be determined by multiplying (i) the total number of Shares subject to such Option by (ii) a fraction equal to (A) the total of number of completed months of service since the Election Date related to such Option divided by (B) the total number of completed months of service from the Election Date related to such Option until such Option would have become fully exercisable. The right to exercise such Option to the extent set forth herein shall continue until the expiration of the Option. (d) Mandatory Age Retirement. If the Participant's service as a Director is terminated as a result of any mandatory age retirement policy of the Board, Options granted under the Plan shall become immediately exercisable with respect to 100% of the Shares on the date of such mandatory retirement. The right to exercise each such Option to the extent set forth herein shall continue until the expiration of such Option. (e) Method of Exercise. Any Option may be exercised by the Participant in whole or in part at such time or times and by such methods as the Board may specify. The applicable Option Agreement may provide that the Participant may make payment of the Option price in cash, Shares, or such other consideration as the Board may specify, or any combination thereof, having a Fair Market Value on the exercise date equal to the total option price. SECTION 10. Change in Control. ------------------- (a) Immediate Vesting. Notwithstanding any other provision of the Plan to the contrary, upon a Change in Control, as defined below, all outstanding Options shall vest and become immediately exercisable. (b) Change in Control. A "Change in Control" shall be deemed to have occurred if: (i) any "person" as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of Stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to January 18, 1989), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii), or (iv) of this Section 10(b)) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 30% of the combined voting power of the Company's then outstanding securities shall not constitute a Change in Control of the Company; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. SECTION 11. Amendments and Termination. ----------------------------- (a) Board Authority. The Board may amend, alter, or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made (i) that would impair the rights of a Participant under an Option theretofore granted, without the Participant's consent, or (ii) without the approval of the stockholders if such approval is necessary to comply with any tax or regulatory requirement, including for these purposes any approval requirement which is a prerequisite for exemptive relief from Section 16(b) of the Exchange Act, or (iii) to Section 6, Section 7 or Section 8 more often than once every six months. (b) Prior Stockholder and Participant Approval. Anything herein to the contrary notwithstanding, in the event that amendments to the Plan are required in order that the Plan or any other stock-based compensation plan of the Company comply with the requirements of Rule 16b-3 issued under the Exchange Act as amended from time to time or any successor rules promulgated by the Securities and Exchange Commission related to the treatment of benefit and compensation plans under Section 16 of the Exchange Act, the Board is authorized to make such amendments without the consent of Participants or the stockholders of the Company. SECTION 12. General Provisions. ------------------- (a) Nontransferability. No Option shall be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant, except by will or the laws of descent and distribution, provided, however, that an Option may be transferable, to the extent set forth in the applicable Grant Notice or agreement and in accordance with procedures adopted by the Board, if such provisions do not disqualify such Option for exemption under Rule 16b-3. (b) Compliance Requirements. All certificates for Shares delivered under the Plan pursuant to any Option shall be subject to such stock-transfer orders and other restrictions as the Board may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed, and any applicable federal or state securities law, and the Board may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. The Company shall not be required to issue or deliver any Shares under the Plan prior to the completion of any registration or qualification of such Shares under any federal or state law, or under any ruling or regulation of any governmental body or national securities exchange that the Board in its sole discretion shall deem to be necessary or appropriate. (c) Other Plans. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required by applicable law or the rules of any stock exchange on which the Common Stock is then listed; and such arrangements may be either generally applicable or applicable only in specific cases. (d) Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Delaware and applicable federal law. (e) Conformity With Law. If any provision of this Plan is or becomes or is deemed invalid, illegal, or unenforceable in any jurisdiction, or would disqualify the Plan or any Option under any law deemed applicable by the Board, such provision shall be construed or deemed amended in such jurisdiction to conform to applicable laws or if it cannot be construed or deemed amended without, in the determination of the Board, materially altering the intent of the Plan, it shall be stricken and the remainder of the Plan shall remain in full force and effect. SECTION 13. Expiration. The Plan will expire when no Shares are ---------- available for issuance. EX-10.18 6 EXECUTION COPY ============================================================================== U.S. $1,000,000,000 REVOLVING CREDIT AGREEMENT (364-DAY) DATED AS OF SEPTEMBER 22, 1997 AMONG ===== COMPAQ COMPUTER CORPORATION, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, AS ADMINISTRATIVE AGENT AND AS INTERNET AGENT, --------------------------------------------- THE CHASE MANHATTAN BANK, CITIBANK, N.A. AND NATIONSBANK OF TEXAS, N.A. AS SYNDICATION AGENTS, --------------------- MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS INTERNET AGENT, ----------------- AND THE BANKS PARTY HERETO ==============================================================================
TABLE OF CONTENTS Page ------ ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 1 1.02 Other Interpretive Provisions . . . . . . . . . . . . . . . . . . . 13 1.03 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE II THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.01 Amounts and Terms of Commitments. . . . . . . . . . . . . . . . . . 14 2.02 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.03 Procedure for Revolving Loan Borrowings . . . . . . . . . . . . . . 15 2.04 Conversion and Continuation Elections for Revolving Loan Borrowings 16 2.05 Procedure for Swingline Borrowings. . . . . . . . . . . . . . . . . 18 2.06 Increase and Extension of Commitments . . . . . . . . . . . . . . . 19 2.07 Ratable Reduction or Termination of Commitments . . . . . . . . . . 21 2.08 Non-Ratable Reduction or Termination of Commitments . . . . . . . . 21 2.09 Optional and Mandatory Prepayments. . . . . . . . . . . . . . . . . 22 2.10 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.11 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.12 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 3.13 Computation of Fees and Interest. . . . . . . . . . . . . . . . . . 23 2.14 Interest Rate Determination and Protection. . . . . . . . . . . . . 24 2.15 Payments by the Company . . . . . . . . . . . . . . . . . . . . . . 25 2.16 Payments by the Banks to the Agent. . . . . . . . . . . . . . . . . 26 2.17 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY . . . . . . . . . . . . . . 27 3.01 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 3.02 Breakage Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 28 3.03 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 28 3.04 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.05 Reserves on Offshore Loans. . . . . . . . . . . . . . . . . . . . . 30 3.06 Replacement of Bank; Termination of Bank. . . . . . . . . . . . . . 30 3.07 Reallocation of Commitments in Event of Merger, Etc.. . . . . . . . 32 3.08 Certificates of Banks . . . . . . . . . . . . . . . . . . . . . . . 33 3.09 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE IV CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . 33 4.01 Conditions of Initial Loans . . . . . . . . . . . . . . . . . . . . 33 4.02 Conditions to All Borrowings. . . . . . . . . . . . . . . . . . . . 34 ARTICLE V REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . 35 5.01 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . 35 5.02 Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5.03 Authorization and Approvals . . . . . . . . . . . . . . . . . . . . 35 5.04 Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . 36 5.05 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 36 5.06 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.07 Regulation U. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.08 Investment Company Act. . . . . . . . . . . . . . . . . . . . . . . 36 5.09 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.10 Holding Company . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.11 Environmental Condition . . . . . . . . . . . . . . . . . . . . . . 36 5.12 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . 37 ARTICLE VI AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 37 6.01 Compliance with Laws Etc. . . . . . . . . . . . . . . . . . . . . . 37 6.02 Reporting Requirements. . . . . . . . . . . . . . . . . . . . . . . 37 6.03 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 38 6.04 Maintenance of Insurance. . . . . . . . . . . . . . . . . . . . . . 38 6.05 Corporate Existence Etc.. . . . . . . . . . . . . . . . . . . . . . 39 6.06 Visitation Rights . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE VII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 39 7.01 Leverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.02 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE VIII EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 40 8.01 Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.02 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.03 Rights Not Exclusive. . . . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE IX THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 9.01 Appointment and Authorization . . . . . . . . . . . . . . . . . . . 41 9.02 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . . . 42 9.03 Liability of Agent. . . . . . . . . . . . . . . . . . . . . . . . . 42 9.04 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . 42 9.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . 43 9.06 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . 43 9.07 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 44 9.08 Agent in Individual Capacity. . . . . . . . . . . . . . . . . . . . 44 9.09 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 44 9.10 Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . . . . 45 9.11 Co-Agents; Internet Agents. . . . . . . . . . . . . . . . . . . . . 46 ARTICLE X MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 10.01 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . 47 10.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 10.03 No Waiver: Cumulative Remedies. . . . . . . . . . . . . . . . . . . 48 10.04 Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 48 10.05 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 10.06 Payments Set Aside. . . . . . . . . . . . . . . . . . . . . . . . . 49 10.07 Binding Effect; Assignments; Participations . . . . . . . . . . . . 49 10.08 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 10.09 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 10.10 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 52 10.11 Preservation of Certain Matters . . . . . . . . . . . . . . . . . . 53 10.12 Notification of Addresses, Lending Offices Etc. . . . . . . . . . . 54 10.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 10.14 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 10.15 Governing Law; Jurisdiction . . . . . . . . . . . . . . . . . . . . 54 10.16 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . 54 10.17 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 55
SCHEDULES Schedule 2.01 Commitments Schedule 10.02 Notice Addresses, Payment and Lending Offices EXHIBITS Exhibit A Form of Notice of Borrowing Exhibit B Form of Notice of Conversion/Continuation Exhibit C Form of Compliance Certificate Exhibit D-1 Form of Opinion of Vice President and Assistant General Counsel of the Company Exhibit D-2 Form of Opinion of Vinson & Elkins L.L.P., Counsel to the Company Exhibit E Form of Note Exhibit F Form of Assignment and Acceptance REVOLVING CREDIT AGREEMENT (364-DAY) dated as of September 22, 1997 COMPAQ COMPUTER CORPORATION, a Delaware corporation (the "Company"), the several financial institutions from time to time party to this Agreement (collectively, the "Banks", and individually, a "Bank"), Bank of America National Trust and Savings Association, as administrative agent and as Internet agent for the Banks, The Chase Manhattan Bank, Citibank, N.A. and NationsBank of Texas, N.A., as syndication agents, and Morgan Guaranty Trust Company of New York, as Internet agent, agree as follows. ARTICLE I DEFINITIONS 1.01 Certain Defined Terms. The following terms have the following --------------------- meanings: "Acquiring Entity" has the meaning specified in Section 3.07. ----------------- "Adjusted CD Rate" means, for any Interest Period for each Adjusted CD Rate ------------------ Revolving Loan comprising part of the same Borrow-ing or an Adjusted CD Rate Swingline Loan, as the case may be, an interest rate per annum equal to the sum of: (a) the rate per annum obtained by dividing (i) the rate of interest determined by the Agent to be the average (rounded upward to the nearest whole multiple of 1/100 of 1% per annum, if such average is not such a multiple) of the consensus bid rate determined by each of the Reference Banks, in the case of Adjusted CD Rate Revolving Loans, or the Swingline Bank, in the case of an Adjusted CD Rate Swingline Loan, for the bid rates per annum, at 9:00 a.m. (Houston time) (or as soon thereafter as practicable) on the first day of such Interest Period, of New York certificate of deposit dealers of recognized standing selected by such Reference Bank or the Swingline Bank, as applicable, for the purchase at face value of certificates of deposit of such Reference Bank or the Swingline Bank, as applicable, in an amount substantially equal to such Reference Bank's Adjusted CD Rate Revolving Loan comprising part of such Borrowing, in the case of Adjusted CD Rate Revolving Loans, or the Adjusted CD Rate Swingline Loan, in the case of an Adjusted CD Rate Swingline Loan, and with a maturity equal to such Interest Period (provided that, if bid rate quotes from such dealers are not available to any Reference Bank or the Swingline Bank, as applicable, such Reference Bank or the Swingline Bank shall notify the Agent of a reasonably equivalent rate determined by it on the basis of another source or sources selected by it), by (ii) a percent-age equal to 100% minus the Adjusted CD Rate Reserve Percent-age for such Interest Period (the "Certificate of Deposit Rate"), plus ------------------------------ (b) the Assessment Rate for such Interest Period. The Adjusted CD Rate for the Interest Period for each Adjusted CD Rate Revolving Loan comprising part of the same Borrowing or an Adjusted CD Rate Swingline Loan, as the case may be, shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent as set forth above on the first day of such Interest Period, subject however, to the ------- ------- provisions of Section 2.14. "Adjusted CD Rate Revolving Loan" means a Revolving Loan which bears ----------------------------------- interest at the Adjusted CD Rate plus the Applicable Margin. "Adjusted CD Rate Reserve Percentage" for any Interest Period for each --------------------------------------- Adjusted CD Rate Revolving Loan comprising part of the same Borrowing or an Adjusted CD Rate Swingline Loan, as the case may be, means the reserve percentage applicable on the first day of such Interest Period under regulations issued from time to time by the FRB for determin-ing the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with deposits exceeding one billion dollars with respect to liabilities consisting of or including U.S. dollar nonpersonal time deposits in the United States with a maturity equal to such Interest Period. "Adjusted CD Rate Swingline Loan" means a Swingline Loan which bears interest -------------------------------- at the Adjusted CD Rate plus the Applicable Margin. "Affiliate" means, as to any Person, any other Person which, directly or --------- indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" means BofA in its capacity as administrative agent for the Banks ----- hereunder, and any successor administrative agent. "Agent-Related Persons" means BofA and any successor administrative agent ---------------------- arising under Section 9.09, together with their respective Affiliates (including, in the case of BofA, the Arranger), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Agent's Payment Office" means the address for payments set forth on Schedule ----------------------- -------- 10.02 or such other address as the Agent may from time to time specify. - ----- "Agreement" means this Revolving Credit Agreement. --------- "Applicable Fee Amount" means, for any date, 0.060 percent per annum. ----------------------- "Applicable Margin" means, on any date and with respect to each CD Loan or ------------------ Offshore Loan outstanding on such date, 0.230 percent per annum; provided, -------- that at any time as the aggregate outstanding principal amount of Revolving Loans, together with the aggregate outstanding principal amount of "Revolving Loans" under, and as that term is defined in, the 5-Year Credit Agreement, exceeds 50% of the combined Commitments of all the Banks, together with the combined "Commitments" of all the lenders under, and as that term is defined in, the 5-Year Credit Agreement (and any time after the termination of commitments to lend under Section 8.02(a) or under Section 2.09(b), or of the 5-Year Credit Agreement, as applicable), the Applicable Margin in respect of CD Loans and Offshore Loans hereunder shall be increased by an additional 0.10 percent per annum. "Arranger" means BancAmerica Securities, Inc., a Delaware corporation. -------- "Assessment Rate" for any Interest Period for each Adjusted CD Rate Revolving ---------------- Loan comprising part of the same Borrowing or an Adjusted CD Rate Swingline Loan, as the case may be, means the rate determined by the Agent as equal to the annual assessment rate in effect on the first day of such Interest Period payable to the FDIC by a member of the Bank Insurance Fund that is classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification within the meaning of 12 C.F.R. 327.3) for insuring time deposits at offices of such member in the United States; or, in the event that the FDIC shall at any time hereafter cease to assess time deposits based upon such classifications or successor classifications, equal to the maximum annual assessment rate in effect on such day that is payable to the FDIC by commercial banks (whether or not applicable to any particular Bank) for insuring time deposits at offices of such banks in the United States. "Assignment and Acceptance" means an assignment and acceptance agreement --------------------------- substantially in the form of Exhibit F. ---------- "Attorney Costs" means and includes the reasonable fees and disbursements of --------------- any law firm or other external counsel and the reasonable allocated cost of internal counsel. "Bank" has the meaning specified in the introductory clause hereto. ---- References to the "Banks" shall include references to BofA in its capacity as the Swingline Bank. For purposes of clarification only, to the extent that BofA may have any rights or obligations in addition to those of the Banks due to its status as the Swingline Bank, its status as such will be specifically referenced. "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. ---------------- 101, et seq.). "Base Loan" means any Base Rate Revolving Loan or any Base Rate Swingline ---------- Loan. "Base Rate" means, for any day, the higher of: (a) 1/2% above the latest ---------- Federal Funds Rate, and (b) the rate of interest in effect for such day as publicly announced from time to time by the Bank which is the Agent at its principal office, as its "prime" or "reference" rate (or comparable rate, if such Bank does not so designate a "prime" or "reference" rate). The prime or reference rate is a rate set by such Bank based upon various factors including such Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the prime or reference rate announced by such Bank shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Revolving Loan" means a Revolving Loan that bears interest based on ------------------------ the Base Rate. "Base Rate Swingline Loan" means a Swingline Loan which bears interest based -------------------------- on the Base Rate. "BofA" means Bank of America National Trust and Savings Association, a ---- national banking association. "Borrowing" means a borrowing hereunder consisting of (a) Revolving Loans of --------- the same Type made to the Company on the same day by the Banks, or (b) a Swingline Loan made to the Company by the Swingline Bank, in each case pursuant to Article II. "Borrowing Date" means any date on which a Borrowing occurs under Section 2.03 -------------- or 2.05. "Business Day" means (i) any day of the year except Saturday, Sunday and any ------------- day on which banks are required or authorized to close in New York City or San Francisco and (ii) if the applicable Business Day relates to any Offshore Loan, any day which is a "Business Day" described in clause (i) and which is also a day for trading by and between banks in the London interbank Eurodollar market. "Certificate of Deposit Rate" has the meaning specified in the definition of ----------------------------- "Adjusted CD Rate." "CD Lending Office" means, with respect to any Bank, the office of such Bank ------------------- specified as its "CD Lending Office" opposite its name on Schedule 10.02 or in -------------- the document pursuant to which it became a party hereto as contemplated by Section 2.06, 3.06(a), 3.07 or 10.07(c) (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 Company and the Agent. "CD Loan" means any Adjusted CD Rate Revolving Loan or any Adjusted CD Rate -------- Swingline Loan. "Change in Control" means the direct or indirect acquisition by any person (as ----------------- such term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act), or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act), of (a) beneficial ownership of issued and outstanding shares of voting stock of a corporation or other entity, the result of which acquisition is that such person or such group possesses in excess of 50% of the combined voting power of all then-issued and outstanding voting stock of such corporation or other entity, or (b) the power to elect, appoint, or cause the election or appointment of at least a majority of the members of the board of directors of such corporation or other entity. "Closing Date" means the date on which all conditions precedent set forth in ------------- Section 4.01 are satisfied or waived by all Banks. "Code" means the Internal Revenue Code of 1986, and regulations promulgated ---- thereunder. "Commitment", as to each Bank, has the meaning specified in Section 2.01(a). ---------- "Commitment Percentage" means, as to any Bank at any time, the percentage ---------------------- equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Bank's Commitment divided by the combined Commitments of all Banks. "Company" means Compaq Computer Corporation, a Delaware corporation and ------- successors thereto. "Compliance Certificate" means a certificate substantially in the form of ----------------------- Exhibit C. "Consolidated Net Worth" means at any date the consoli-dated stockholders' ------------------------ equity of the Company and its consolidated Subsidiaries (excluding any Redeemable Preferred Stock of the Company). "Consolidated Tangible Net Worth" means at any date Consolidated Net Worth ---------------------------------- less the amount, if any, in excess of $25,000,000 of consolidated "intangible assets" (as defined below) included in determining Consolidated Net Worth. For the purposes of this definition, "intangible assets" means the sum of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to December 31, 1996 in the book value of any asset owned by the Company or a Subsidiary of the Company and (ii) all unamortized goodwill, patents, trademarks, service marks, trade names, copy-rights, organization or developmental expenses and other intangible items. "Conversion/Continuation Date" means any date on which, under Section 2.04, ----------------------------- the Company (a) converts Revolving Loans of one Type to another Type, or (b) continues as Revolving Loans of the same Type, but with a new Interest Period, Revolving Loans having Interest Periods expiring on such date. "Debt" of any Person means, at any date, without duplica-tion, (i) obligations ---- for the repayment of money borrowed which are or should be shown on a balance sheet as debt in accordance with GAAP, (ii) obligations as lessee under leases which, in accordance with GAAP, are capital leases, (iii) non-contingent reimbursement and payment obligations with respect to letters of credit, bank guaranties or banker's acceptances, and (iv) guaranties of payment or collection of any obligations described in clauses (i), (ii) and (iii) of other Persons; provided, that clauses (i), (ii) and (iii) include, in the case -------- of obligations of the Company or any Subsidiary, only such obligations as are or should be shown as debt or capital lease lia-bi-lities on a consolidated balance sheet in accordance with GAAP; and provided, further, that the -------- ------- liability of any Person as a general partner of a partner-ship for Debt of such partnership, if the partnership is not a Subsidiary of such Person, shall not constitute "Debt." "Default" means any event or circumstance which, with the giving of notice, ------- the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Dollars", "dollars" and "$" each mean lawful money of the United States. ------- ------- - "Domestic Lending Office" means, with respect to any Bank, the office of such ------------------------ Bank specified as its "Domestic Lending Office" opposite its name on Schedule -------- 10.02 or in the document pursuant to which it became a party hereto as - ----- contemplated by Section 2.06, 3.06(a), 3.07 or 10.07(c) or such other office of such Bank as such Bank may from time to time specify to the Company and the Agent. "Eligible Assignee" means (i) a commercial bank organized under the laws of ------------------ the United States, or any state thereof, and having a combined capital and surplus of at least $200,000,000; (ii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development or a political subdivision of any such country, and having a combined capital and surplus of at least $200,000,000, provided -------- that, unless otherwise agreed to by the Agent and the Company, such bank is acting through a branch or agency located in the United States; and (iii) a Person that is primarily engaged in the business of commercial banking and that is (A) a Subsidiary of a Bank, (B) a Subsidiary of a Person of which a Bank is a Subsidiary, or (C) a Person of which a Bank is a Subsidiary. "Environment" or "Environmental" has the meanings set forth in the ----------- ------------- Comprehensive Environmental Response, Compensation and Liability Act at 42 U.S.C. 9601(8) (1982). "Environmental Protection Statute" means any United States local, state or ---------------------------------- federal, or any foreign, law, statute, regulation, order, consent decree or other agreement or Requirement of Law pertaining to the protection or regulation of the Environment, including, without limitation, those laws, statutes, regulations, orders, decrees, agreements and other Requirements of Law relating to the disposal, cleanup, production, storing, refining, handling, transferring, processing or transporting of Hazardous Waste, Hazardous Substances or any pollutant or contaminant, wherever located. "ERISA" means the Employee Retirement Income Security Act of 1974, and ----- regulations promulgated thereunder. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation ------------------------ D of the FRB. "Event of Default" means any of the events or circumstances specified in ------------------ Section 8.01. "Exchange Act" means the Securities Exchange Act of 1934, and regulations ------------- promulgated thereunder. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental ---- Authority succeeding to any of its principal functions. "Federal Funds Rate" means, for any day, the rate set forth in the weekly -------------------- statistical release designated as H.15(519), published by the FRB on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Agent. "5-Year Credit Agreement" means that U.S.$3,000,000,000 Revolving Credit ------------------------- Agreement dated as of this date among the Company, BofA as Administrative Agent and the lenders party thereto, under which such lenders have agreed to extend credit to the Company on a five-year basis. "FRB" means the Board of Governors of the Federal Reserve System, and any --- Governmental Authority succeeding to any of its principal functions. "GAAP" means generally accepted accounting principles set forth from time to ---- time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "Governmental Authority" means any nation or government, any state or other ----------------------- political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Hazardous Substance" has the meaning set forth in the Comprehensive -------------------- Environmental Response, Compensation and Liability Act at 42 U.S.C. 9601(14) and also includes each other substance considered to be a hazardous substance under any analogous statute or regulation. "Hazardous Waste" has the meaning set forth in the Resource Conservation and ---------------- Recovery Act at 42 U.S.C. 6903(5) and also includes each other substance considered to be a hazardous waste under any analogous statute or regulation (including 40 C.F.R. 261.3). "Highest Lawful Rate" means, with respect to each Bank, the maximum --------------------- nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Loans or on other indebtedness outstanding under this Agreement or the Notes applicable to such Bank which is presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. "Information" has the meaning specified in Section 10.10. ----------- "Insolvency Proceeding" means (a) any case, action or proceeding before any ---------------------- court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under Federal, state or foreign law, including the Bankruptcy Code. "Interest Payment Date" means (a) as to any Revolving Loan other than a Base ----------------------- Rate Revolving Loan, the last day of each Interest Period applicable to such Loan, provided, however, that if any Interest Period for (i) an Adjusted CD -------- ------- Rate Revolving Loan exceeds 90 days, the date that falls 90 days after the beginning of such Interest Period is also an Interest Payment Date, or (ii) a LIBOR Revolving Loan exceeds three months, the date that falls three months, six months or nine months, if any, after the beginning of (and prior to the end of) such Interest Period is also an Interest Payment Date, (b) as to any Base Rate Revolving Loan, the last Business Day of each calendar quarter and (c) as to any Swingline Loan, the last day of the Interest Period applicable to such Loan. "Interest Period" means (a) as to any Adjusted CD Rate Revolving Loan, the ---------------- period commencing on the Borrowing Date or on the Conversion/Continuation Date on which a Revolving Loan is converted into or continued as an Adjusted CD Rate Revolving Loan, and ending on the date 30, 60, 90 or 180 days thereafter, as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, (b) as to any LIBOR Revolving Loan, the period commencing on the Borrowing Date or on the Conversion/Continuation Date on which a Revolving Loan is converted into or continued as a LIBOR Revolving Loan, and ending on the day which numerically corresponds to such date one, two, three or six months (and any other period that is 12 months or less and is available to all of the Banks in the given instance) thereafter (or if such month has no numerically corresponding day, on the last Business Day of such month), as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, and (c) as to any Swingline Loan, the period commencing on the Borrowing Date of such Loan and ending on such date, not more than 10 days later, as agreed upon by the Company and the Swingline Bank at the time of the Borrowing of such Loan; provided that: -------- (i) if any Interest Period pertaining to a CD Loan would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day; (ii) if any Interest Period pertaining to an Offshore Loan would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; and (iii) no Interest Period for any Loan shall extend beyond the date set forth in clause (a) of the definition of "Revolving Termination Date". "IRS" means the United States Internal Revenue Service. --- "Lending Office" means, as to any Bank, the office or offices of the Bank --------------- specified as its "CD Lending Office" or "Domestic Lending Office" or "LIBOR Lending Office", as the case may be, on Schedule 10.02, or such other office -------------- or offices as the Bank may from time to time notify the Company and the Agent. "LIBO Rate" means, for any Interest Period for each LIBOR Revolving Loan ---------- comprising part of the same Borrowing or a LIBOR Swingline Loan, as the case may be, an interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which dollar deposits in immediately available funds are offered by each of the Reference Banks, in the case of LIBOR Revolving Loans, or the Swingline Bank, in the case of a LIBOR Swingline Loan, to leading banks in the London interbank Eurodollar 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 LIBOR Revolving Loan of such Reference Bank comprising part of such Borrowing, in the case of LIBOR Revolving Loans, or the LIBOR Swingline Loan, in the case of a LIBOR Swingline Loan, to be outstanding during such Interest Period and for a period equal to such Interest Period. The LIBO Rate for each Interest Period for each LIBOR Revolving Loan comprising part of the same Borrowing or a LIBOR Swingline Loan, as the case may be, shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent as set forth above two Business Days before the first day of such Interest Period, subject, however, ------- ------- to the provisions of Section 2.14. "LIBOR Lending Office" means, with respect to any Bank, the office of such ---------------------- Bank specified as its "LIBOR Lending Office" opposite its name on Schedule 10.02 or in the document pursuant to which it became a party hereto as contemplated by Section 2.06, 3.06(a), 3.07 or 10.07(c) (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 Company and the Agent. "LIBOR Revolving Loan" means a Revolving Loan which bears interest at the LIBO -------------------- Rate plus the Applicable Margin. "LIBOR Swingline Loan" means a Swingline Loan which bears interest at the LIBO -------------------- Rate plus the Applicable Margin. "Loan" means an extension of credit, in the form of (a) a Revolving Loan by a ---- Bank to the Company, which may be a Base Rate Revolving Loan, Adjusted CD Rate Revolving Loan or LIBOR Revolving Loan (each, a "Type" of Revolving Loan), or ---- (b) a Swingline Loan by the Swingline Bank to the Company, which may be a Base Rate Swingline Loan, Adjusted CD Rate Swingline Loan or LIBOR Swingline Loan (each, a "Type" of Swingline Loan); in each case pursuant to Article II. ---- "Loan Documents" means this Agreement, the Notes and all other documents --------------- delivered to the Agent or any Bank in connection herewith. "Majority Banks" means at any time Banks holding more than 50% of the combined -------------- Commitments of all the Banks, or, if at such time there are no Commitments hereunder, Banks holding more than 50% of the then aggregate unpaid principal amount of the Loans, including the Swingline Loans. "Margin Stock" means "margin stock" as such term is defined in Regulation G, U ------------ or X of the FRB. "Material Adverse Effect" means any event or condition which would have a ------------------------- material adverse effect on the condition (financial or otherwise), business or properties of the Company and its Subsidiaries on a consolidated basis. "Minimum Tranche" means: (a) in respect of Revolving Loans comprising part of --------------- the same Borrowing, or to be converted or continued under Section 2.04, (i) in the case of Base Rate Revolving Loans, $5,000,000 or any multiple of $1,000,000 in excess thereof; and (ii) in the case of Adjusted CD Rate Revolving Loans and LIBOR Revolving Loans, $10,000,000 or any multiple of $1,000,000 in excess thereof; and (b) in respect of any Swingline Loan, $1,000,000 or any multiple of $500,000 in excess thereof, unless otherwise agreed by the Swingline Bank. "Moody's" means Moody's Investors Service, Inc. and any successor thereto that ------- is a nationally recognized rating agency. "New Affiliate Bank" has the meaning specified in Section 3.06. -------------------- "No Loan Date" means any Business Day on which (a) no principal amount of any ------------- Revolving Loan is outstanding, and (b) no Notice of Borrowing with respect to Revolving Loans is pending or deemed pending pursuant to Article II. "Note" has the meaning specified in Section 2.02. ---- "Notice of Borrowing" means a notice in substantially the form of Exhibit A. --------------------- --------- "Notice of Conversion/Continuation" means a notice in substantially the form ----------------------------------- of Exhibit B. ---------- "Obligations" means all advances, debts, liabilities, obligations, covenants ----------- and duties arising under any Loan Document, owing by the Company to any Bank, including the Swingline Bank, the Agent, or any Person required to be indemnified, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "Offshore Loan" means any LIBOR Revolving Loan or any LIBOR Swingline Loan. -------------- "Other Taxes" means any present or future stamp or documentary taxes or any ------------ other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document. "Person" means an individual, partnership, corporation, limited liability ------ company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Preferred Stock" means, as applied to any corporation, shares of such ---------------- corporation which shall be entitled to preference or priority over any other shares of such corporation in respect of either the payment of dividends or the distribution of assets upon liquidation. "Prescribed Forms" shall mean such duly executed and filed form(s) or ----------------- statement(s), and in such number of copies, which may, from time to time, be prescribed by law and which, pursuant to applicable provisions of (a) an income tax treaty between the United States and the country of residence of the Bank providing the form(s) or statement(s), (b) the Code, or (c) any applicable rule or regula-tion under the Code, permit the Company and the Agent to make payments hereunder for the account of such Bank free of deduction or withholding of United States income or other similar taxes. "Redeemable" means, as applied to any Preferred Stock, any Preferred Stock ---------- which (i) the issuer undertakes to redeem at a fixed or determinable date or dates (other than pursuant to the exercise of an option to redeem by the issuer, if the failure to exercise such option would not materially adversely affect the business, consolidated financial position or consolidated results of operations of the issuer and its subsidiaries taken as a whole), whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer, or (ii) is redeemable at the option of the holder. "Reference Banks" means BofA, NationsBank of Texas, N.A. and Citibank, N.A. ---------------- "Replacement Bank" has the meaning specified in Section 3.06(a). ----------------- "Requirement of Law" means, as to any Person, any law (statutory or common), -------------------- treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Responsible Officer" means the chief executive officer, the president, the -------------------- chief financial officer or the treasurer of the Company. "Restricted Subsidiary" means any Subsidiary of the Company which has ---------------------- non-intercompany assets with an aggregate book value exceeding 10% of the Consolidated Tangible Net Worth of the Company based upon, at the time of determination, the most recent year-end audited consolidated financial statements of the Company. "Resulting Increased Commitment" has the meaning specified in Section 3.07. -------------------------------- "Revolving Loan" has the meaning specified in Section 2.01(a). --------------- "Revolving Termination Date" means the earlier to occur of: ---------------------------- (a) September 21, 1998, as such date may be extended pursuant to Section 2.06; and (b) the date on which the commitments of the Banks to make Loans terminate in whole in accordance with Section 2.07, Section 2.09(b) or Section 8.02. "S&P" means Standard & Poor's Rating Group and any successor thereto that is a --- nationally recognized rating agency. "SEC" means the Securities and Exchange Commission, or any Governmental --- Authority succeeding to any of its principal functions. "Senior Debt Indenture" means that certain indenture dated as of March 1, 1994 --------------------- between the Company and NationsBank of Texas, N.A., as Trustee, without giving effect to any amendment, modification, termination or cancellation thereof. "Specified Transaction," in respect of the Company, means any transaction or ---------------------- related set of transactions, that results, directly or indirectly, in (i) any sale, lease or exchange of all or substantially all of its property, (ii) the consolidation of the Company with any other Person (unless the Company is the surviving entity), or (iii) a merger of the Company with or into any other Person (unless the Company is the surviving entity), if in connection with such sale, lease, exchange, consolidation or merger any consent, approval or authorization of the shareholders of the Company is required under any of the Company's organizational documents, or any Requirement of Law. "Subordinated Debt" means any Debt of the Company (i) that expressly provides ------------------ that it is subordinated in right of payment to the Loans made by the Banks hereunder and under the 5-Year Credit Agreement and (ii) under the terms of which no payments of principal shall be payable (whether by scheduled maturity, required prepayment, or otherwise, unless as a result of the acceleration of such Debt, in accordance with the terms thereof) prior to the date set forth in clause (a) of the definition of the term "Revolving Termination Date" in the 5-Year Credit Agreement. "Subsidiary" of a Person means any corporation, association, partnership, ---------- limited liability company, business trust, joint stock company, joint venture or other business entity of which more than 50% of the voting stock or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. "Surviving Bank" has the meaning specified in Section 3.07. --------------- "Swingline Bank" means BofA. --------------- "Swingline Commitment", as to the Swingline Bank, has the meaning specified in -------------------- Section 2.01(b). "Swingline Loan" has the meaning specified in Section 2.01(b). --------------- "Taxes" means any and all present or future taxes, levies, imposts, ----- deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, taxes imposed on its net income, and franchise taxes imposed on its net income, by the jurisdiction (or any political subdivision thereof) under the laws of which such Bank or the Agent, as the case may be, is organized or maintains a lending office. "Total Capitalization" means, at any time, the sum (without duplication) of --------------------- (a) Total Senior Debt, (b) the total outstanding principal amount (or the book carrying amount of such Debt if issued at a discount) of Subordinated Debt of the Company and its consolidated Subsidiaries, (c) Consolidated Net Worth less any amount thereof attributable to "minority interests" (as defined below), and (d) Redeemable Preferred Stock of the Company and its consolidated Subsidiaries. For the purpose of this definition, "minority interests" means any investment or interest of the Company in any corporation, partnership or other entity to the extent that the total amount thereof owned by the Company (directly or indirectly) constitutes 50% or less of all outstanding interests or investments in such corporation, partnership or entity. "Total Senior Debt" means, at any time, the principal amount of all ------------------- consolidated Debt of the Company and its consolidated Subsidiaries other than Subordinated Debt. "Type" has the meaning specified in the definition of "Loan." ---- "United States" and "U.S." each mean the United States of America. -------------- ---- 1.02 Other Interpretive Provisions. (a) The meanings of defined terms ----------------------------- are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement. Subsection, Section, Article, Schedule and Exhibit references are to this Agreement unless otherwise specified. The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. The term "including" is not limiting and means "including without limitation." (c) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." (d) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation and (iii) references to IRS forms, SEC forms, FRB statistical releases or other forms, reports or documents of any Governmental Authority are to be construed as including all forms, reports or other documents that consolidate, amend or replace the forms, reports or documents. (e) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (f) This Agreement and the other Loan Documents are the result of negotiations among the Agent, the Company and the other parties, have been reviewed by counsel to the Agent, the Company and such other parties, and are the products of all parties. Accordingly, they shall not be construed against the Banks or the Agent merely because of the Agent's or Banks' involvement in their preparation. 1.03 Accounting Principles. (a) Unless the context otherwise clearly --------------------- requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company. ARTICLE II THE CREDITS 2.01 Amounts and Terms of Commitments. (a) Each Bank severally --------------------------------- agrees, on the terms and conditions set forth herein, to make loans (each such loan a "Revolving Loan") to the Company from time to time on any Business Day -------------- during the period from the Closing Date to the Revolving Termination Date, in an aggregate principal amount not to exceed at any time outstanding, together with such Bank's Commitment Percentage of all Swingline Loans then outstanding, the amount set forth opposite such Bank's name on Schedule 2.01 ------------- (as such Schedule is deemed modified pursuant to this Article II or Article III or Section 10.07) (as such amount may be increased or reduced pursuant to Sections 2.06, 2.07, 2.08, 2.09, 3.06, 3.07 or 8.02, such Bank's "Commitment"); provided, however, that, after giving effect to any Borrowing -------- ------- of Revolving Loans, the aggregate principal amount of all outstanding Revolving Loans and Swingline Loans shall not at any time exceed the combined Commitments of all the Banks. Within the limits of each Bank's Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this Section 2.01(a), prepay under Section 2.09(a) and reborrow under this Section 2.01(a). (b) The Swingline Bank agrees, on the terms and conditions set forth herein, to make a portion of the combined Commitments of all the Banks available to the Company by making swingline loans (each such loan a "Swingline Loan") to the Company from time to time on any Business Day during ------- the period from the Closing Date to the Revolving Termination Date, in an aggregate principal amount not to exceed at any time outstanding $50,000,000 (as such amount may be reduced pursuant to Sections 2.07, 2.08, 2.09, 3.06 or 8.02, the Swingline Bank's "Swingline Commitment"), notwithstanding the fact -------------------- that such Swingline Loans, when aggregated with the Swingline Bank's outstanding Revolving Loans, may exceed the Swingline Bank's Commitment; provided, however, that, after giving effect to any Borrowing of a Swingline - -------- ------- Loan, the aggregate principal amount of all outstanding Revolving Loans and Swingline Loans shall not at any time exceed the combined Commitments of all the Banks. Within the foregoing limits, and subject to the other terms and conditions hereof, the Company may borrow under this Section 2.01(b), prepay under Section 2.09(a) and reborrow pursuant to this Section 2.01(b). 2.02 Notes. The Loans made by each Bank are evidenced by a note in ----- substantially the form of Exhibit E ("Note") payable to the order of that ---------- ---- Bank, evidencing the aggregate indebtedness of the Company to such Bank resulting from the Loans owed to such Bank. Each Bank may endorse on the schedules annexed to its Notes, the date, amount and maturity of each Loan made by it and the amount of each payment of principal made by the Company with respect thereto. Each Bank is irrevocably authorized by the Company to endorse its Notes, and each Bank's record shall be prima facie evidence of the ----- ----- matters reflected therein; provided, however, that the failure of a Bank to -------- ------- make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Company hereunder or under any such Note to such Bank. 2.03 Procedure for Revolving Loan Borrowings. (a) Each Borrowing of ---------------------------------------- Revolving Loans shall be made upon the Company's irrevocable written notice delivered to the Agent as described in Section 10.02 in the form of a Notice of Borrowing prior to 11:00 a.m. (Houston time) (i) one Business Day prior to the requested Borrowing Date, in the case of Adjusted CD Rate Revolving Loans, (ii) three Business Days prior to the requested Borrowing Date, in the case of LIBOR Revolving Loans, and (iii) on the requested Borrowing Date, in the case of Base Rate Revolving Loans, specifying: (A) the amount of the Borrowing, which shall be in an aggregate amount not less than the Minimum Tranche; (B) the requested Borrowing Date, which shall be a Business Day; (C) the Type of Revolving Loans comprising the Borrowing; (D) in the case of Adjusted CD Rate Revolving Loans and LIBOR Revolving Loans, the duration of the Interest Period applicable to such Loans included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, such Interest Period shall be 90 days (in the case of an Adjusted CD Rate Revolving Loan) and three months (in the case of a LIBOR Revolving Loan); provided, however, that with respect to a Borrowing, if any, to be made on the - -------- ------- Closing Date, the Notice of Borrowing shall be delivered to the Agent not later than 11:00 a.m. (Houston time) on the Closing Date and such Borrowing will consist of Base Rate Revolving Loans only. (b) Upon receipt of the Notice of Borrowing, the Agent will promptly notify each Bank thereof and of the amount of such Bank's Commitment Percentage of such Borrowing. (c) Each Bank will make the amount of its Commitment Percentage of such Borrowing available to the Agent for the account of the Company at the Agent's Payment Office on the Borrowing Date requested by the Company in Immediately available funds by 1:00 p.m. (Houston time) in the case of a Borrowing comprised of Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, and by 1:00 p.m. (Houston time) in the case of a Borrowing comprised of Base Rate Revolving Loans. The proceeds of all such Loans will then be made available to the Company by the Agent by wire transfer of immediately available funds in accordance with written instructions provided to the Agent by the Company, unless on the date of the Borrowing all or any portion of the proceeds thereof shall then be required to be applied to the repayment of any outstanding Swingline Loans pursuant to Section 2.05(f), in which case such proceeds or portion thereof shall be applied to the repayment of such Swingline Loans. (d) After giving effect to any Borrowing of Revolving Loans, there may not be more than (i) four different Interest Periods in effect in respect of all Adjusted CD Rate Revolving Loans together then outstanding and (ii) four different Interest Periods in effect in respect of all LIBOR Revolving Loans together then outstanding. 2.04 Conversion and Continuation Elections for Revolving Loan ----------------------------------------------------------- Borrowings. (a) The Company may, upon irrevocable written notice to the Agent under subsection (b) of this Section: (i) elect, on any Business Day, in the case of Base Rate Revolving Loans, or on the last day of the applicable Interest Period, in the case of Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, to convert any such Loans (or any part thereof in an amount not less than the Minimum Tranche) into Revolving Loans of another Type; or (ii) elect to renew on the last day of the applicable Interest Period any Revolving Loans having Interest Periods maturing on such day (or any part thereof in an amount not less than the Minimum Tranche); provided, that if at any time the aggregate amount of Adjusted CD Rate - -------- Revolving Loans or LIBOR Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than the Minimum Tranche, such Loans shall automatically convert into Base Rate Revolving Loans, and on and after such date the right of the Company to continue such Loans as, and convert such Loans into, Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans shall terminate, except that if and so long as each such ------ Revolving Loan shall be of the same Type and have the same Interest Period as Revolving Loans comprising another Borrowing or other Borrowings, and the aggregate unpaid principal amount of all such Loans of all such Borrowings shall equal or exceed $10,000,000, the Company shall have the right to continue all such Loans as, or to convert all such Loans into, Revolving Loans of such Type having such Interest Period. (b) The Company shall deliver a Notice of Conversion/Continuation to be received by the Agent not later than 11:00 a.m. (Houston time) at least (i) one Business Day in advance of the Conversion/Continuation Date, if the Revolving Loans are to be converted into or continued as Adjusted CD Rate Revolving Loans; (ii) three Business Days in advance of the Conversion/Continuation Date, if the Revolving Loans are to be converted into or continued as LIBOR Revolving Loans; and (iii) on the Conversion/Continuation Date, if the Revolving Loans are to be converted into Base Rate Revolving Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of Revolving Loans to be converted or renewed; (C) the Type of Revolving Loans resulting from the proposed conversion or continuation; and (D) other than in the case of conversions into Base Rate Revolving Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to any Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, the Company has failed to select timely a new Interest Period to be applicable to such Loans, the Company shall be deemed to have elected to convert such Loans into Base Rate Revolving Loans. (d) The Agent will promptly notify each Bank of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by the Company under this Section, the Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Revolving Loans held by each Bank with respect to which the notice was given. (e) Unless the Majority Banks otherwise agree, during the existence of a Default or Event of Default, the Company may not elect to have a Revolving Loan converted into or continued as an Adjusted CD Rate Revolving Loan or a LIBOR Revolving Loan with an Interest Period exceeding one month (in the case of a LIBOR Revolving Loan) or 30 days (in the case of an Adjusted CD Rate Revolving Loan). (f) After giving effect to any conversion or continuation of Revolving Loans, there may not be more than (i) four different Interest Periods in effect in respect of all Adjusted CD Rate Revolving Loans together then outstanding and (ii) four different Interest Periods in effect in respect of all LIBOR Revolving Loans together then outstanding. 2.05 Procedure for Swingline Borrowings. (a) Each Borrowing of a ---------------------------------- Swingline Loan shall be made upon the Company's irrevocable written notice to the Agent as described in Section 10.02 in the form of a Notice of Borrowing prior to 11:00 a.m. (Houston time) (i) one Business Day prior to the requested Borrowing Date, in the case of an Adjusted CD Rate Swingline Loan, (ii) three Business Days prior to the requested Borrowing Date, in the case of a LIBOR Swingline Loan, and (iii) on the requested Borrowing Date, in the case of a Base Rate Swingline Loan, specifying: (i) the amount of such Loan, which shall be an amount not less than the Minimum Tranche; (ii) the requested Borrowing Date, which shall be a Business Day, (iii) the duration of the Interest Period applicable to such Loan, which shall not be more than 10 days, and (iv) if the product of the amount of such Loan and the number of days in the applicable Interest Period equals or exceeds $15,000,000, the Type of Swingline Loan. Upon receipt of the Notice of Borrowing, the Agent will promptly provide the Swingline Bank with a copy thereof. (b) If the product of the amount of a requested Swingline Loan and the number of days in the applicable Interest Period equals or exceeds $15,000,000, such Loan shall bear interest at the LIBO Rate plus the Applicable Margin, the Adjusted CD Rate plus the Applicable Margin or the Base Rate, as selected by the Company pursuant to Section 2.05(a). If the product of the amount of a requested Swingline Loan and the number of days in the applicable Interest Period is less than $15,000,000, such Loan shall bear interest at the Base Rate. (c) Unless the Swingline Bank has received notice prior to 11:00 a.m. (Houston time) on the relevant Borrowing Date from the Agent (including at the request of any Bank) (i) directing the Swingline Bank not to make the requested Swingline Loan as a result of the limitation set forth in the proviso set forth in Section 2.01(b), or (ii) that one or more conditions specified in Article IV are not then satisfied; then, subject to the terms and ---- conditions hereof, the Swingline Bank will, not later than 2:00 p.m. (Houston time) on the Borrowing Date specified in such Notice of Borrowing, make the amount of the requested Swingline Loan available to the Company by wire transfer of immediately available funds in accordance with written instructions provided to the Agent by the Company. The Swingline Bank agrees that, if it has received notice described in clause (i) or (ii) above, it will not make the requested Swingline Loan to the Company. (d) After giving effect to any Borrowing of a Swingline Loan, there may not be more than three different Swingline Loans outstanding at any one time. (e) The Agent will notify the Banks of any Swingline Loan Borrowing or repayment thereof promptly after any such Borrowing or repayment. (f) If (i) any Swingline Loan shall remain outstanding at 11:00 a.m. (Houston time) on the last day of the Interest Period applicable to such Loan and by such time on such day the Agent shall have received neither (A) a Notice of Borrowing delivered pursuant to Section 2.03 requesting that Revolving Loans be made pursuant to Section 2.01(a) on such day in an amount at least equal to the principal amount of such Swingline Loan, nor (B) any other notice indicating the Company's intent to repay such Swingline Loan with funds obtained from other sources, or (ii) any Swingline Loans shall remain outstanding during the existence of a Default or Event of Default and the Swingline Bank shall in its sole discretion notify the Agent that the Swingline Bank desires that such Swingline Loans be converted into Revolving Loans; then, the Agent shall be deemed to have received a Notice of Borrowing ---- from the Company pursuant to Section 2.03 requesting that Base Rate Revolving Loans be made pursuant to Section 2.01(a) on such day (in the case of the circumstances described in clause (i) above) or on the first Business Day subsequent to the date of such notice from the Swingline Bank (in the case of the circumstances described in clause (ii) above) in an amount equal to the aggregate amount of such Swingline Loans, and the procedures set forth in Sections 2.03(b) and 2.03(c) shall be followed in making such Base Rate Revolving Loans; provided, that such Base Rate Revolving Loans shall be made -------- notwithstanding the Company's failure to comply with the conditions specified in Section 4.02; and provided, further, that if a Borrowing of Revolving Loans -------- ------- becomes legally impracticable and if so required by the Swingline Bank at the time such Revolving Loans are required to be made by the Banks in accordance with this Section 2.05(f), each Bank agrees that in lieu of making Revolving Loans as described above, such Bank shall purchase a participation from the Swingline Bank in the applicable Swingline Loans in an amount equal to such Bank's Commitment Percentage of the aggregate principal amount of such Swingline Loans, and the procedures set forth in Sections 2.03(b) and 2.03(c) shall be followed in connection with the purchases of such participations. The proceeds of such Base Rate Revolving Loans shall be applied to repay such Swingline Loans. A copy of each notice given by the Agent to the Banks pursuant to this Section 2.05(f) with respect to the making of Revolving Loans or the purchases of participations, as the case may be, shall be promptly delivered by the Agent to the Company. Each Bank's obligation in accordance with this Agreement to make the Revolving Loans or purchase the participations, as contemplated by this Section 2.05(f), shall be absolute and unconditional and shall not be affected by any circumstance, including (1) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Swingline Bank, the Company or any other Person for any reason whatsoever; (2) the occurrence or continuance of a Default or an Event of Default; or (3) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 2.06 Increase and Extension of Commitments. (a) The Company shall ------------------------------------- have the right, without the consent of the Banks but subject to the approval of the Agent (which approval shall not be unreasonably withheld), to effectuate from time to time an increase in the total Commitments under this Agreement by adding to this Agreement one or more Persons that are Eligible Assignees (who shall, upon completion of the requirements stated in this Section, constitute "Banks" hereunder), or by allowing one or more Banks to increase their Commitments hereunder, so that such added and increased Commitments shall equal the increase in Commitments effectuated pursuant to this Section; provided that (i) no increase in Commitments pursuant to this -------- Section shall result in the total Commitments exceeding $1,100,000,000 or shall result in the aggregate amount of the increases in the Commitments effectuated pursuant to this Section since the date of this Agreement being in excess of the sum of $100,000,000 plus the aggregate amount (but not greater than $50,000,000) of all non-ratable reductions and terminations of Commitments effectuated pursuant to Section 2.08; (ii) no Bank's Commitment shall be increased without the consent of such Bank; (iii) there has occurred and is continuing no Default or Event of Default, and (iv) there has been no ratable reduction of Commitments pursuant to Section 2.07. The Company shall deliver or pay, as applicable, to the Agent each of the following items with respect to each Eligible Assignee (and each existing Bank whose Commitment will increase) prior to 11:00 a.m. (Houston time) (A) five Business Days prior to the requested effective date of such increase in the Commitments, if such date is a No Loan Date, or (B) ten Business Days prior to the requested effective date of such increase in the Commitments, if such date is not a No Loan Date: (1) a written notice of the Company's intention to increase the total Commitments pursuant to this Section, which shall specify each new Eligible Assignee, if any, the changes in amounts of Commitments that will result, and such other information as is reasonably requested by the Agent; (2) a document in form and substance as may be reasonably required by the Agent-, executed and delivered by each new Eligible Assignee and each Bank agreeing to increase its Commitment, pursuant to which it becomes a party hereto or increases its Commitment, as the case may be, which document, in the case of a new Eligible Assignee, shall (among other matters) specify the CD Lending Office, Domestic Lending Office and LIBOR Lending Office of such new Eligible Assignee; (3) a Note in the principal amount of the Commit-ment of each new Eligible Assignee, or a replacement Note in the principal amount of the increased Commitment of each Bank agreeing to increase its Commitment, as the case may be, executed and delivered by the Company, which Note shall be in form and substance as may be reasonably required by Agent; and (4) a non-refundable processing fee of $4,000, for the sole account of the Agent. Upon receipt of any notice referred to in clause (1) above, the Agent will promptly notify each Bank thereof. Upon execution and delivery of such documents and the payment of such fee, such new Eligible Assignee shall constitute a "Bank" hereunder with a Commitment as specified therein, or such Bank's Commitment shall increase as specified therein, as the case may be. The Company agrees to pay to the Banks on demand any and all amounts to the extent payable pursuant to Section 3.02 as a result of any such prepayment of Loans occasioned by the foregoing increase in the Commitments. (b) Not less than 30 days nor more than 60 days before the then current Revolving Termination Date, the Company may, by written request delivered to the Agent, request that the Revolving Termination Date be extended for a period of 364 days from the then-current Revolving Termination Date. The Agent shall notify the Banks of any such request. Such extension shall only be effective upon the approval thereof in writing by the Agent and all of the Banks (which approval may be given or withheld in each such Person's sole discretion). If such approval is given, the Agent will notify the Company and the Banks thereof, and this Agreement shall be deemed to be amended to reflect such 364-day extension of the Revolving Termination Date. Each request for an extension of the Revolving Termination Date under this Section shall contain a certification by a Responsible Officer that, as of the date of such request and as of the then current Revolving Termination Date, (i) the representations and warranties in Article V are and will be true and correct in all material respects on and as of each such date with the same effect as if made on and as of each such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date), and (ii) no Default or Event of Default exists or would result from such extension. 2.07 Ratable Reduction or Termination of Commitments. The Company ----------------------------------------------- may, upon not less than three Business Days' prior notice to the Agent, terminate all the Commitments, or permanently reduce all the Commitments by an aggregate minimum amount of $10,000,000 or any multiple of $1,000,000 in excess thereof; unless, after giving effect thereto and to any prepayments of ------ Loans made on the effective date thereof, (i) the then-outstanding principal amount of all Revolving Loans and Swingline Loans would exceed the amount of the combined Commitments of all the Banks then in effect, or (ii) the then-outstanding principal amount of all Swingline Loans would exceed the amount of the Swingline Commitment then in effect, as adjusted pursuant to the last sentence of this Section 2.07. Once reduced in accordance with this Section, the Commitments may not be increased. Any such reduction of the Commitments shall be applied ratably to each Bank's Commitment according to its Commitment Percentage. At no time shall the Swingline Commitment exceed the combined Commitments of all the Banks, and any reduction of the Commitments which reduces the combined Commitments of all the Banks below the then-current amount of the Swingline Commitment shall result in an automatic corresponding reduction of the Swingline Commitment to the amount of the combined Commitments of all the Banks, as so reduced, without any action on the part of the Swingline Bank. 2.08 Non-Ratable Reduction or Termination of Commitments. The Company --------------------------------------------------- shall have the right, without the consent of any Bank, but subject to the approval of the Agent (which consent shall not be unreasonably withheld), to reduce in part or to terminate in whole the Commitment of one or more Banks non-ratably, provided that (i) the effective date of any such reduction or -------- termination of Commitments shall be a No Loan Date, (ii) after giving effect thereto and to any prepayments of Swingline Loans made on the effective date thereof, the then-outstanding principal amount of all Swingline Loans shall not exceed the amount of the Swingline Commitment then in effect, as adjusted pursuant to the penultimate sentence of this Section 2.08; (iii) on the effective date of any such reduction or termination (x) no Default or Event of Default shall have occurred and be continuing, (y) the senior unsecured long-term debt of the Company is rated BBB- or better by S&P or Baa3 or better by Moody's, and (z) the Company shall pay to any Bank whose Commitment is terminated all amounts owed by the Company to such Bank under this Agreement (including accrued commitment fees), (iv) the aggregate amount of each non-ratable reduction shall be at least $5,000,000, and (v) the aggregate amount of all such non-ratable reductions and terminations of Commitments since the date of this Agreement shall not exceed the sum of $50,000,000, plus the aggregate amount (but not greater than $50,000,000) of all increases in Commitments effectuated pursuant to Section 2.06. At no time shall the Swingline Commitment exceed the combined Commitments of the Banks, and any reduction of the Commitment of one or more Banks non-ratably which reduces the combined Commitments of the Banks below the then-current amount of the Swingline Commitment shall result in an automatic corresponding reduction of the Swingline Commitment to the amount of the combined Commitments of the Banks, as so reduced, without any action on the part of the Swingline Bank. The Company shall give the Agent three Business Days' notice of the Company's intention to reduce or terminate any Commitment pursuant to this Section. 2.09 Optional and Mandatory Prepayments. (a) Subject to Section 3.02, ---------------------------------- the Company may, at any time or from time to time by irrevocable notice to the Agent, not later than 11:00 a.m. (Houston time) (i) one Business Day prior to a prepayment of any CD Loan, (ii) three Business Days prior to a prepayment of any Offshore Loan, or (iii) on the Business Day of a prepayment of any Base Loan, ratably prepay Loans in whole or in part, in minimum amounts of $5,000,000 or any multiple of $1,000,000 in excess thereof. Such notice of prepayment shall specify the date and amount of such prepayment, whether the Loans to be prepaid are Revolving Loans or Swingline Loans, the Type(s) of any Loans to be prepaid and the specific Borrowing or Borrowings pursuant to which such Loans were made. The Agent will promptly notify each Bank, in the case of the prepayment of Revolving Loans, or the Swingline Bank, in the case of the prepayment of Swingline Loans, of its receipt of any such notice, and of such Bank's Commitment Percentage of such prepayment, as applicable. If such notice is given by the Company, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid. (b) Immediately upon the occurrence of any Specified Transaction or at any time prior to the date that is 180 days after the date of consummation of such Specified Transaction, the Agent shall at the request of, and may with the consent of, the Majority Banks, in their sole and absolute discretion, (i) by notice to the Company pursuant to Section 10.02, declare the outstanding principal amount of all Loans, together with accrued interest, amounts payable pursuant to Section 3.02 and all other amounts outstanding hereunder, to be immediately due and payable, whereupon such amounts shall immediately be paid by the Company, and (ii) by notice to the Company pursuant to Section 10.02, declare the obligation of each Bank to make Loans, including the obligation of the Swingline Bank to make Swingline Loans, be terminated, whereupon such obligations shall be terminated immediately. (c) On the date of any increase in the total Commitments pursuant to Section 2.06, the Company shall prepay all Revolving Loans outstanding on such date, together with accrued interest thereon and amounts payable pursuant to Section 3.02; provided, however, that, notwithstanding the foregoing sentence, -------- if after giving effect to such an increase in the total Commitments there are no new Banks hereunder and the Commitment Percentage of each Bank is unchanged from its Commitment Percentage immediately prior to such increase, then the Company shall not be required to prepay any Revolving Loans and related amounts outstanding on such date. (d) Any mandatory prepayment under subsection (b) or (c) of this Section shall be made by the Company without presentment, demand, protest or other notice of any kind, except as provided in subsection (b), all of which are expressly waived by the Company. 2.10 Repayment. The Company shall repay to the Agent for the account --------- of each Bank on the Revolving Termination Date the aggregate principal amount of all Revolving Loans outstanding on such date. The Company shall repay to the Agent for the account of the Swingline Bank the outstanding principal amount of each Swingline Loan on the last day of the Interest Period applicable thereto. 2.11 Interest. (a) Each Loan shall bear interest on the outstanding -------- principal amount thereof from the applicable Borrowing Date until paid at a rate per annum equal to the Adjusted CD Rate, the LIBO Rate or the Base Rate, as the case may be (and subject, in the case of Revolving Loans, to the Company's right to convert to other Types of Revolving Loans under Section 2.04), plus, in the case of CD Loans and Offshore Loans, the Applicable Margin; provided, however, that in no event shall the applicable rate payable -------- ------- to any Bank exceed the Highest Lawful Rate applicable to such Bank. (b) Interest on each Loan shall be paid to the Agent for the account of each Bank, in the case of Revolving Loans, or the Swingline Bank, in the case of Swingline Loans, in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans under Section 2.09 for the portion of the Loans so prepaid and upon payment in full thereof. (c) Any principal amount of any Loan which is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest, to the extent permitted by law, from the date on which such amount became due until such amount is paid in full, payable on demand, at a rate per annum equal at all times to the sum of the Base Rate in effect from time to time plus 1.50% per annum, provided, however, that in no event shall such rate -------- ------- as to any Bank exceed the Highest Lawful Rate applicable to such Bank. 2.12 Fees. The Company agrees to pay to the Agent for the account of ---- each Bank a commitment fee on the average daily amount by which such Bank's Commitment exceeds the aggregate outstanding principal amount of such Bank's Revolving Loans, from the date hereof until the Revolving Termination Date at a rate per annum equal to the Applicable Fee Amount, payable in arrears on the last Business Day of each calendar quarter during the term of such Bank's Commitment, and on the Revolving Termination Date. The Company shall pay to the Agent for its own account and the account of the Arranger such additional fees as are set forth in the fee letter dated June 29, 1997 among such Persons. 2.13 Computation of Fees and Interest. All computations of interest -------------------------------- for Base Rate Revolving Loans and Base Rate Swingline Loans, when the Base Rate is determined according to clause (b) of the definition of "Base Rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (but not to exceed as to any Bank the Highest Lawful Rate applicable to such Bank). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. 2.14 Interest Rate Determination and Protection. (a) Each Reference ------------------------------------------ Bank and the Swingline Bank, as applicable, agrees to furnish to the Agent timely information for the purpose of determining each Adjusted CD Rate or LIBO Rate, as applicable. If any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. (b) The Agent s hall give prompt notice to the Company and the Banks of the applicable interest rate determined by the Agent for purposes of Section 2.11(a). (c) If fewer than two Reference Banks furnish timely information to the Agent for determining the LIBO Rate for any LIBOR Revolving Loans or the Adjusted CD Rate for any Adjusted CD Rate Revolving Loans, (i) the Agent shall forthwith notify the Company and the Banks that the interest rate cannot be deter-mined for such LIBOR Revolving Loans or Adjusted CD Rate Revolving Loans, as the case may be, (ii) each such Loan will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Revolving Loan (or if such Loan is then a Base Rate Revolving Loan, will continue as a Base Rate Revolving Loan), and (iii) the obligation of the Banks to make, or to convert Revolving Loans into or continue Revolving Loans as, Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, as the case may be, shall be suspended until the Agent shall notify the Company and the Banks that the circumstances causing such suspension no longer exist. (d) With respect to any Offshore Loan or CD Loan, upon request by the Company the Agent shall provide to the Company the information furnished by each Reference Bank or the Swingline Bank, as applicable, to enable the Agent to determine the LIBOR Rate or the Adjusted CD Rate, as the case may be, for such Loan. (e) If, with respect to any Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, the Majority Banks notify the Agent that the applicable interest rate for any Interest Period for such Loans cannot be reasonably determined or will not adequately reflect the cost to such Majority Banks of making, funding or maintaining their respective Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, as the case may be, for such Interest Period, the Agent shall forthwith so notify the Company and the Banks, whereupon (i) each such Revolving Loan will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Revolving Loan (or, if such Revolving Loan is then a Base Rate Revolving Loan, will continue as a Base Rate Revolving Loan), and (ii) the obligation of the Banks to make, or to convert Revolving Loans into or continue Revolving Loans as, Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, as the case may be, shall be suspended until the Agent shall notify the Company and the Banks that the circumstances causing such suspension no longer exist. (f) If the Swingline Bank notifies the Agent that the applicable interest rate for any Interest Period for any Adjusted CD Rate Swingline Loan or LIBOR Swingline Loan cannot be reasonably determined or will not adequately reflect the cost to the Swingline Bank of making, funding or maintaining such Loan, the Agent shall forthwith so notify the Company, whereupon the obligation of the Swingline Bank to make Adjusted CD Rate Swingline Loans or LIBOR Swingline Loans, as the case may be, shall be suspended until the Agent shall notify the Company that the circumstances causing such suspension no longer exist. 2.15 Payments by the Company. (a) Except as otherwise expressly ----------------------- provided herein, all payments by the Company shall be made in Dollars to the Agent for the account of the Banks, in the case of Revolving Loans, or the Swingline Bank, in the case of Swingline Loans, at the Agent's Payment Office and shall be made without setoff, recoupment or counterclaim. Such payments shall be made in immediately available funds no later than 1:00 p.m. (Houston time) on the date specified herein. The Agent will promptly distribute to each Bank its Commitment Percentage share (or other applicable share as expressly provided herein), in the case of Revolving Loans, or to the Swingline Bank, in the case of Swingline Loans, of such payment in like funds as received. Any payment received by the Agent later than the time specified above shall be deemed to have been received on the following Business Day, and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (c) Unless the Agent receives notice from the Company prior to the date on which any payment is due to the Banks or the Swingline Bank, as the case may be, that the Company will not make such payment in full as and when required, the Agent may assume that the Company has made such payment in full to the Agent on such date in immediately available funds, and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Bank or the Swingline Bank, as the case may be, on such due date an amount equal to the amount then due such Bank. If and to the extent the Company has not made such payment in full to the Agent, each Bank or the Swingline Bank, as applicable, shall repay to the Agent on demand such amount distributed to such Bank, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Bank until the date repaid. 2.16 Payments by the Banks to the Agent. (a) Unless the Agent ------------------------------------ receives notice from a Bank on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Business Day prior to the proposed Borrowing Date, that such Bank will not make available as and when required hereunder to the Agent for the account of the Company the amount of that Bank's Commitment Percentage, in the case of a Revolving Loan Borrowing, or the Swingline Loan, in the case of a Swingline Loan Borrowing, the Agent may assume that each Bank, in the case of a Revolving Loan Borrowing, or the Swingline Bank, in the case of a Swingline Borrowing, has made such amount available to the Agent in immediately available funds on the Borrowing Date and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made available to the Company such amount, that Bank shall on the Business Day following such Borrowing Date make such amount available to the Agent, together with interest at the Federal Funds Rate for each day during such period. A notice of the Agent submitted to any Bank with respect to amounts owing under this subsection (a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Agent on the Business Day following the Borrowing Date, the Agent will notify the Company of such failure to fund and, upon demand by the Agent, the Company shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing, in the case of a Revolving Loan Borrowing, or at the applicable Swingline Rate, in the case of a Swingline Loan Borrowing. (b) The failure of any Bank to make any Revolving Loan on any Borrowing Date shall not relieve any other Bank of any obligation hereunder to make a Revolving Loan on such Borrowing Date, but no Bank shall be responsible for the failure of any other Bank to make the Revolving Loan to be made by such other Bank on any Borrowing Date. 2.17 Sharing of Payments, Etc. If, other than as expressly provided ------------------------ elsewhere herein, any Bank shall obtain on account of the Loans made by it any non-pro rata payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise), such Bank shall immediately (a) notify the Agent of such fact, and (b) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment with each of them in accordance with their Commitment Percentages; provided, however, that if all or any -------- ------- portion of such excess payment is thereafter recovered from the purchasing Bank, such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid therefor, together with an amount equal to such paying Bank's Commitment Percentage (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Company agrees that any Bank so purchasing a participation from another Bank may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Bank were the direct creditor of the Company in the amount of such participation. ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY 3.01 Taxes. (a) Any and all payments by the Company to each Bank or ----- the Agent under this Agreement and any Note shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Company shall pay all Other Taxes. (b) To the fullest extent permitted by applicable law, the Company agrees to indemnify and hold harmless each Bank and the Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.01) paid by such Bank or the Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Agent makes written demand therefor in accordance with this Section 3.01(b). (c) If the Company shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable under this Agreement or any Note to any Bank or the Agent, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section 3.01) such Bank or the Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Company shall make such deductions and withholdings; and (iii) the Company shall pay the full amount deducted or withheld to the relevant taxing or other authority in accordance with applicable law. (d) Notwithstanding anything to the contrary contained in this Agreement, each of the Company and the Agent shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or other similar taxes imposed by the United States of America from interest, fees or other amounts payable under this Agreement or any Note for the account of any Bank (without indemnification or the payment by the Company of increased amounts pursuant to clause (a), (b) or (c) above) other than a Bank (i) which is a domestic corporation (as defined in Section 7701 of the Code) for federal income tax purposes or (ii) which has the Prescribed Forms on file with the Company and the Agent for the applicable year, provided that if the Company shall so deduct or withhold any such taxes, it shall provide a statement to the Agent and such Bank, setting forth the amount of such taxes so deducted or withheld, the applicable rate and any other information or documentation which such Bank or the Agent may reasonably request to assist such Bank or the Agent in obtaining any allowable credits or deductions for the taxes so deducted or withheld in the jurisdiction or jurisdictions in which such Bank is subject to tax. (e) Within 30 days after the date of any payment by the Company of Taxes or Other Taxes, the Company shall furnish the Agent the original or a certified copy of a receipt (if available) evidencing payment thereof, or other evidence of payment satisfactory to the Agent. (f) Each Bank shall use reasonable efforts (consistent with its internal policies and legal and regulatory restrictions) to select a jurisdiction for its Lending Office or change the jurisdiction of its Lending Office, as the case may be, so as to avoid the imposition of any Taxes or Other Taxes or to eliminate any such additional payment by the Company which may thereafter accrue; provided that no such selection or change shall be made if, in the -------- sole judgment of such Bank, such selection or change would be disadvantageous to such Bank. 3.02 Breakage Costs. If (a) any payment of principal of any CD Loan -------------- or Offshore Loan is made by the Company prior to the last day of an Interest Period relating to such Loan, or (b) the Company fails to borrow a Borrowing consisting of a CD Loan or an Offshore Loan on the date for such Borrowing specified in the Notice of Borrowing (except as permitted by and subject to the provisions of Sections 2.14(c), (e) and (f) and 3.04), then upon demand by any Bank, the Company shall pay to the Agent for the account of such Bank any amounts required to compensate such Bank for any losses, costs or expenses which it may reasonably incur as a result of such payment, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reasons of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain such Borrowing, but not including any cost of termination or liquidation of any hedge or related trading position (such as a rate swap, basis swap, forward rate transaction, interest rate option, cap, collar or floor transaction, swaption, or any other, similar transaction). For purposes of calculating amounts payable by the Company to the Banks under this Section, (i) each Offshore Loan made by a Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBO Rate used in determining such Offshore Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Offshore Loan is in fact so funded, and (ii) each CD Loan made by a Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the Certificate of Deposit Rate used in determining the Adjusted CD Rate for such CD Loan by the issuance of its certificate of deposit in a comparable amount and for a comparable period, whether or not such CD Loan is in fact so funded. 3.03 Increased Costs. (a) If, due to either: (i) after the date --------------- hereof, the introduction of or any change (other than any change by way of imposition or increase of reserve requirements pursuant to Section 3.05) in or in the interpretation of any law or regulation by a Governmental Authority charged with the interpretation or administration thereof, or (ii) the compliance with any guideline enacted after the date hereof or request received after the date hereof from any Governmental Authority (whether or not having the force of law) the effect of which is to impose or modify any reserve, special deposit, insurance assessment, or similar requirement relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, any Bank (other than reserves maintained as provided for in Section 3.05), there shall be any actual increase in the cost to such Bank of agreeing to make or making, funding or maintaining any CD Loan or Offshore Loan, then the Company shall from time to time, upon demand by such Bank (with a copy of such demand to the Agent), pay to the Agent for the account of such Bank additional amounts sufficient to compensate such Bank for such actual increased cost. Promptly after any Bank becomes aware of any such introduction, change or proposed compliance, such Bank shall notify the Company thereof. No Bank shall be permitted to recover increased costs incurred or accrued more than 90 days prior to the date such notice is given to the Company, unless such change in law, regulation, enactment or request giving rise to increased costs hereunder is retroactive in effect and such Bank gives notice of demand for compensation not later than 90 days from the date on which such law or regulation is in effect or such enactment or request occurs. (b) If the Company so notifies the Agent within five Business Days after any Bank notifies the Company of any increased cost pursuant to the provisions of Section 3.03(a), the Company shall convert all Revolving Loans of the Type affected by such increased cost of all Banks then outstanding into Revolving Loans of another Type in accordance with Section 2.04 and, additionally, reimburse such Bank for such increased cost in accordance with Section 3.03(a). (c) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, charged with the interpretation or administration thereof, or compliance by any Bank (or its Lending Office) or the corporation controlling such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency has the effect of increasing the amount of capital required or expected to be maintained as a result of its Commitment hereunder, such Bank shall have the right to give prompt written notice to the Company with a copy to the Agent, which notice shall notify the Company of the additional amounts as shall be required to compensate such Bank for the increased cost to such Bank as a result of such increase in capital and shall certify that such costs are generally being charged by such Bank to other similarly situated borrowers under similar credit facilities and such amounts shall be paid promptly by the Company. No Bank shall be permitted to recover increased costs incurred or accrued more than 90 days prior to the date such notice is given to the Company, unless such adoption, change, request or directive giving rise to increase in capital is adopted or required retroactively and such Bank gives notice of demand for compensation not later than 90 days from the date on which such adoption, change, request or directive occurs. (d) Each Bank shall use its best efforts (consistent with its internal policies and legal and regulatory restrictions) to select a jurisdiction for its Lending Office or change the jurisdiction of its Lending Office, as the case may be, so as to avoid the imposition of any increased costs under this Section 3.03 or to eliminate the amount of any such increased cost which may thereafter accrue; provided that no such selection or change of the -------- jurisdiction for its Lending Office shall be made if, in the reasonable judgment of such Bank, such selection or change would be disadvantageous to such Bank. 3.04 Illegality. Notwithstanding any other provision of this ---------- Agreement, if any Bank shall notify the Agent that, after the date hereof, the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any Governmental Authority shall assert that it is unlawful, for any Bank or its LIBOR Lending Office to make any Offshore Loans or to continue to fund or maintain any Offshore Loan hereunder, then, on notice thereof and demand therefor by such Bank to the Company, (i) the obligation of such Bank to make Offshore Loans and to convert Revolving Loans into LIBOR Revolving Loans shall be suspended until the Agent shall notify the Company that the circumstances causing such suspension no longer exist, and (ii) the Company shall, if permitted by applicable law, convert on the last day of the applicable Interest Period, and if not so permitted, forthwith convert all LIBOR Revolving Loans of all Banks then outstanding into Revolving Loans of another Type in accordance with Section 2.04. 3.05 Reserves on Offshore Loans. If any Bank shall be required under -------------------------- regulations of the FRB to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as "Eurocurrency liabilities"), and if as a result thereof there is an increase in the cost to such Bank of agreeing to make or making, funding or maintaining Offshore Loans, the Company shall from time to time, upon demand by such Bank (with a copy of such demand to the Agent), pay to the Agent for the account of such Bank additional amounts, as additional interest hereunder, sufficient to compensate Bank for such increased cost. Increased costs under this Section 3.05 shall be payable by the Company on each Interest Payment Date on such Offshore Loans, provided the Company shall have received at least 15 days' prior written notice (with a copy to the Agent) of such additional interest from the Bank. If a Bank fails to give notice 15 days prior to the relevant Interest Payment Date, such additional interest shall be payable 15 days from receipt of such notice. No Bank shall be permitted to recover additional interest incurred or accrued more than 90 days prior to the date such notice is given to the Company, unless any such reserve requirement giving rise to additional interest hereunder is made or announced retroactively and such Bank gives notice of demand for compensation not later than 90 days from the date on which such requirement is in effect. 3.06 Replacement of Bank; Termination of Bank. In the event that any ---------------------------------------- Bank makes a demand for payment pursuant to Sections 3.01 or 3.03, or any Bank has suspended its funding of Offshore Loans pursuant to Section 3.04, the Company shall have the right, if no Default or Event of Default then exists, to either replace such Bank in accordance with subsection (a) of this Section 3.06 or terminate such Bank's Commitment in accordance with subsection (b) of this Section 3.06. If any Banks that are not Affiliates as of the Closing Date become Affiliates after the Closing Date (each such Bank, a "New Affiliate ------------- Bank"), the Company shall have the right, if no Default or Event of Default - ---- then exists, to either replace each such New Affiliate Bank (other than the New Affiliate Bank having the largest Commitment) in accordance with subsection (a) of this Section 3.06 or terminate each such New Affiliate Bank (other than the New Affiliate Bank having the largest Commitment) in accordance with subsection (b) of this Section 3.06. (a) If the Company determines to replace a Bank pursuant to this Section 3.06, the Company shall have the right to replace such Bank with an entity that is an Eligible Assignee (a "Replacement Bank"); provided that such ---------------- -------- Replacement Bank, (i) if it is not already a Bank, shall be reasonably acceptable to the Agent, (ii) shall unconditionally offer in writing (with a copy to the Agent) to purchase all of such Bank's rights hereunder and interest in the Loans owing to such Bank and the Note held by such Bank without recourse at the principal amount of such Note plus interest and fees accrued thereon to the date of such purchase on a date therein specified, and (iii) shall, along with the Bank to be replaced, execute and deliver to the Agent an Assignment and Acceptance pursuant to which such Replacement Bank becomes a party hereto with a Commitment equal to that of the Bank being replaced, including, in the case of the replacement of the Swingline Bank, the Swingline Commitment, which document shall (among other matters) specify the CD Lending Office, Domestic Lending Office and LIBOR Lending Office of such Replacement Bank. Upon satisfaction of the requirements set forth in the first sentence of this Section 3.06(a), acceptance of such offer to purchase by the Bank to be replaced, payment to such Bank of the purchase price in immediately available funds, and the payment by the Company of all requested costs accruing to the date of purchase which the Company is obligated to pay under Section 3.02 and all other amounts owed by the Company to such Bank (other than the principal of and interest on the Loans of such Bank purchased by the Replacement Bank and interest and fees accrued thereon to the date of purchase), and payment by the Replacement Bank to the Agent of a non-refundable processing fee of $4,000, the Replacement Bank shall constitute a "Bank" hereunder with a Commitment as so specified and the Bank being so replaced shall no longer constitute a "Bank" hereunder (with the signature pages and Schedule 2.01 being deemed amended to reflect same) and such Bank -------------- shall be relieved of its obligations hereunder. If, however, (x) a Bank accepts such an offer and such proposed Replacement Bank fails to purchase such rights and interest on such specified date in accordance with the terms of such offer, the Company shall continue to be obligated to pay the increased costs or additional amounts due to such Bank pursuant to Section 3.01, 3.03 or 3.05 (if a demand for repayment of increased costs or additional amounts pursuant to any of such Sections is the basis for the proposed replacement), as the case may be, or (y) the Bank proposed to be replaced fails to accept such purchase offer, the Company (if the basis for the proposed replacement is a demand for payment of increased costs or additional amounts pursuant to Sections 3.01, 3.03 or 3.05) shall not be obligated to pay to such Bank such increased costs or additional amounts to the extent incurred or accrued from and after the date of such purchase offer, but in each of the cases set forth in clauses (x) and (y), the Company shall continue to have the right to terminate such Bank's Commitment in accordance with Section 3.06(b). (b) In the event that the Company determines to terminate a Bank's Commitment pursuant to this Section 3.06 which, in the case of the Swingline Bank, includes the Swingline Commitment, the Company shall give notice to such Bank of the Company's election to terminate (a copy shall be sent to the Agent), and such termination shall become effective 15 days thereafter unless such Bank withdraws its request for additional compensation (with respect to a proposed termination based on a request for additional compensation) or reinstates its funding of Offshore Loans (with respect to a proposed termination based on a suspension of funding of Offshore Loans). On the date of the termination of the Commitment of any Bank pursuant to this Section 3.06(b), (x) the Company shall deliver notice of the effectiveness of such termination to such Bank and to the Agent, (y) the Company shall pay all amounts owed by the Company to such Bank under this Agreement or under the Note payable to such Bank (including principal of and interest on the Loans owed to such Bank, accrued commitment fees and amounts specified in such Bank's notice (if any) delivered pursuant to Sections 3.01, 3.03 or 3.05 as the case maybe, with respect to the period prior to such termination) and (z) upon the occurrence of the events set forth in clauses (x) and (y), such Bank shall cease to be a "Bank" hereunder for all purposes (except for purposes of the provisions of this Agreement which by their terms survive the termination of this Agreement) and such Bank shall be relieved of its obligations hereunder. 3.07 Reallocation of Commitments in Event of Merger, Etc. If after --------------------------------------------------- the Closing Date any Bank merges or consolidates with or into one or more other Banks, the surviving entity of such merger or consolidation (the "Surviving Bank") shall at the request of the Company, if no Default or Event --------------- of Default then exists, assign all or a portion of its Resulting Increased Commitment (as defined below) to one or more entities selected by the Company that are Eligible Assignees (each an "Acquiring Entity"); provided that (i) ---------------- each Acquiring Entity shall unconditionally offer in writing (with a copy to the Agent) to purchase a portion of the Surviving Bank's Resulting Increased Commitment and the portion of the Revolving Loans owing to the Surviving Bank and the Note or Notes held by the Surviving Bank allocable to the amount of the Resulting Increased Commitment to be acquired; (ii) the portion of the Resulting Increased Commitment of the Surviving Bank acquired by each Acquiring Entity shall be in integral multiples of $1,000,000; (iii) the purchase price to be paid by the Acquiring Entity shall be the outstanding principal amount of the Revolving Loans owed to the Surviving Bank on the date of purchase (plus interest and fees accrued thereon) that are allocable to the amount of the Resulting Increased Commitment being acquired; (iv) each Acquiring Entity, if it is not already a Bank, shall be reasonably acceptable to the Agent; and (v) if any of the Surviving Bank's Loans must be prepaid prior to the last day of the Interest Period relating to such Loans, the Company shall pay amounts payable under Section 3.02 of this Agreement. Each assignment hereunder shall be accomplished in accordance with, and subject to the terms and conditions contained in, the third sentence of Section 10.07(c), and to the extent of any such assignment, the Surviving Bank shall be relieved of its obligations hereunder with respect to its assigned Commitment. To the extent that the Surviving Bank's Resulting Increased Commitment is not acquired by an Acquiring Entity, the Company shall have the right to terminate the Surviving Bank's Resulting Increased Commitment by notice given to the Agent and such Bank within 180 days after the effective date of such merger or consolidation. The termination shall be effective 15 days thereafter, provided that on the date of termination the Company shall have paid to the Surviving Bank all amounts owed by the Company to the Surviving Bank allocable to the amount of the Surviving Bank's Resulting Increased Commitment being terminated (including principal of the Revolving Loans owed to the Surviving Bank allocable to the portion of the Resulting Increased Commitment being terminated plus interest and fees accrued on such portion). The amounts owed by the Company to the Surviving Bank under this Agreement that are allocable to the amount of the Resulting Increased Commitment being acquired or terminated pursuant to this Section 3.07, shall be the product of (a) all amounts owed by the Company to the Surviving Bank hereunder on the date of acquisition or termination (including the outstanding principal amount of the Revolving Loans owed to the Surviving Bank and interest and fees accrued thereon), and (b) a fraction having as it numerator the amount of the Resulting Increased Commitment being acquired or terminated and having as its denominator the total amount of the Surviving Bank's Commitment without giving effect to such acquisition or termination. For the purposes of this Section 3.07, "Resulting Increased Commitment" shall mean (a) the total combined -------------------------------- Commitment of the Surviving Bank immediately following a merger or consolidation contemplated by this Section 3.07, minus (b) the amount of the largest Commitment (immediately prior to such merger or consolidation) of any Bank that was a party to such merger or consolidation, excluding the Swingline Commitment in the event the Swingline Bank is a Surviving Bank. 3.08 Certificates of Banks. Any Bank claiming reimbursement or ----------------------- compensation under this Article III shall, as part of each notice and demand for payment required under this Article III, deliver to the Company (with a copy to the Agent) a certificate setting forth in reasonable detail the amount and basis of the reimbursement or compensation payable to the Bank hereunder, certifying that such Bank is generally charging such reimbursement or compensation to other similarly situated borrowers under similar credit facilities, and such certificate shall be conclusive and binding on the Company in the absence of manifest error; provided that the determination of -------- such amount shall be made in good faith in a manner generally consistent with such Bank's standard practices. 3.09 Survival. The agreements and obligations of the Company in this -------- Article III shall survive the payment of all other Obligations. ARTICLE IV CONDITIONS PRECEDENT 4.01 Conditions of Initial Loans. The obligation of each Bank to --------------------------- make its initial Loan hereunder, including the obligation of the Swingline Bank to make its initial Swingline Loan, is subject to the condition that the Agent have received on or before the Closing Date all of the following, in form and substance satisfactory to the Agent and each Bank: (a) Credit Agreement and Notes. This Agreement and the Notes ----------------------------- executed by each party thereto; (b) Resolutions; Incumbency. (i) Copies of the resolutions of the board ----------------------- of directors of the Company authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company; and (ii) a certificate of the Secretary or Vice President of the Company certifying the names and true signatures of the officers of the Company authorized to execute and deliver each Loan Document to be executed by the Company; (c) Organization Documents: Good Standing. Each of the following ---------------------------------------- documents: (i) the articles or certificate of incorporation and the bylaws of the Company as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date; and (ii) a good standing certificate for the Company from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation and of the State of Texas dated as of a recent date; (d) Legal Opinions. An opinion of Linda S. Auwers, Vice President and -------------- Assistant General Counsel of the Company, addressed to the Agent and the Banks, substantially in the form of Exhibit D-1, and an opinion of Vinson & ----------- Elkins L.L.P., counsel to the Company, addressed to the Agent and the Banks, substantially in the form of Exhibit D-2; ------------ (e) 5-Year Credit Agreement. Evidence that all conditions to closing of ----------------------- the 5-Year Credit Agreement have occurred; (f) Officer's Certificate. A certificate signed by a Responsible Officer --------------------- of the Company, dated as of the Closing Date, stating that (i) the representations and warranties contained in Article V are true and correct in all material respects on and as of such date, and (ii) no Default or Event of Default exists or would result from the initial Borrowing; (g) Termination of Commitments under Existing Credit Agreements. ----------------------------------------------------------- Evidence that the commitments to lend under the $500,000,000 Revolving Credit Agreement dated as of October 31, 1995 among the Company, the banks party thereto, Bank of America National Trust and Savings Association, as Administrative Agent, NationsBank of Texas, National Association and Citibank, N.A., as co-agents, as amended and restated by the parties as of October 29, 1996 and under the $1,000,000,000 Revolving Credit Agreement dated as of October 31, 1995 among the Company, the banks party thereto, Bank of America National Trust and Savings Association, as Administrative Agent, NationsBank of Texas, National Association and Citibank, N.A., as co-agents, as amended and restated by the parties as of October 29, 1996 (collectively, the "Existing Credit Agreements") have been terminated and that all principal, ---------------------------- interest, fees and other amounts due thereunder (including under Section 3.02 of each Existing Credit Agreement) have been paid or arrangements satisfactory to the Agent have been made for the payment thereof as of the Closing Date; and (h) Other Documents. Such other approvals, opinions, documents or ---------------- materials as the Agent or any Bank may reasonably request. 4.02 Conditions to All Borrowings. The obligation of each Bank to ---------------------------- make any Loan, including the obligation of the Swingline Bank to make any Swingline Loan, is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date: (a) Notice of Borrowing. The Agent shall have received a Notice of ------------------- Borrowing; (b) Continuation of Representations and Warranties. The representations ---------------------------------------------- and warranties in Article V shall be true and correct in all material respects on and as of such Borrowing Date with the same effect as if made on and as of such Borrowing Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date); and (c) No Existing Default. No Default or Event of Default shall exist or ------------------- shall result from such Borrowing. Each Notice of Borrowing submitted by the Company hereunder, and each making of a Borrowing by the Company, shall constitute a representation and warranty by the Company hereunder, as of the date of each such notice or request and as of each Borrowing Date, that the conditions in Section 4.02 are satisfied. ARTICLE V REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Agent and each Bank that: 5.01 Corporate Existence. The Company and each of its Restricted ------------------- Subsidiaries are duly incorporated or otherwise formed, validly existing and (if applicable) in good standing in each case under the laws of its jurisdiction of incorporation or formation and have all requisite power and all authority as a corporation, partnership or other form of business organization, governmental licenses, authorizations, certificates, consents and approvals required to carry on their respective businesses as now conducted in all material respects. 5.02 Corporate Power. The execution, delivery and performance by the --------------- Company of the Loan Documents and the consummation of the transactions contemplated by such Loan Documents are within the Company's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (a) the Company's charter or bylaws or (b) any law or regulation applicable to the Company, or (c) any material ("material" for the purposes of this representation meaning creating a liability of $50,000,000 or more) agreement binding on the Company, or, to its knowledge, any other agreement binding on the Company. 5.03 Authorization and Approvals. No authorization or approval or --------------------------- other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by the Company of the Loan Documents or the consummation of the transactions contemplated by such Loan Documents. 5.04 Enforceable Obligations. This Agreement has been duly executed ----------------------- and delivered by the Company. This Agreement is, and, when executed and delivered in accordance with this Agreement, each Note will be, the legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally, and by general principles of equity. 5.05 Financial Statements. The audited consolidated balance sheet of -------------------- the Company and its Subsidiaries as of December 31, 1996, and the related audited consolidated statements of income and cash flows for the fiscal year then ended (as shown on the Company's Form 10-K for the year ended December 31, 1996) and the unaudited consolidated balance sheet of the Company and its Subsidiaries as of June 30, 1997 and the related unaudited statements of income and cash flows for the fiscal quarter then ended (as shown on the Company's Form 10-Q for the quarter ended June 30, 1997), fairly present the consolidated financial condition of the Company and its Subsidiaries as of such dates and the consolidated results of operations of the Company and its Subsidiaries for such fiscal periods, all in accordance with GAAP except as otherwise expressly noted therein, subject (in the case of the unaudited balance sheet and income statement) to changes resulting from normal year-end audit adjustments. 5.06 Litigation. Except as disclosed in the Company's Form 10-K for ---------- the year ended December 31, 1996, or the Company's Forms 10-Q for the quarters ended March 31 and June 30, 1997, which were delivered to the Banks prior to the date hereof, or as further disclosed by the Company to the Banks and the Agent in writing prior to the date hereof, there is no pending or, to the knowledge of the Company, threatened action or proceeding affecting the Company or any of its Subsidiaries before any court, governmental agency or arbitrator, in which there is a reasonable likelihood of an adverse decision which could materially adversely affect the consolidated financial condition or operations of the Company and its Subsidiaries, taken as a whole. There is no pending or, to the knowledge of the Company, threatened action or proceeding affecting the Company which purports to affect the legality, validity, binding effect or enforceability of any of the Loan Documents. 5.07 Regulation U. Following the application of the proceeds of each ------------ Loan, not more than 25% of the value of the assets of the Company which are subject to any arrangement with the Agent or any Bank (herein or otherwise) whereby the Company's or any Subsidiary's right or ability to sell, pledge or otherwise dispose of assets is in any way restricted will be Margin Stock. 5.08 Investment Company Act. Neither the Company nor any of its ------------------------ Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 5.09 ERISA. The Company is in compliance with all applicable ----- provisions of ERISA except where the failure to comply would not have a Material Adverse Effect. 5.10 Holding Company. Neither the Company nor any of its Subsidiaries --------------- is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.11 Environmental Condition. Except as disclosed in the Company's ----------------------- Form 10-K Report for the year ended December 31, 1996 or in the Company's Form 10-Q Report for the quarter ended June 30, 1997, or as further disclosed by the Company to the Banks and the Agent in writing, the aggregate contingent and non-contingent liabilities of the Company and its Subsidiaries which are presently known to any Responsible Officer and reasonably expected to arise in connection with (a) the requirements of Environmental Protection Statutes or (b) any obligation or liability to any Person in connection with any Environmental matters, including any release or threatened release of any Hazardous Substance or Hazardous Waste, do not exceed 10% of the Consolidated Tangible Net Worth of the Company (excluding such liabilities to the extent covered by insurance if the insurer has confirmed that such insurance covers such liabilities). 5.12 No Material Adverse Change. Since December 31, 1996, there has -------------------------- been no material adverse change in the business, consolidated financial position or consolidated results of operation of the Company and its Subsidiaries taken as a whole. ARTICLE VI AFFIRMATIVE COVENANTS So long as any Bank shall have any Commitment hereunder, the Swingline Bank shall have any Swingline Commitment, or any Note shall remain unpaid, the Company will unless the Majority Banks waive compliance in writing: 6.01 Compliance with Laws Etc. Comply and cause each of its ------------------------ Subsidiaries to comply in all material respects with all applicable laws, rules, regulations and orders, including compliance with the requirements of ERISA and Environmental Protection Statutes and the payment and discharge before delinquency of all taxes, assessments and governmental charges or levies imposed upon the Company or any of its Subsidiaries or any property of the Company or any of its Subsidiaries, in each case to the extent that the failure to comply, pay or discharge would have a material adverse effect on the Company and its Subsidiaries taken as a whole; provided that neither the -------- Company nor any Subsidiary of the Company shall be required to pay any such tax, assessment, charge or levy or comply with any requirement which is being contested in good faith and adequately reserved against to the extent required by GAAP. 6.02 Reporting Requirements. Furnish to the Agent and each of the ---------------------- Banks: (a) promptly after the filing or sending thereof and in any event not later than 115 days after the end of each fiscal year, a copy of the Company's annual report which it sends to its public security holders and a copy of the Company's report on Form 10-K which the Company files with the SEC for such year together with a duly-completed Compliance Certificate; (b) promptly after the filing thereof, and in any event within 60 days after the end of each of the first three fiscal quarters during each fiscal year, the Company's report on Form 10-Q which the Company files with the SEC for such quarter together with a duly completed Compliance Certificate; (c) promptly, but in any event within five Business Days after a Responsible Officer of the Company has obtained knowledge thereof, a notice of each Default or Event of Default, together with a statement of a Responsible Officer setting forth the details of such Default or Event of Default and the actions which the Company has taken and proposes to take with respect thereto; (d) promptly after the filing thereof, notice of filing of each of the reports on Form 8-K and each Schedule 13D (and any amendment thereto), if any, which the Company files with the SEC, together with a copy of such filing; (e) promptly upon any Responsible Officer becoming aware thereof, notice of any transaction or event that is, or is reasonably anticipated to result in, a Specified Transaction or a Change in Control as to the Company; (f) promptly upon such date becoming reasonably determinable by any Responsible Officer (but no later than two Business Days after the effective date of any Specified Transaction or Change in Control), notice of the effective date of any Specified Transaction or Change in Control as to the Company; and (g) such other information respecting the condition or operations, financial or otherwise, of the Company and its Subsidiaries as any Bank through the Agent may from time to time reasonably request. Reports required to be delivered pursuant to subsections (a), (b) and (d) of this Section 6.02 shall be deemed to have been delivered on the date on which the Company posts such reports on the Company's website on the Internet at the website address listed on the signature pages hereof or when such report is posted on the SEC's website at www.sec.gov.; provided that the Company shall -------- deliver paper copies of the reports referred to in subsections (a), (b) and (d) of this Section 6.02 to the Agent or any Bank who requests the Company to deliver paper copies until written notice to cease delivering paper copies is given by the Agent or such Bank and provided, further, that in every instance -------- ------- the Company shall provide paper copies of the Compliance Certificates required by subsections (a) and (b) and the notice required by subsection (d) of this Section 6.02 to the Agent and each of the Banks. Except for the Compliance Certificates referred to in subsections (a) and (b) of this Section 6.02, the Agent shall have no obligation to request the delivery or to maintain copies of the reports referred to in subsections (a), (b) or (d) of this Section 6.02 or to monitor compliance by the Company with any such request for delivery, and each Bank shall be solely responsible for requesting delivery to it or maintaining its copies of such reports. 6.03 Use of Proceeds. Use the proceeds of the Loans for general --------------- corporate purposes, including to backstop the Company's commercial paper program and for acquisitions, provided that such acquisitions would not cause a Default or Event of Default hereunder that is not waived by the Banks pursuant to Section 10.01 and are undertaken and consummated in accordance with all applicable Requirements of Law in all material respects. 6.04 Maintenance of Insurance. Maintain, and cause each of its ------------------------ Restricted Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Company and its Restricted Subsidiaries operate, provided that the Company and its Restricted Subsidiaries may self-insure to the extent and in the manner normal for companies of like size, type and financial condition. The Company may maintain its Restricted Subsidiaries' insurance on behalf of them. 6.05 Corporate Existence Etc. Preserve and maintain, and cause each ----------------------- of its Restricted Subsidiaries to preserve and maintain, its corporate existence, rights and franchises; provided, however, that no Event of Default ---------- ------- shall arise under this Section 6.05 as a result of any Specified Transaction if any prepayment required under Section 2.09(b) is timely made, or as a result of the termination of existence, rights and franchises of any Restricted Subsidiary pursuant to any merger or consolidation to which such Restricted Subsidiary is a party, and provided, further, that the Company or -------- ------- any Restricted Subsidiary shall not be required to preserve any right or franchise if the Company or such Restricted Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or such Restricted Subsidiary, as the case may be, and that the loss thereof is not disadvanta-geous in any material respect to the Banks. 6.06 Visitation Rights. From time to time and so long as any visit or ----------------- inspection will not unreasonably interfere with the operations of the Company and its Restricted Subsidiaries, upon reasonable notice, permit the Agent and any Bank or any agents or representatives thereof to examine the financial records and books of account of, and visit and inspect the properties of, the Company and any such Restricted Subsidiary, and to discuss the affairs, finances and accounts of the Company and any such Restricted Subsidiary with any of their respective officers or directors. ARTICLE VII NEGATIVE COVENANTS So long as any Bank shall have any Commitment hereunder, the Swingline Bank shall have any Swingline Commitment, or any Note shall remain unpaid, the Company will not, unless the Majority Banks waive compliance in writing: 7.01 Leverage Ratio. Permit, as of the last day of any fiscal -------------- quarter, its ratio of (a) the aggregate outstanding principal amount of Total Senior Debt to (b) Total Capitalization to be greater than 50%. 7.02 Liens. Fail to perform and observe any term, covenant or ----- agreement contained in Section 3.7 of the Senior Debt Indenture (as modified for purposes hereof as set forth in the proviso to the next sentence hereof). For the purposes of this Section 7.02, Section 3.7 and the definitions of all terms defined in the Senior Debt Indenture and used in or otherwise applicable to such Section 3.7 are hereby incorporated in this Agreement by reference as if such provisions and definitions were set forth in full herein; provided, -------- however, that solely for the purposes of this Section 7.02 the word "Securities" as used in the Senior Debt Indenture shall mean the Notes, the phrase "this Section 3.7" used therein shall mean this Section 7.02, and the word "Issuer" used therein shall mean the Company. ARTICLE VIII EVENTS OF DEFAULT 8.01 Event of Default. Any of the following shall constitute an ---------------- "Event of Default": (a) Non-Payment. The Company fails to pay, (i) any principal on any ----------- Note when such principal is due and payable, (ii) any interest on any Note within five days after such interest becomes due and payable, or (iii) the commitment fee set forth in Section 2.12 within 15 days after such commitment fee becomes due and payable; or (b) Representation or Warranty. Any representation or warranty made by -------------------------- the Company or any Responsible Officer (including representations and warranties deemed made pursuant to Section 4.02) under or in connection with any Loan Document is incorrect in any material respect on or as of the date made or deemed made; or (c) Specific Defaults. The Company fails to perform or observe any ----------------- term, covenant or agreement contained in any of Sections 6.02(c), 6.02(e), 6.02(f), 7.01 or 7.02; or (d) Other Defaults. The Company fails to perform or observe any other -------------- term or covenant contained in this Agreement, and such default shall continue unremedied for a period of 30 days after written notice thereof is given to the Company by the Agent at the request of any Bank; or (e) Cross-Default. The Company or any Restricted Subsidiary (i) fails ------------- to make any payment of principal of or premium or interest on (A) any Debt outstanding under the 5-Year Credit Agreement, or (B) any Debt (other than Debt described in clause (iv) of the definition of Debt) which is outstanding in the principal amount of at least $100,000,000 in the aggregate of the Company or such Restricted Subsidiary (as the case may be), when such payment in respect of Debt described in clause (A) or (B) becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), and such failure continues after the applicable grace or notice period, if any, in effect on the date of such failure, event or condition in the agreement or instrument relating to any such Debt; or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Debt (other than Debt described in clause (iv) of the definition of Debt) and such failure continues after the applicable grace or notice period in effect on the date of such failure, event or condition, if any, if the effect of such failure, event or condition is to cause any such Debt to be declared to be due and payable prior to its stated maturity; or (f) Insolvency; Voluntary Proceedings. The Company or any Restricted --------------------------------- Subsidiary (i) generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) commences any Insolvency Proceeding with respect to itself; or (iii) takes any corporate action to effectuate or authorize any of the foregoing; or (g) Involuntary Proceedings. Any involuntary Insolvency Proceeding is ----------------------- commenced or filed against the Company or any Restricted Subsidiary, and such Involuntary Proceeding is not released, vacated or stayed within 60 days after the commencement or filing thereof; or (h) Judgments. Any judgment or order for the payment of money in --------- excess of $100,000,000 shall be rendered against the Company and remain unsatisfied and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) Change in Control. There shall occur a Change in Control of the ------------------ Company. 8.02 Remedies. If any Event of Default shall occur and be -------- continuing, the Agent shall, at the request of, or may, with the consent of, the Majority Banks, (a) by notice to the Company, declare the obligation of each Bank to make Loans, including the obligation of the Swingline Bank to make Swingline Loans, be terminated, whereupon such obligations shall be terminated; (b) by notice to the Company, declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document, to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise on behalf of itself and the Banks all other rights and remedies available to it and the Banks under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in -------- ------- subsection (f) or (g) of Section 8.01 (in the case of subsection (g) upon the expiration of the 60-day period mentioned therein), the obligation of each Bank to make Loans, including the obligation of the Swingline Bank to make Swingline Loans, shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Agent or any Bank. 8.03 Rights Not Exclusive. The rights provided for in this Agreement -------------------- and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity. ARTICLE IX THE AGENT 9.01 Appointment and Authorization. Each Bank hereby irrevocably ----------------------------- appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have 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. Without limiting the generality of the foregoing sentence, the use of the term "agent" or "administrative agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. 9.02 Delegation of Duties. The Agent may execute any of its duties -------------------- under this Agreement or any other Loan Document by or through agents, employees 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 agent or attorney-in-fact that it selects with reasonable care. 9.03 Liability of Agent. None of the Agent-Related Persons shall (i) ------------------ be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in 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 the validity, effectiveness, genuineness, enforceability or Sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person 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 any other Loan Document, or to inspect the properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 9.04 Reliance by Agent. (a) The Agent shall be entitled to rely, and ----------------- shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or 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 counsel to the Company), independent accountants and other experts selected by 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 Majority Banks as it deems appropriate and, if it so requests, 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 or any other Loan Document in accordance with a request or consent of the Majority Banks or all of the Banks if required by Section 10.01 and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in Section 4.01, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank. 9.05 Notice of Default. The Agent shall not be deemed to have ------------------- knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Banks, unless the Agent shall have received written 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". The Agent will notify the Banks of its receipt of any such notice. The Agent shall take such action with respect to such Default or Event of Default as may be requested by the Majority Banks in accordance with Article VIII; provided, however, that unless and until the -------- ------- Agent has received any such request, 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 or in the best interest of the Banks. 9.06 Credit Decision. Each Bank acknowledges that none of the ---------------- Agent-Related Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Company hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Agent, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Agent-Related Persons. 9.07 Indemnification. Whether or not the transactions contemplated --------------- hereby are consummated, the Banks shall indemnify upon demand the Agent- Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), pro rata, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent-Related Persons in any way relating to or arising out of the Loan Documents or any action taken or omitted by an Agent-Related Person, provided, -------- however, that no Bank shall be liable for the payment to the Agent-Related - ------- Persons of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Person's gross negligence or willful misconduct. IT IS THE INTENTION OF THE BANKS THAT EACH AGENT-RELATED PERSON SHALL, TO THE EXTENT PROVIDED IN THIS SECTION 9.07, BE INDEMNIFIED FOR ITS ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE. Without limitation of the foregoing, each Bank shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) 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, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Company. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent. 9.08 Agent in Individual Capacity. The Bank serving as Agent and its ---------------------------- Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though the Bank serving as Agent were not the Agent hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, the Bank serving as Agent or its Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary) and acknowledge that the Agent shall be under no obligation to provide such information to them. With respect to its Loans, the Bank serving as Agent shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" include the Bank serving as Agent in its individual capacity. 9.09 Successor Agent. The Agent may, and at the request of the --------------- Majority Banks shall, resign as Agent upon 30 days' prior written notice to the Banks and the Company. If the Agent resigns under this Agreement, the Majority Banks shall appoint from among the Banks a successor agent for the Banks which successor agent shall be subject to approval by the Company. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Banks and the Company, a successor agent from among the Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article IX and Sections 3.01, 10.04 and 10.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder and under any other Loan Document until such time, if any, as the Majority Banks appoint a successor agent as provided for above. Notwithstanding the foregoing, however, BofA may not be removed as the Agent at the request of the Majority Banks unless BofA shall also simultaneously be replaced as Swingline Bank hereunder pursuant to documentation in form and substance reasonably satisfactory to BofA. 9.10 Withholding Tax. (a) If any Bank is a foreign corporation, --------------- foreign partnership or foreign trust within the meaning of the Code and such Bank claims exemption from, or a reduction of, United States withholding tax under Sections 1441 or 1442 of the Code, such Bank agrees with and in favor of the Agent, to deliver to the Agent: (i) if such Bank claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, two properly completed and executed IRS Forms 1001 and W-8 at least 30 days before the payment of any interest is due in the first calendar year and at least 30 days before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Bank claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Bank, two properly completed and executed copies of IRS Form 4224 at least 30 days before the payment of any interest is due in the first taxable year of such Bank and in each succeeding taxable year of such Bank during which interest may be paid under this Agreement; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. The Agent shall deliver one copy of each such form to the Company. Such Bank agrees to promptly notify the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Bank claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank, such Bank agrees to notify the Agent (which in turn shall notify the Company) of the percentage amount in which it is no longer the beneficial owner of Obligations of the Company to such Bank. To the extent of such percentage amount, the Agent (and the Company) will treat such Bank's IRS Form 1001 as no longer valid. (c) If any Bank claiming exemption from United States withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank, such Bank agrees to notify the Agent (which in turn shall notify the Company) of the percentage amount in which it is no longer the beneficial owner of Obligations of the Company to such Bank. To the extent of such percentage amount, the Agent (and the Company) will treat such Bank's Form 4224 as no longer valid. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Bank an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to the Agent, then the Agent may withhold from any interest payment to such Bank not providing such forms or other documentation an amount equivalent to the applicable withholding tax (without taking into account such reduction). (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered, was not properly executed, or because such Bank failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Bank shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Banks under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Agent. 9.11 Co-Agents; Internet Agents. No Bank identified on the facing -------------------------- page or signature pages of this Agreement solely as a "co-agent," "syndication agent" or "Internet agent" shall have any right, power, obligation, liability, responsibility or duty as such under this Agreement other than those applicable to all Banks. Without limiting the foregoing, no Bank so identified as a "co-agent," "syndication agent" or "Internet agent" shall have or be deemed to have any fiduciary relationship with any Bank. Each Bank acknowledges that it has not relied, and will not rely, on any of the Banks so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. ARTICLE X MISCELLANEOUS 10.01 Amendments and Waivers. No amendment or waiver of any ------------------------ provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Majority Banks and acknowledged by the Agent, and then such waiver shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that -------- ------- no such waiver, amendment, or consent shall, except as set forth below, do any of the following: (a) increase or extend the Commitment of any Bank (except as provided in Section 2.06) or reinstate any Commitment of any Bank terminated pursuant to Section 8.02 or Section 2.09(b), unless such waiver, amendment or consent is in writing and signed by such Bank and acknowledged by the Agent; (b) postpone or delay any date fixed for any payment of principal, interest or fees due to any Bank hereunder or under any Loan Document, unless such waiver, amendment or consent is in writing and signed by such Bank and acknowledged by the Agent; (c) reduce the principal of, or the rate of interest specified herein on any Revolving Loan made by any Bank, or any fees payable hereunder or under any other Loan Document to any Bank, unless such waiver, amendment or consent is in writing and signed by such Bank and acknowledged by the Agent; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes which is required for the Banks or any of them to take any action hereunder, unless such waiver, amendment or consent is in writing and signed by all the Banks and acknowledged by the Agent; or (e) amend this Section or any provision herein providing for consent or other action by all Banks, unless such waiver, amendment or consent is in writing and signed by all the Banks and acknowledged by the Agent; and, provided further, that (i) no amendment, waiver or consent shall, unless -------- ------- in writing and signed by the Agent in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Agent under this Agreement or any other Loan Document, and (ii) no amendment, waiver or consent shall, unless in writing and signed by the Swingline Bank in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Swingline Bank under this Agreement or any other Loan Document. 10.02 Notices. (a) All notices, requests and other communications ------- shall be in writing (including, unless the context expressly otherwise provides, by telecopier transmission, provided that any matter transmitted by telecopier shall be immediately preceded or confirmed by a telephone call to the recipient at the number specified on Schedule 10.02), and mailed, --------------- telecopied or delivered, to the address or telecopier number specified for notices on Schedule 10.02; or, as directed to the Company or the Agent, to --------------- such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Company and the Agent. (b) All such notices, requests and communications shall be effective, if sent by overnight courier, one Business Day after delivery to the courier company; if sent by telecopier, when received in legible form by the receiving telecopier equipment; if mailed, upon the fifth Business Day after the date deposited into the U.S. mail; or if delivered, upon delivery; provided that -------- (i) notices pursuant to Article II or IX shall not be effective until actually received by the Agent, and (ii) telecopied notices received by any party after its normal business hours (or on a day other than a Business Day) shall be effective on the next Business Day. (c) Any agreement of the Agent and the Banks herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Agent and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Agent and the Banks shall not have any liability to the Company or other Person on account of any action taken or not taken by the Agent or the Banks in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Loans shall not be affected in any way or to any extent by any failure by the Agent and the Banks to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent and the Banks of a confirmation which is at variance with the terms understood by the Agent and the Banks to be contained in the telephonic or facsimile notice. 10.03 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 preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 10.04 Costs and Expenses. The Company shall: -------------------- (a) whether or not the transactions contemplated hereby are consummated, pay for all reasonable costs and expenses incurred by the Agent in connection with the preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby; limited, however, in the case of the preparation, execution and delivery of the Loan Documents, to the Attorney Costs of the Agent as more fully provided in that certain letter agreement between the Company and the Agent dated July 29, 1997; and (b) pay or reimburse the Agent and each Bank within five Business Days after demand for all costs and expenses (including reasonable Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). 10.05 Indemnity. The Company agrees, to the fullest extent permitted --------- by law, to indemnify and hold harmless the Agent--Related Persons, and each Bank and its respective directors, officers, employees and agents, from and against any and all claims, damages, liabilities and expenses (including, without limitation, reasonable Attorney Costs) for which any of them may become liable or which may be incurred by or asserted against the Agent-Related Persons, or such Bank or any such director, officer, employee or agent (other than by another Bank or any successor or assign of another Bank), in each case in connection with or arising out of or by reason of any investigation, litigation, or proceeding, whether or not the Agent or such Bank or any such director, officer, employee or agent is a party thereto, arising out of, related to or in connection with any Loan Document or any transaction in which any proceeds of all or any part of the Loans are applied or proposed to be applied, EXPRESSLY INCLUDING ANY SUCH CLAIM, DAMAGE, LIABILITY OR EXPENSE ARISING OUT OF THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH INDEMNIFIED PERSON (but excluding any such claim, damage, liability or expense to the extent attributable to the gross negligence or willful misconduct of, or violation of any law or regulation by, any such indemnified Person). The undertaking in this Section shall survive the payment of all Obligations hereunder. 10.06 Payments Set Aside. To the extent that the Company makes a ------------------ payment to the Agent or the Banks, or the Agent or the Banks exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Bank severally agrees to pay to the Agent upon demand its pro rata or other applicable share of any amount so recovered from or repaid by the Agent. 10.07 Binding Effect; Assignments; Participations. (a) This Agreement ------------------------------------------- shall become effective when it shall have been executed by the Company and the Agent and when the Agent shall have, as to each Bank, received a copy (including one transmitted by telecopier) of a signature page hereof executed by such Bank and thereafter shall be binding upon and inure to the benefit of and be enforceable by the Company, the Agent and each Bank and their respective successors and assignees, subject to Section 10.07(e) and except that the Company shall not have the right to assign its rights or obligations hereunder or any interest herein without the prior written consent of the Banks (other than an assignment effectuated by operation of law pursuant to a Specified Transaction). (b) Each Bank may grant participations to one or more commercial banks or other Persons, in each case in accordance with applicable law, in or to all or any part of, the Loans owing to, or the Commitment of, such Bank and the Note held by such Bank subject to Section 10.07(e), and to the extent of any such participation (unless otherwise stated therein) the purchaser of such participation shall, to the fullest extent permitted by law, have the same rights to payment hereunder and under such Loan and Note as it would have if it were such Bank hereunder, provided that (x) the originating Bank's -------- obligations under this Agreement, including, without limitation, its commitment to make loans to the Company hereunder, 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 Company, the other 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; (y) no such participant shall be entitled to receive any greater payment pursuant to Sections 3.01, 3.03 and 3.05 than such Bank would have been entitled to receive with respect to the rights assigned except as a result of circumstances arising after the date of such participation to the extent that such circumstances affect other Banks and participants generally; and (z) no Bank shall grant a participation that conveys to the participant the right to vote or consent under this Agreement, other than the right to vote upon or consent to (i) any increase in the amount of such Bank's Commitment; (ii) any reduction of the principal amount of, or interest to be paid on, such Bank's Loan or Note; (iii) any reduction of the commitment fee payable to such Bank; or (iv) any postponement of the due date in respect of any amounts owed to such Bank under any Loan Document. (c) In accordance with applicable law, any Bank may assign a portion, in an amount of at least $10,000,000 of its Commitment (or, if less, the amount of its total Commitment), together with a ratable portion of its Loans and other rights and obligations hereunder to an Eligible Assignee, with the prior written consents of the Agent and (unless there has occurred and is continuing an Event of Default) the Company, which consents shall not be unreasonably withheld, subject to Section 10.07(e); provided, however, that -------- ------- after giving effect to any proposed assignment by a Bank of its Commitment (other than an assignment of its total Commitment), such Bank's Commitment shall be at least $25,000,000, unless the Company and the Agent shall each have agreed to a lesser amount; provided, further, that neither the -------- ------- Company's nor the Agent's consent shall be required for, and the minimum amount for assignment shall not apply to, any assignment to an Eligible Assignee which already is a Bank party to this Agreement. In connection with The assignment by the Swingline Bank of all of its Commitment and Loans hereunder, the Swingline Commitment and Swingline Loans shall be included as part of the assignment transaction. Each such assigning Bank and Eligible Assignee to which an assignment has been made pursuant to this Section 10.07(c) shall execute and deliver to the Agent an Assignment and Acceptance, pursuant to which, in the case of an Eligible Assignee to which such an assignment has been made which is not already a Bank, such Eligible Assignee shall become a party to this Agreement, provided that, in the case of each -------- such assignment, (i) at such time Schedule 2.01 shall be deemed to be modified ------------- to reflect the Commitments of such assignee Bank and of the existing Banks, (ii) the Company shall issue new Notes to such assignee Bank and to the assigning Bank, if applicable, to reflect the revised Commitments and (iii) the Agent shall receive at the time of such assignment, from the assigning or assignee Bank, a non-refundable assignment fee of $4,000. To the extent of any assignment pursuant to this Section 10.07(c), the assigning Bank shall be relieved of its obligations hereunder with respect to its assigned Commitment. (d) In addition to the assignments and participations permitted under Section 10.07(b) and (c), any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under this Agreement and the Notes held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. (e) Unless an Event of Default has occurred and is continuing, no assignments or participations shall result in a Bank (together with its Affiliates) holding Commitments, or participations therein, in excess of $200,000,000 without the prior written consent of the Company. 10.08 Set-off. In addition to any rights and remedies of the Banks ------- provided by law, if an Event of Default exists or the Loans have been accelerated, to the fullest extent permitted by applicable law each Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Bank to or for the credit or the account of the Company against any and all Obligations owing to such Bank, now or hereafter existing, irrespective of whether or not the Agent or such Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Company and the Agent after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall -------- ------- not affect the validity of such set-off and application. 10.09 Interest. (a) It is the intention of the parties hereto that the -------- Agent and each Bank shall conform strictly to usury laws applicable to it, if any. Accordingly, if the transactions with the Agent or any Bank contemplated hereby would be usurious under applicable law, if any, then, in that event, notwithstanding anything to the contrary in this Agreement, the Notes or any other agreement entered into in connection with this Agreement or the Notes, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, taken, reserved, charged or received by the Agent or such Bank, as the case may be, under this Agreement, the Notes or under any other agreement entered into in connection with this Agreement or the Notes shall under no circumstances exceed the maximum amount allowed by such applicable law and any excess shall be cancelled automatically and, if theretofore paid, shall be refunded by the Agent or such Bank, as the case may be, to the Company, and (ii) in the event that the maturity of any Loan or other obligation payable to the Agent or such Bank, as the case may be, is accelerated or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to the Agent or such Bank, as the case may be, may never include more than the maximum amount allowed by such applicable law and excess interest, if any, to the Agent or such Bank, as the case may be, provided for in this Agreement or otherwise shall be cancelled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall, at the option of the Agent or such Bank, as the case may be, be credited by the Agent or such Bank, as the case may be, on the principal amount of the obligations owed to the Agent or such Bank, as the case may be, by the Company or refunded by the Agent or such Bank, as the case may be, to the Company. To the extent that Article 5069-1.04 of the Texas Revised Civil Statutes is relevant to any Bank for the purposes of determining the Highest Lawful Rate, such Bank hereby elects to determine the applicable rate ceiling under such Article by the indicated (weekly) rate ceiling from time to time in effect, subject to such Bank's right to subsequently change such rate ceiling in accordance with applicable law. Tex. Rev. Civ. Stat. Ann. art. 5069, ch. 15 (which regulates certain revolving credit loan accounts and revolving triparty accounts) shall not apply to this Agreement or the Notes. (b) In the event that at any time the interest rate applicable to any Loan made by any Bank would exceed the Highest Lawful Rate, the rate of interest to accrue on the Loans by such Bank shall be limited to the Highest Lawful Rate, but shall accrue, to the extent permitted by law, on the principal amount of the Loans made by such Bank from time to time outstanding, if any, at the Highest Lawful Rate allowed by applicable law until the total amount of interest accrued on the Loans made by such Bank equals the amount of interest which would have accrued if the interest rates applicable to the Loans pursuant to Article II had at all times been in effect. In the event that upon the final payment of the Loans made by any Bank and termination of the Commitment of such Bank, the total amount of interest paid to such Bank hereunder is less than the total amount of interest which would have accrued if the interest rates applicable to such Loans pursuant to Article II had at all times been in effect, then the Company agrees to pay to such Bank, to the extent permitted by law, an amount equal to the excess of (a) the lesser of (i) the amount of interest which would have accrued on such Loans if the Highest Lawful Rate had at all times been in-effect or (ii) the amount of interest which would have accrued if the interest rates applicable to such Loans pursuant to Article II had at all times been in effect over (b) the amount of interest otherwise accrued on such Loans in accordance with this Agreement. 10.10 Confidentiality. (a) Each Bank and the Agent acknowledge that --------------- certain confidential and proprietary information of the Company (the "Information") is a valuable, special, and a unique asset of the Company. Each Bank and the Agent agree that they will use the care specified below to keep all Information in confidence, and will not use any Information except as provided in this Section, or disclose any portion of the Information to any third party without the prior written consent of the Company except as provided in this Section. Each Bank and the Agent covenant to use the care specified below to not disclose such Information on behalf of itself, its officers, directors, agents, employees, and affiliates. Each Bank and the Agent shall use the same degree of care to protect the confidentiality of all Information as such Bank or the Agent, as the case may be, uses to protect its own confidential and proprietary information (which it does not wish to have published or disseminated). (b) Information provided by the Company to any Bank or the Agent, which the Company in good faith regards as Information hereunder shall be clearly marked by the Company as "Confidential," "Proprietary," or bear any other appropriate notice indicating the sensitive nature of the Information. Any tangible Information not easily markable shall be transmitted by the Company to such Bank or the Agent under cover of written letter which clearly identifies the Information and designates it as confidential "Information". All information conveyed to such Bank or the Agent orally relating to plans, forecasts, products or other non-public information shall be deemed confidential "Information". (c) If any Bank or the Agent is confronted with legal action to disclose Information received under this Agreement or otherwise makes disclosures of confidential information under clauses (ii), (iii) or (iv) of Section 10.10(e) (other than any disclosure to a regulatory authority pursuant to an examination of the books, records or affairs of such Bank or Agent), such Bank or the Agent, as the case may be, shall (to the extent permitted by applicable law) promptly notify the Company. (d) All Information disclosed or furnished under this Agreement shall remain the property of the Company. At the Company's request, the Information in tangible form shall be promptly returned or destroyed, together with all copies thereof unless such return or destruction is contrary to law, regulation, legal process, administrative order, or administrative request having, or deemed to have, the force of law. Upon request, the appropriate Bank or the Agent, as the case may be, shall provide written certification of the destruction. (e) Notwithstanding the foregoing, each Bank and the Agent may disclose Information (i) as has become generally available to the public, (ii) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Bank or to the FRB, or the FDIC or similar organizations (whether in the United States or elsewhere), (iii) as may be required or appropriate in response to any summons or subpoena or in connec-tion with any litigation, (iv) in order to comply with any law, order, regulation or ruling applicable to such Bank, (v) to any regulatory authority pursuant to an examination of the books, records or affairs of any Bank or the Agent, (vi) to the prospective transferee in connection with any contemplated transfer of any of the Notes or any interest therein by such Bank, provided, -------- that such prospective transferee executes an agreement with the Company or the transferor containing provisions substantially identical to those contained in this Section, (vii) to the extent reasonably required in connection with any litigation or proceeding to which the Agent, any Bank or their respective Affiliates may be party, (viii) to such Bank's independent auditors and other professional advisors, (ix) to the extent reasonably necessary to disclose in connection with the exercise of any remedy hereunder and under the Notes, or (x) as to any Bank, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company is party or is deemed party with such Bank. 10.11 Preservation of Certain Matters. Notwithstanding any other ---------------------------------- term or provision hereof to the contrary, any entity ceasing to be a "Bank" for purposes of this Agreement, by virtue of any matter or event contemplated by Section 2.07, 2.08, 3.06 or 10.07 shall retain any and all rights arising under Section 10.05, and shall continue to remain responsible to the Agent for all liabilities under Section 9.07 and Section 9.10 relating to matters occurring prior to the termination of such entity as a "Bank." 10.12 Notification of Addresses, Lending Offices Etc. Each Bank shall ---------------------------------------------- notify the Agent in writing of any changes in the address to which notices to the Bank should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. 10.13 Counterparts. This Agreement may be executed in any number of ------------ separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same agreement. 10.14 Severability. The illegality or unenforceability of any ------------ provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 10.15 GOVERNING LAW; JURISDICTION. (A) THIS AGREEMENT AND THE NOTES --------------------------- SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF NEW YORK; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY -------------------- NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND THE BANKS EACH WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW. 10.16 WAIVER OF JURY TRIAL. THE COMPANY, THE BANKS AND THE AGENT --------------------- EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 10.17 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT AND THE LOAN 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. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. [REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
Company's Notice Address: COMPAQ COMPUTER CORPORATION Compaq Computer Corporation P.O. Box 692000, MS110701 20555 State Highway 24 By: /s/ Ben K. Wells ---------------------------------- Houston, TX 77269-2000 Name: Ben K. Wells www.compaq.com Title: Assistant Treasurer Attn:Richard Harris Director, Capital Markets Treasury Richard.Harris@compaq.com BANK OF AMERICA NATIONAL TRUST Tel: (281) 518-6024 AND SAVINGS ASSOCIATION, as Administrative Fax: (281) 514-7400 Agent and as Internet Agent By: /s/ Kevin M. McMahon ----------------------------------- Name: Kevin M. McMahon Title: Managing Director BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Swingline Bank and as a Bank By: /s/ Kevin M. McMahon ----------------------------------- Name: Kevin M. McMahon Title: Managing Director CITIBANK, N.A., as Syndication Agent and as a Bank By: /s/ James M. Walsh ----------------------------------- Name: James M. Walsh Title: Attorney-in-fact NATIONSBANK OF TEXAS, N.A., as Syndication Agent and as a Bank By: /s/ Timothy M. O'Connor ----------------------------------- Name: Timothy M. O'Connor Title: Vice President THE CHASE MANHATTAN BANK, as Syndication Agent and as a Bank By: /s/ David Staples ----------------------------------- Name: David Staples Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Internet Agent and as a Bank By: /s/ Jeffrey Hwang ----------------------------------- Name: Jeffrey Hwang Title: Vice President CARIPLO-CASSA DI RISPARMIO DELLE PROVINCIE LOMBARDE S.P.A. By: /s/ Anthony F. Giobbi ----------------------------------- Name: Anthony F. Giobbi Title: First Vice President By: /s/ Charles W. Kennedy ----------------------------------- Name: Charles W. Kennedy Title: First Vice President DEUTSCHE BANK AG, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ Ralf Hoffmann ----------------------------------- Name: Ralf Hoffmann Title: Vice President By: /s/ V. Shannon Sewsankar ----------------------------------- Name: V. Shannon Sewsankar Title: Assistant Vice President THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Cory M. Olson ----------------------------------- Name: Cory M. Olson Title: Authorized Agent FLEET NATIONAL BANK By: /s/ Frank Benesh ----------------------------------- Name: Frank Benesh Title: Vice President ING BANK N.V. By: /s/ Peter Nabney ----------------------------------- Name: Peter Nabney Title: General Manager By: /s/ Samantha de Foubert ----------------------------------- Name: Samantha de Foubert Title: Account Manager ROYAL BANK OF CANADA By: /s/ Brian W. Dixon ----------------------------------- For: Brian W. Dixon Title: Senior Manager BANCA COMMERCIALE ITALIANA, LOS ANGELES BRANCH By: /s/ Eduardo Bombieri ----------------------------------- Name: Eduardo Bombieri Title: Vice President & Manager By: /s/ Jack Wityak ----------------------------------- Name: Jack Wityak Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ Mark Marron ----------------------------------- Name: Mark Marron Title: Vice President BARCLAYS BANK PLC, NEW YORK BRANCH By: /s/ John Giannone ----------------------------------- Name: John Giannone Title: Director THE FUJI BANK, LIMITED, HOUSTON AGENCY By: /s/ Kenichi Tatara ----------------------------------- Name: Kenichi Tatara Title: Vice President & Manager NATIONAL AUSTRALIA BANK LIMITED By: /s/ Justin McCarty, III ----------------------------------- Name: Justin McCarty, III Title: Vice President BANCA DI ROMA, CHICAGO BRANCH By: /s/ Claudio Perna ----------------------------------- Name: Claudio Perna Title: Senior Vice President and Branch Manager By: /s/ Luigi Rocchi ----------------------------------- Name: Luigi Rocchi Title: Vice President BANCA MONTE DEI PASCHI DI SIENA, S.P.A. By: /s/ G. Natalicchi ----------------------------------- Name: G. Natalicchi Title: Senior Vice President & General Manager By: /s/ Brian R. Landy ----------------------------------- Name: Brian R. Landy Title: Vice President BANCA NAZIONALE DEL LAVORO S.P.A., NEW YORK BRANCH By: /s/ Giuliano Violetta ----------------------------------- Name: Giuliano Violetta Title: First Vice President By: /s/ Adolph S. Mascari ----------------------------------- Name: Adolph S. Mascari Title: Assistant Vice President BANCA POPOLARE DI MILANO, NEW YORK BRANCH By: /s/ Anthony Franco ----------------------------------- Name: Anthony Franco Title: Executive Vice President and General Manager By: /s/ Fulvio Montanri ----------------------------------- Name: Fulvio Montanri Title: First Vice President, Corporate Banking BANCO CENTRAL HISPANO AMERICANO, S.A., NEW YORK BRANCH By: /s/ Francesco Alcon ----------------------------------- Name: Francesco Alcon Title: Executive Vice President & General Manager BANK OF MONTREAL By: /s/ Bev Blucher ----------------------------------- Name: Bev Blucher Title: Senior Vice President THE BANK OF NEW YORK By: /s/ Alan Lyster ----------------------------------- Name: Alan Lyster Title: Vice President BANKBOSTON, N.A. By: /s/ Jay L. Massimo ----------------------------------- Name: Jay L. Massimo Title: Vice President BANQUE NATIONALE DE PARIS, HOUSTON AGENCY By: /s/ Thierry Bonetto ----------------------------------- Name: Thierry Bonetto Title: Deputy General Manager BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK AKTIENGELSELLSCHAFT, NEW YORK BRANCH By: /s/ Yoram Dankner ----------------------------------- Name: Yoram Dankner Title: Senior Vice President By: /s/ E.S. Atwell ----------------------------------- Name: E.S. Atwell Title: Vice President CORESTATES BANK, N.A. By: /s/ Scott Hoffman ----------------------------------- Name: Scott Hoffman Title: Vice President CREDITO ITALIANO By: /s/ Umberto Seretti /s/ Saiyed A. Abbas ------------------------------------------------------ Name: Umberto Seretti Saiyed A. Abbas Title: Vice President Assistant Vice President THE DAI-ICHI KANGYO BANK, LIMITED By: /s/ Seiji Imai ----------------------------------- Name: Seiji Imai Title: Vice President DEN DANSKE BANK AKTIESELSKAB, CAYMAN ISLANDS BRANCH By: /s/ John O'Neill ----------------------------------- Name: John O'Neill Title: Vice President By: /s/ Peter L. Hargraves ----------------------------------- Name: Peter L. Hargraves Title: Vice President DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH By: /s/ John W. Sweeney ----------------------------------- Name: John W. Sweeney Title: Assistant Vice President By: /s/ Denise M. Rohde ----------------------------------- Name: Denise M. Rohde Title: Assistant Treasurer THE INDUSTRIAL BANK OF JAPAN, LIMITED NEW YORK BRANCH By: /s/ Kazutoshi Kuwahara ----------------------------------- Name: Kazutoshi Kuwahara Title: Executive Vice President, Houston Office ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A. By: /s/ Robert Wurster ----------------------------------- Name: Robert Wurster Title: First Vice President By: /s/ Glen Binder ----------------------------------- Name: Glen Binder Title: Vice President KREDIET BANK N.V., GRAND CAYMAN BRANCH By: /s/ Robert Snauffer ----------------------------------- Name: Robert Snauffer Title: Vice President By: /s/ Tod R. Angus ----------------------------------- Name: Tod R. Angus Title: Vice President MARINE MIDLAND BANK By: /s/ John B Lyons ----------------------------------- Name: John B Lyons Title: Senior Vice President MELLON BANK, N.A. By: /s/ John M. Kailer ----------------------------------- Name: John M. Kailer Title: First Vice President NATIONAL WESTMINSTER BANK PLC, NEW YORK BRANCH By: /s/ Angela Bozorgmir ----------------------------------- Name: Angela Bozorgmir Title: Vice President NATIONAL WESTMINSTER BANK PLC, NASSAU BRANCH By: /s/ Angela Bozorgmir ----------------------------------- Name: Angela Bozorgmir Title: Vice President THE NORTHERN TRUST COMPANY By: /s/ John E. Burda ----------------------------------- Name: John E. Burda Title: Second Vice President PNC BANK, NATIONAL ASSOCIATION By: /s/ David J. Egan ----------------------------------- Name: David J. Egan Title: Senior Vice President THE SANWA BANK, LIMITED By: /s/ Matthew Patrick ----------------------------------- Name: Matthew Patrick Title: Vice President SKANDINAVISKA ENSKILDA BANKEN AB (PUBL), NEW YORK BRANCH By: /s/ Benjamin K.B. Young ----------------------------------- Name: Benjamin K.B. Young Title: Senior Account Executive By: /s/ Phillip F. Monternurro, Jr. ----------------------------------- Name: Phillip F. Monternurro, Jr. Title: Vice President SOCIETE GENERALE FINANCE (IRELAND) LIMITED By: /s/ Ther se Leonard ----------------------------------- Name: Therese Leonard Title: Account Manager By: /s/ Jacinta Conroy ----------------------------------- Name: Jacinta Conroy Title: Loans Administrator STANDARD CHARTERED BANK By: /s/ Peter G.R. Dodds ----------------------------------- Name: Peter G.R. Dodds Title: Vice President By: /s/ Kristina McDavid ----------------------------------- Name: Kristina McDavid Title: Vice President THE SUMITOMO BANK, LIMITED By: /s/ Harumitsu Seki ----------------------------------- Name: Harumitsu Seki Title: General Manager THE SUMITOMO TRUST & BANKING CO., LTD., LOS ANGELES AGENCY By: /s/ Ninoos Y. Benjamin ----------------------------------- Name: Ninoos Y. Benjamin Title: Vice President & Manager SWISS BANK CORPORATION, NEW YORK BRANCH By: /s/ Gary Riddell ----------------------------------- Name: Gary Riddell Title: Director By: /s/ James J. Diaz ----------------------------------- Name: James J. Diaz Title: Director TORONTO DOMINION BANK (TEXAS), INC. By: /s/ Darlene Riedel ----------------------------------- Name: Darlene Riedel Title: Vice President WELLS FARGO BANK, N.A. By: /s/ Ken Taylor ----------------------------------- Name: Ken Taylor Title: Assistant Vice President WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By: /s/ Alan S. Bookspan /s/ Thomas Lee ------------------------------------------------- Name: Alan S. Bookspan Thomas Lee Title: Vice President Associate EXHIBIT A --------- NOTICE OF BORROWING Bank of America National Trust and Savings Association, as Administrative Agent Agency Administrative Services #5596 1850 Gateway Blvd. Concord, CA 94520-3281 Attn: Compaq AO [Date] Ladies and Gentlemen: This Notice of Borrowing is delivered pursuant to Section [2.03] [2.05] of the $1,000,000,000 Revolving Credit Agreement, dated as of September 22, 1997 (together with all amendments, if any, from time to time made thereto, the "Credit Agreement"), among Compaq Computer Corporation, a Delaware corporation (the "Company"), certain Banks parties thereto and Bank of America National Trust and Savings Association, as administrative agent for such Banks. Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. The Company hereby irrevocably requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the "Proposed Borrowing") as required by Section [2.03(a)] [2.05(a)] of the Credit Agreement: (i) The Borrowing Date of the Proposed Borrowing is ________________, 199___. *[(ii) The type of Revolving Loans comprising the Proposed Borrowing is [Base Rate Revolving Loans] [Adjusted CD Rate Revolving Loans] [LIBOR Revolving Loans].] **[(ii) The type of Swingline Loan comprising the Proposed Borrowing is a [Base Rate Swingline Loan] [Adjusted CD Rate Swingline Loan] [LIBO Rate Swingline Loan].] (iii) The [aggregate] amount of the Proposed Borrowing is $___________. (iv) The duration of the Interest Period for each CD Loan or Offshore Loan made as part of the Proposed Borrowing is _______ (days) (months). - ------------------ * To be included for a Proposed Borrowing comprised of Revolving Loans. ** To be included for a Proposed Borrowing comprised of a Swingline Loan. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing: (A) the representations and warranties contained in Article V of the Credit Agreement are true and correct in all material respects on and as of such Borrowing Date with the same effect as if made on and as of such Borrowing Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they are true and correct in all material respects as of such earlier date); and (B) no Default or Event of Default exists or shall result from such Proposed Borrowing. Very truly yours, COMPAQ COMPUTER CORPORATION By: Name: Title: EXHIBIT B --------- CONVERSION/CONTINUATION NOTICE Bank of America National Trust and Savings Association, as Administrative Agent Agency Administrative Services #5596 1850 Gateway Blvd. Concord, CA 94520-3281 Attn: Compaq AO [Date] Ladies and Gentlemen: This Conversion/Continuation Notice is delivered pursuant to Section 2.04 of the $1,000,000,000 Revolving Credit Agreement, dated as of September 22, 1997 (together with all amendments, if any, from time to time made thereto, the "Credit Agreement"), among Compaq Computer Corporation, a Delaware corporation (the "Company"), certain Banks parties thereto and Bank of America National Trust and Savings Association, as administrative agent for such Banks. Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. The Company hereby requests that on _________ ____, 199__, (1) $__________ of the presently outstanding principal amount of the Revolving Loans originally made on ___________, 199__ [and $______________ of the presently outstanding principal amount of the Revolving Loans originally made on __________________, 199__], (2) all presently being maintained as *foot3*Select appropriate interest rate option.[Adjusted CD Rate Revolving Loans] [Base Rate Revolving Loans] [LIBOR Revolving Loans], (3) be [converted into] [continued as], (4) **[Adjusted CD Rate Revolving Loans having as Interest Period of ___ days] [LIBOR Revolving Loans having an Interest Period of ___ months] [Base Rate Revolving Loans]. - ------------------ *Select appropriate interest rate option. **Select appropriate interest rate option. The Company has caused this Conversion/Continuation Notice to be executed and delivered this _____ day of _____________, 199__. COMPAQ COMPUTER CORPORATION By: Name: Title: EXHIBIT C --------- COMPLIANCE CERTIFICATE This Compliance Certificate is delivered pursuant to Section 6.02 of the $1,000,000,000 Revolving Credit Agreement dated as of September 22, 1997 (together with all amendments, if any, from time to time made thereto, the "Credit Agreement") among Compaq Computer Corporation, a Delaware corporation (the "Company"), certain Banks parties thereto and Bank of America National Trust and Savings Association, as administrative agent for such Banks. Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. The undersigned certifies, represents and warrants as follows: (a) The Leverage Ratio of the Company as of ______________, 19__ was _____%. [Insert calculation in reasonable detail] (b) There exists on the date of this Compliance Certificate no Default or Event of Default under the Credit Agreement. EXECUTED AND DELIVERED this ____ day of ______________, 199__. COMPAQ COMPUTER CORPORATION By: Name: Title: EXHIBIT D-1 ----------- [Date] To each of the Banks parties to the $1,000,000,000 Revolving Credit Agreement dated as of September 22, 1997 among Compaq Computer Corporation, such Banks, Bank of America National Trust and Savings Association, as administrative agent and as Internet agent, The Chase Manhattan Bank, Citibank, N.A. and NationsBank of Texas, N.A., as syndication agents, and Morgan Guaranty Trust Company of New York, as Internet agent Re: Compaq Computer Corporation Revolving Credit Agreement ----------------------------------------------------------- Ladies and Gentlemen: As Vice President and Assistant General Counsel of Compaq Computer Corporation, a Delaware corporation (the "Company"), I am familiar with the $1,000,000,000 Revolving Credit Agreement dated as of September 22, 1997 (the "Credit Agreement") among the Company, the Banks listed on the signature pages thereof, Bank of America National Trust and Savings Association, as administrative agent for such Banks (the "Agent") and as Internet agent, The Chase Manhattan Bank, Citibank, N.A. and NationsBank of Texas, N.A., as syndication agents, and Morgan Guaranty Trust Company of New York, as Internet agent. In such capacity, I am also familiar with the Certificate of Incorporation and Bylaws of the Company and the corporate records of the Company. This opinion is being furnished to you pursuant to Section 4.01(d) of the Credit Agreement. Terms used herein but not defined herein shall have the same meaning ascribed to such terms in the Credit Agreement. Before rendering this opinion, I (or other attorneys with the Company's legal department acting under my direction) have examined the Credit Agreement and the Loan Documents, and have examined and relied upon originals or photostatic or certified copies of such corporate records, certificates of officers of the Company and of public officials, and such agreements, documents and instruments, and have made such investigations of law, as I or such other attorneys have deemed relevant and necessary as the basis for the opinion hereinafter expressed. In such examination, I or such other attorneys assumed the genuineness of all signatures (other than signatures of officers of the Company on the Loan Documents), the authenticity of all documents submitted to us as originals, and the conformity to original documents of all documents submitted to us as photostatic or certified copies. On the basis of the foregoing, I am of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except to the extent failure to obtain such licenses, authorizations, consents or approvals would not materially adversely affect the business, consolidated financial position or consolidated results of operations of the Company and its Subsidiaries taken as a whole. 2. The execution, delivery and performance by the Company- of the Loan Documents are within the Company's corporate powers, have been duly authorized by all necessary corporate action on the part of the Company, and do not contravene, or constitute a default under, (a) the Restated Certificate of Incorporation or Bylaws of the Company, (b) any contractual restriction contained in any material (meaning for the purposes of this opinion those creating a monetary liabi-lity of $50,000,000 or more) indenture, loan or credit agree-ment, receivables sale or financing agreement, lease financing agreement, capital lease, mortgage, security agreement, bond or note, or any guaranty of any of such obligations to which the Company is a party, or, to my knowledge, any other agreement or instrument to which the Company is a party, or (c) any judgment, injunction, order or decree known to me to be binding upon the Company. The execution, delivery and performance by the Company of the Loan Documents will not result in the creation or imposi-tion of any lien, security interest or other charge or encumbrance on any asset of the Company. The Credit Agreement and the Notes have been duly executed and delivered by the Company. 3. No Governmental Approval (as such term is hereinafter defined) is required to be made or obtained by the Company for the execution, delivery and performance by the Company of the Loan Documents. As used herein, the term "Government Approval" means any notice to, filing or registration with, or consent, authorization, or approval that is, in my experience, normally required in a transaction of the type evidenced by the Loan Documents and that is to be made with or rendered by (x) the federal government of the United States or any agency or instrumentality thereof; (y) the state of Texas or any political subdivision thereof, but excluding any laws, rules or regulations relating to (i) pollution or protection of the environment, (ii) zoning, land use, building or construction, (iii) labor, employee rights and benefits, and occupational safety and health, and (iv) utility regulation, state and federal securities and blue sky laws, and any laws, rules or regulations of any county, municipality, or similar political subdivision or any agency or instrumentality thereof. 4. Except as disclosed in the Company's Form 10-K for the year ended December 31, 1996, or the Company's Forms 10-Q for the quarters ended March 31 and June 30, 1997, there is no action, suit or proceeding pending or, to my knowledge, threatened against the Company or any of its Subsidiaries before any court or arbitrator or any governmental agency, in which there is a reasonable possibility of an adverse decision which could materially adversely affect the consolidated financial condition or operations of the Company and its Subsidiaries taken as a whole or which in any manner draws into question the validity of the Credit Agreement or any other Loan Document. 5. Neither the Company nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 6. Neither the Company nor any Subsidiary is a "holding company", a "subsidiary company" of a "holding company", an "affiliate" of a "holding company" or an "affiliate" of a "subsidiary company" of a "holding company", in each case as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. The opinions set forth above are subject to the following qualifications: (a) In rendering the opinions expressed in paragraph 2 above, neither I nor any other attorney acting under my direction have made any examination of any accounting or financial matters related to financial covenants contained in certain documents to which the Company may be subject, and I express no opinion with respect thereto. (b) This opinion is limited in all respects to the laws of the State of Texas and the General Corporation Law of the State of Delaware and Federal law. (c) In rendering the opinion expressed in paragraph 4 above, I (or the other attorneys acting under my direction) have only reviewed the files and records of the Company and its Subsidiaries, and we have consulted with such senior officers of the Company and its Subsidiaries as we have deemed necessary. This opinion is solely for the benefit of the Banks, the Agent and their respective successors, assigns and participants and may not be relied upon in connection with any other transaction or by any other person. Very truly yours, /S/ Linda S. Auwers --------------------- Linda S. Auwers Vice President and Assistant General Counsel EXHIBIT D-2 ----------- (713) 758-3516 (713) 615-5381 September 22, 1997 To Each of the Banks Parties to the $1,000,000,000 Revolving Credit Agreement dated as of September 22, 1997 among Compaq Computer Corporation, such Banks, Bank of America National Trust and Savings Association, as Administrative Agent and as Internet Agent, The Chase Manhattan Bank, Citibank, N.A. and NationsBank of Texas, N.A., as Syndication Agents and Morgan Guaranty Trust Company of New York, as Internet Agent Re: Compaq Computer Corporation Revolving Credit Agreement Ladies and Gentlemen: This opinion is furnished to you pursuant to Section 4.01(d) of the $1,000,000,000 Revolving Credit Agreement, dated as of September 22, 1997 (the "Credit Agreement"), among Compaq Computer Corporation (the "Company"), the Banks parties thereto, Bank of America National Trust and Savings Association, as Administrative Agent and Internet Agent for such Banks, The Chase Manhattan Bank, Citibank, N.A., and NationsBank of Texas, N.A., as syndication agents, and Morgan Guaranty Trust Company of New York, as Internet Agent. Except as otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. We have acted as counsel for the Company in connection with the preparation, execution, delivery and effectiveness of the Credit Agreement and the other Loan Documents. In that connection, we have examined: (1) The Credit Agreement; (2) The Notes (together with the Credit Agreement, the "Loan Documents"); and (3) Such other materials as we have deemed necessary to render the opinions provided herein. We have also made such investigations of law as we have deemed necessary and relevant as a basis for our opinion. As to various questions of fact material to our opinion, we have, with your permission and without independent verification, relied upon the representations made in the Loan Documents. Based upon the foregoing, and subject to the qualifications, exceptions, limitations and assumptions set forth herein, we are of the opinion that: (i) Under the laws of the State of New York, the Loan Documents constitute the legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms; (ii) None of the execution or delivery by the Company of the Loan Documents or the borrowing or repayment by the Company of the loans evidenced by the Loan Documents contravenes any provision of Applicable Law. For the purposes of this clause (ii), "Applicable Law" means any law, rule, or regulation that is, in our experience, normally applicable in a transaction of the type evidenced by the Loan Documents and that is enacted or promulgated by (1) the federal government of the United States or any agency or instrumentality thereof (including, without limitation, Regulations G, U, and X promulgated by the Board of Governors of the Federal Reserve System), or (2) the State of New York or any political subdivision thereof, but excluding any laws, rules, or regulations of any county, municipality or similar political subdivision or any agency or instrumentality thereof. The opinions set forth herein are subject in all respects to the following qualifications, limitations, exceptions and assumptions: (a) The opinions set forth above are subject, as to enforceability, to the effects of any applicable bankruptcy (including, without limitation, preference and fraudulent conveyance), insolvency, reorganization, moratorium or similar laws affecting creditor's rights generally. The opinions set forth above are also subject, as to enforceability, to the effects of general principles of equity (regardless of whether considered in proceedings in equity or at law), including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, and the possible unavailability of specific performance or injunctive relief. (b) In rendering the opinions set forth herein, we have assumed, with your permission and without independent verification (i) the due authorization, execution and delivery of the Loan Documents by all parties to such Loan Documents (other than the Company) and that each such Loan Document is valid, binding and enforceable against the parties thereto other than the Company, (ii) the legal capacity of natural persons, (iii) the genuineness of all signatures, (iv) the authenticity of all documents submitted to us as originals, and (v) the conformity to original documents of all documents submitted to us as copies. (c) In rendering the opinions set forth above, we have, with your permission and without independent verification, relied upon the opinion of Linda S. Auwers, Vice President and Assistant General Counsel of the Company, dated of even date herewith, with respect to the following matters: (i) the due incorporation, valid existence and good standing of the Company under the laws of the State of Delaware, (ii) the Company's corporate power and authority to execute, deliver and perform the Loan Documents, (iii) the Company's having duly authorized, executed and delivered the Loan Documents, and (iv) the Company's execution, delivery and performance of the Loan Documents do not and will not violate or conflict with, result in a breach of, or constitute a default under (A) the certificate of incorporation or by-laws of the Company, (B) any material agreement to which the Company is a party or by which the Company or any of its properties may be bound, or (C) any order applicable to the Company of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over the Company or any of its properties (d) In rendering our opinions set forth herein, we have assumed, with your permission and without independent verification, that (i) the Company is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended; and (ii) the Company is not a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. (e) We express no opinion with respect to the following provisions to the extent that the same are contained in the Loan Documents: (i) provisions purporting to waive notices, objections, demands, legal defenses, statutes of limitation, rights to trial by jury, and other benefits and rights that cannot be waived under applicable law; (ii) provisions granting one party a power of attorney or authority to execute documents on behalf of another party; and (iii) provisions releasing, exculpating or exempting a party from, or requiring the indemnification of a party for, liability for its own action or inaction, to the extent that the same are inconsistent with public policy. (f) In rendering our enforceability opinion with respect to provisions providing for the appointment of an agent for service of process on behalf of the Company, we have assumed that such agent will provide timely notice to the Company of the commencement of legal proceedings. (g) We have not been called upon to, and accordingly do not, express any opinion as to the various state and federal laws regulating banks or the conduct of their business that may relate to the Loan Documents or the transactions contemplated thereby. Without limiting the generality of the foregoing, we express no opinion as to the effect of the law of any jurisdiction other than the State of New York wherein the Administrative Agent may be located or where an enforcement of the Loan Documents may be sought that limits the rates of interest chargeable or collectible. (h) The opinions expressed herein are as of the date hereof only, and we assume no obligation to update or supplement such opinions to reflect any fact or circumstance that may hereafter come to our attention or any change in law that may hereafter occur or become effective. (i) The foregoing opinions and conclusions were given only in respect of the laws of the State of New York and, to the extent specifically referred to herein, the Federal laws of the United States of America. This opinion has been delivered at your request for the purposes contemplated by the Credit Agreement. Without our prior written consent, this opinion is not to be utilized or quoted for any other purpose (other than (i) to participants, prospective Eligible Assignees and prospective participants, (ii) to governmental authorities having jurisdiction over any Bank or participant, and (iii) pursuant to legal process) and no one other than you or Eligible Assignees hereafter becoming parties to the Credit Agreement is entitled to rely thereon; provided that Linda S. Auwers, Vice President and Assistant General Counsel of the Company, may rely on this opinion for the purposes of rendering her opinion in connection with the Loan Documents. Very truly yours, /s/ VINSON & ELKINS L.L.P. ----------------------------- VINSON & ELKINS L.L.P. EXHIBIT E --------- PROMISSORY NOTE U.S. $__________ Dated: September 22, 1997 FOR VALUE RECEIVED, the undersigned, Compaq Computer Corporation, a Delaware corporation (the "Company"), HEREBY PROMISES TO PAY to the order of ______________________________ (the "Bank") for the account of its applicable Lending Office (as defined in the Credit Agreement referred to below) on the Revolving Termination Date (as defined in the Credit Agreement) the principal sum of __________ U.S. dollars (U.S. $__________) or, if less, the aggregate unpaid principal amount of the [Revolving] Loans (as defined in the $1,000,000,000 Revolving Credit Agreement dated as of September 22, 1997 among the Company, the Bank, certain other lenders parties thereto, Bank of America National Trust and Savings Association, as administrative agent and as Internet agent, The Chase Manhattan Bank, Citibank, N.A. and NationsBank of Texas, N.A., as syndication agents, and Morgan Guaranty Trust Company of New York, as Internet agent; such Revolving Credit Agreement, as amended from time to time being herein referred to as the "Credit Agreement") owing to the Bank outstanding on the Revolving Termination Date (as defined in the Credit Agreement) [, together with the principal amount of any outstanding Swingline Loans (as defined in the Credit Agreement) made by the Bank as Swingline Bank (as defined in the Credit Agreement)]. The Company promises to pay interest on the unpaid principal amount of each Loan owing to the Bank from the date of such Loan until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to Bank of America National Trust and Savings Association, as Administrative Agent, at the Agent's Payment Office (as defined in the Credit Agreement), in immediately available funds. Each Loan owed to the Bank by the Company pursuant to the Credit Agreement, and all payments made on account of principal thereof, shall be recorded by the Bank and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Promissory Note; provided that the failure of the Bank to make any such recordation or -------- endorsement shall not affect the obligations of the Company hereunder or under the Credit Agreement. This Promissory Note is one of the Notes referred to in, and is subject to and is entitled to the benefits of, the Credit Agreement. The Credit Agreement, among other things, (i) provides for the making of [Revolving] Loans by the Bank to the Company from time to time in an aggregate amount not to exceed the U.S. dollar amount first above mentioned [and the making of Swingline Loans by the Bank as Swingline Bank to the Company from time to time in an aggregate amount not to exceed the Swingline Commitment (as such terms are defined in the Credit Agreement)], the indebtedness of the Company resulting from each Loan owing to the Bank being evidenced by this Promissory Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. This Promissory Note shall be governed by, and construed in accordance with, the internal laws of the State of New York. COMPAQ COMPUTER CORPORATION By: Name: Title: LOANS AND PAYMENTS OF PRINCIPAL Amount of Amount Principal Unpaid of Type of Paid or Principal Notation Date Loan Loan Prepaid Balance Made By - ---- ------ ------- --------- --------- -------- EXHIBIT F --------- ASSIGNMENT AND ACCEPTANCE AGREEMENT This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and --------------- Acceptance"), dated as of __________, _____, is made between ____________________ (the "Assignor") and ____________________ (the -------- "Assignee"). RECITALS -------- WHEREAS, the Assignor is party to the $1,000,000,000 Revolving Credit Agreement dated as of September 22, 1997 (as the same may be extended, renewed, amended or restated from time to time, the "Credit Agreement"), among ---------------- COMPAQ COMPUTER CORPORATION (the "Company"), the financial institutions from ------- time to time party thereto (including the Assignor, the "Banks") and BANK OF ----- AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as administrative agent for the Banks (in such capacity, the "Agent"). Any terms defined in the Credit ----- Agreement and not defined in this Assignment and Acceptance are used herein as defined in the Credit Agreement; WHEREAS, as provided under the Credit Agreement, the Assignor has committed to making [(i)] Revolving Loans to the Company in an aggregate amount not to exceed $__________ (the "Commitment") [, and (ii) Swingline ---------- Loans to the Company in an aggregate amount not to exceed $__________ (the "Swingline Commitment")]; --------- ---------- WHEREAS, [the Assignor has made Revolving Loans in the aggregate principal amount of $__________ to the Company] [and Swingline Loans in the aggregate principal amount of $__________ to the Company] [no Revolving Loans [or Swingline Loans] are outstanding under the Credit Agreement]; and WHEREAS, the Assignor wishes to assign to the Assignee [part of the] [all] rights and obligations of the Assignor under the Credit Agreement in respect of [(i)] its Commitment in an amount equal to $__________, [together with a ratable portion of its outstanding Revolving Loans] [and (ii) its Swingline Commitment in an amount equal to $__________, [together with a ratable portion of its outstanding Swingline Loans], in an aggregate amount equal to $___________] (collectively, the "Assigned Amount"), on the terms and --------------- subject to the conditions set forth herein, and the Assignee wishes to accept assignment of such rights and to assume such obligations from the Assignor on such terms and subject to such conditions; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: 1. Assignment and Acceptance. --------------------------- (a) Subject to the terms and conditions of this Assignment and Acceptance, (i) the Assignor hereby sells, transfers and assigns to the Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from the Assignor, without recourse and without representation or warranty (except as provided in this Assignment and Acceptance) __% (the "Assignee's Percentage --------------------- Share") of (A) the Commitment [and the corresponding Revolving Loans,] [and - ----- the Swingline Commitment [and the corresponding Swingline Loans]] of the Assignor, and (B) all related rights, benefits, obligations, liabilities and indemnities of the Assignor under and in connection with the Credit Agreement and the Loan Documents. [If appropriate, add paragraph specifying payment to Assignor by Assignee of outstanding principal of, accrued interest on, and fees with respect to, Revolving Loans [and Swingline Loans] assigned.] (b) With effect on and after the Effective Date (as defined herein), the Assignee shall be a party to the Credit Agreement and succeed to all of the rights and be obligated to perform all of the obligations of a Bank [and the Swingline Bank] under the Credit Agreement, including the requirements concerning confidentiality and the payment of indemnification, with a Commitment [and the Swingline Commitment] in an [aggregate] amount equal to the Assigned Amount. The Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank [and the Swingline Bank]. It is the intent of the parties hereto that the Commitment of the Assignor shall, as of the Effective Date, be reduced pro rata by an amount equal to the Assigned Amount relating thereto [and the Swingline Commitment shall be entirely assumed by the Assignee,] and the Assignor shall relinquish its rights (except its rights with respect to indemnification or compensation arising out of an event occurring before the Effective Date) and be released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. (c) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignee's Commitment will be $__________[, and the Assignee's Swingline Commitment will be $__________]. (d) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignor's Commitment will be $__________[, and the Assignor's Swingline Commitment will be $0]. 2. Payments. -------- (a) As consideration for the sale, assignment and transfer contemplated in Section 1, the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an amount equal to $__________, representing [the principal amount of the Swingline Loans and] the Assignee's Percentage Share of the principal amount of the Revolving Loans of the Assignor. (b) The [Assignor] [Assignee] further agrees to pay to the Agent a processing fee in the amount specified in Section 10.07(c) of the Credit Agreement. 3. Reallocation of Payments. -------------------------- Any interest, fees and other payments accrued to the Effective Date with respect to the Commitment [and the related Revolving Loans] [, and the Swingline Commitment [and the Swingline Loans]] shall be for the account of the Assignor. Any interest, fees and other payments accrued on and after the Effective Date with respect to the Assigned Amount shall be for the account of the Assignee. Each of the Assignor and the Assignee agrees that it will hold in trust for the other party any interest, fees and other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt. 4. Independent Credit Decision. ----------------------------- The Assignee (a) acknowledges that it has received a copy of the Credit Agreement and the Schedules and Exhibits thereto, together with copies of the most recent financial statements referred to in Section 6.02 of the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Assignment and Acceptance; and (b) agrees that it will, independently and without reliance upon the Assignor, 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 and legal decisions in taking or not taking action under the Credit Agreement. 5. Effective Date; Notices. ------------------------- (a) As between the Assignor and the Assignee, the effective date for this Assignment and Acceptance shall be __________, ____ (the "Effective --------- Date"); provided, that the following conditions precedent have been satisfied -------- on or before the Effective Date: (i) this Assignment and Acceptance shall be executed and delivered by the Assignor and the Assignee; (ii) the consent of the Company and the Agent required for an effective assignment of the Assigned Amount by the Assignor to the Assignee under Section 10.07(c) of the Credit Agreement shall have been duly obtained and shall be in full force and effect as of the Effective Date; (iii) the Assignee shall pay to the Assignor all amounts due to the Assignor under this Assignment and Acceptance; and (iv) the processing fee referred to in Section 2(b) hereof and in Section 10.07(c) of the Credit Agreement shall have been paid to the Agent. (b) Promptly following the execution of this Assignment and Acceptance, the Assignor shall deliver to the Company and the Agent for acknowledgment by the Agent a Notice of Assignment in the form attached hereto as Schedule 1. 6. Agent. ----- (a) The Assignee hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the Banks pursuant to the terms of the Credit Agreement. [(b) The Assignee shall assume no duties or obligations held by the Assignor in its capacity as Agent under the Credit Agreement.] [INCLUDE ONLY IF ASSIGNOR IS AGENT] 7. Withholding Tax. ---------------- The Assignee (a) represents and warrants to the Agent and the Company that under applicable law and treaties no tax will be required to be withheld by the Assignor with respect to any payments to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized under the laws of any jurisdiction other than the United States or any State thereof) to the Agent and the Company prior to the time that the Agent or the Company is required to make any payment of principal, interest or fees hereunder, duplicate executed originals of either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein the Assignee claims entitlement to the benefits of a tax treaty that provides for a complete exemption from U.S. federal income withholding tax on all payments hereunder) and agrees to provide new Forms 4224 or 1001 upon the expiration of any previously delivered form or comparable statements in accordance with applicable U.S. law and regulations and amendments thereto, duly executed and completed by the Assignee, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding tax exemption. 8. Representations and Warranties. -------------------------------- (a) The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any lien, security interest or other adverse claim; (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance and to fulfill its obligations hereunder; (iii) no notices to, or consents, authorizations or approvals of, any person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance, and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any person is required of it for such execution, delivery or performance; and (iv) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignor, enforceable against the Assignor in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles. (b) The Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto. The Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition or statements of the Company, or the performance or observance by the Company, of any of its respective obligations under the Credit Agreement or any other instrument or document furnished in connection therewith. (c) The Assignee represents and warrants that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance, and to fulfill its obligations hereunder; (ii) no notices to, or consents, authorizations or approvals of, any person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance; and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any person is required of it for such execution, delivery or performance; (iii) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignee, enforceable against the Assignee in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles; and (iv) it is an Eligible Assignee. 9. Further Assurances. ------------------- The Assignor and the Assignee each hereby agrees to execute and deliver such other instruments, and take such other action, as either party may reasonably request in connection with the transactions contemplated by this Assignment and Acceptance, including the delivery of any notices or other documents or instruments to the Company or the Agent, which may be required in connection with the assignment and assumption contemplated hereby. 10. Miscellaneous. ------------- (a) Any amendment or waiver of any provision of this Assignment and Acceptance shall be in writing and signed by the parties hereto. No failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Assignment and Acceptance shall be without prejudice to any rights with respect to any other or further breach thereof. (b) All payments made hereunder shall be made without any set-off or counterclaim. (c) The Assignor and the Assignee shall each pay its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Assignment and Acceptance. (d) This Assignment and Acceptance may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. (e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. The Assignor and the Assignee each irrevocably submits to the non-exclusive jurisdiction of any State or Federal court sitting in New York over any suit, action or proceeding arising out of or relating to this Assignment and Acceptance and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State or Federal court. Each party to this Assignment and Acceptance hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. (f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER ORAL OR WRITTEN). [Other provisions to be added as may be negotiated between the Assignor and the Assignee, provided that such provisions are not inconsistent with the Credit Agreement.] IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed and delivered by their duly authorized officers as of the date first above written. [Name of Assignor] By: Title: Address: [Name of Assignee] By: Title: Address: SCHEDULE 1 NOTICE OF ASSIGNMENT AND ACCEPTANCE ----------------------------------- Date: _______________________ Bank of American National Trust and Savings Association, as Agent 1850 Gateway Blvd. Concord, CA 94520-3281 Attention: Agency Management Services #5596 Bank of American National Trust and Savings Association, as Agent High Technology #3697 555 California Street, 41st Fl. San Francisco, CA 94104-1502 Attention: Kevin McMahon, Managing Director Compaq Computer Corporation - ----------------------------- - ----------------------------- - ----------------------------- Ladies and Gentlemen: We refer to the $1,000,000,000 Revolving Credit Agreement, dated as of September 22, 1997 (as the same may be extended, renewed, amended or restated from time to time, the "Credit Agreement"), among Compaq Computer Corporation ---------------- (the "Company"), the financial institutions party thereto (the "Banks") and ------- ----- Bank of America National Trust and Savings Association, as administrative agent for the Banks (in such capacity, the "Agent"). Terms defined in the ----- Credit Agreement are used herein as therein defined. 1. We hereby give you notice of, and request your consent to, the assignment by _______________ (the "Assignor") to _______________ (the -------- "Assignee") of _____% of the right, title and interest of the Assignor in and -------- to the Credit Agreement (including the right, title and interest of the Assignor in and to the Commitment [and the Swingline Commitment] of the Assignor and all outstanding Loans made by the Assignor) pursuant to the Assignment and Acceptance Agreement attached hereto (the "Assignment and -------------- Acceptance"). Before giving effect to such assignment, the Assignor's - ---------- Commitment is $__________ and the aggregate amount of its outstanding Loans is $__________[, and the Assignor's Swingline Commitment is $__________ and the aggregate amount of its outstanding Swingline Loans is $__________]. 2. The Assignee agrees that, upon receiving the consent of the Agent and, if applicable, the Company, to such assignment, the Assignee will be bound by the terms of the Credit Agreement as fully and to the same extent as if the Assignee were the Bank originally holding such interest in the Credit Agreement. 3. The following administrative details apply to the Assignee: (A) Notice Address: Assignee name: -------------------------------------------- Address: -------------------------------------------- -------------------------------------------- -------------------------------------------- Attention: -------------------------------------------- Telephone: (___)_____________________________________ Telecopier: (___)_____________________________________ Telex (Answerback): ------------------------------------ (B) Payment Instructions: Account No.: -------------------------------------------- At: -------------------------------------------- -------------------------------------------- -------------------------------------------- Reference: -------------------------------------------- Attention: -------------------------------------------- 4. You are entitled to rely upon the representations, warranties and covenants of each of the Assignor and Assignee contained in the Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of Assignment and Acceptance to be executed by their respective duly authorized officials, officers or agents as of the date first above written. Very truly yours, [Name of Assignor] By: Name: Title: [Name of Assignee] By: Name: Title: ACKNOWLEDGED AND ASSIGNMENT CONSENTED TO: COMPAQ COMPUTER CORPORATION By: -------------------------- Name: Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: -------------------------- Name: Title:
SCHEDULE 2.01 COMMITMENTS ----------- Amount of Name of Bank Commitment % - --------------------------------------------- ----------------- ------------- Bank of America National Trust and Savings Association 62,500,000.00 6.25000000 The Chase Manhattan Bank 62,500,000.00 6.25000000 Citibank, N.A. 62,500,000.00 6.25000000 Nationsbank of Texas, N.A. 62,500,000.00 6.25000000 Morgan Guaranty Trust Company of New York 50,000,000.00 5.00000000 Cariplo - Cassa di Risparmio Delle Provincie Lombarde S.p.A. 32,500,000.00 3.25000000 Deutsche Bank AG 32,500,000.00 3.25000000 The First National Bank of Chicago 32,500,000.00 3.25000000 Fleet National Bank 32,500,000.00 3.25000000 Ing Bank N.V. 32,500,000.00 3.25000000 Royal Bank of Canada 32,500,000.00 3.25000000 Banca Commerciale Italiana 18,500,000.00 1.85000000 Bank of Tokyo - Mitsubishi Trust Company 18,500,000.00 1.85000000 Barclays Bank PLC 18,500,000.00 1.85000000 The Fuji Bank, Limited 18,500,000.00 1.85000000 National Australia Bank Limited 18,500,000.00 1.85000000 Banca di Roma 12,500,000.00 1.25000000 Banca Monte Dei Paschi di Siena, S.p.A. 12,500,000.00 1.25000000 Banca Nazionale del Lavoro S.p.A. 12,500,000.00 1.25000000 Banca Popolare di Milano 12,500,000.00 1.25000000 Banco Central Hispano Americano, S.A. 12,500,000.00 1.25000000 Bank of Montreal 12,500,000.00 1.25000000 The Bank of New York 12,500,000.00 1.25000000 Bankboston, N.A. 12,500,000.00 1.25000000 Banque Nationale de Paris 12,500,000.00 1.25000000 Bayerische Hypotheken - Und Wechsel - Bank 12,500,000.00 1.25000000 Corestates Bank, N.A. 12,500,000.00 1.25000000 Credito Italiano 12,500,000.00 1.25000000 The Dai-Ichi Kangyo Bank, Limited 12,500,000.00 1.25000000 Den Danske Bank Aktieselskab 12,500,000.00 1.25000000 Dresdner Bank AG 12,500,000.00 1.25000000 The Industrial Bank of Japan, Limited 12,500,000.00 1.25000000 Istituto Bancario San Paolo di Torino S.p.A. 12,500,000.00 1.25000000 Kredietbank N.V. 12,500,000.00 1.25000000 Marine Midland Bank 12,500,000.00 1.25000000 Mellon Bank, N.A. 12,500,000.00 1.25000000 National Westminster Bank plc 12,500,000.00 1.25000000 The Northern Trust Company 12,500,000.00 1.25000000 PNC Bank, National Association 12,500,000.00 1.25000000 The Sanwa Bank, Limited 12,500,000.00 1.25000000 Skandinaviska Enskilda Banken AB (Publ) 12,500,000.00 1.25000000 Societe Generale Finance (Ireland) Limited 12,500,000.00 1.25000000 Standard Chartered Bank 12,500,000.00 1.25000000 The Sumitomo Bank, Limited 12,500,000.00 1.25000000 The Sumitomo Trust & Banking Co., Ltd. 12,500,000.00 1.25000000 Swiss Bank Corporation 12,500,000.00 1.25000000 Toronto Dominion (Texas), Inc. 12,500,000.00 1.25000000 Wells Fargo Bank, N.A. 12,500,000.00 1.25000000 Westdeutsche Landesbank Girozentrale 12,500,000.00 1.25000000 ================= ============= TOTAL $1,000,000,000.00 100.00000000
EX-10.19 7 EXECUTION COPY ============================================================================== U.S. $3,000,000,000 REVOLVING CREDIT AGREEMENT DATED AS OF SEPTEMBER 22, 1997 AMONG COMPAQ COMPUTER CORPORATION, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, AS ADMINISTRATIVE AGENT AND AS INTERNET AGENT, ---------------------------------------------- THE CHASE MANHATTAN BANK, CITIBANK, N.A. AND NATIONSBANK OF TEXAS, N.A., AS SYNDICATION AGENTS, ---------------------- MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS INTERNET AGENT, ------------------ AND THE BANKS PARTY HERETO ==============================================================================
TABLE OF CONTENTS Page ------ ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 1 1.02 Other Interpretive Provisions . . . . . . . . . . . . . . . . . . . 14 1.03 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE II THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.01 Amounts and Terms of Commitments. . . . . . . . . . . . . . . . . . 16 2.02 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.03 Procedure for Revolving Loan Borrowings . . . . . . . . . . . . . . 17 2.04 Conversion and Continuation Elections for Revolving Loan Borrowings 18 2.05 Procedure for Swingline Borrowings. . . . . . . . . . . . . . . . . 19 2.06 Increase and Extension of Commitments . . . . . . . . . . . . . . . 21 2.07 Ratable Reduction or Termination of Commitments . . . . . . . . . . 22 2.08 Non-Ratable Reduction or Termination of Commitments . . . . . . . . 23 2.09 Optional and Mandatory Prepayments. . . . . . . . . . . . . . . . . 23 2.10 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.11 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.12 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.13 Computation of Fees and Interest. . . . . . . . . . . . . . . . . . 25 2.14 Interest Rate Determination and Protection. . . . . . . . . . . . . 26 2.15 Payments by the Company . . . . . . . . . . . . . . . . . . . . . . 27 2.16 Payments by the Banks to the Agent. . . . . . . . . . . . . . . . . 27 2.17 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY . . . . . . . . . . . . . . 28 3.01 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 3.02 Breakage Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.03 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.04 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.05 Reserves on Offshore Loans. . . . . . . . . . . . . . . . . . . . . 31 3.06 Replacement of Bank; Termination of Bank. . . . . . . . . . . . . . 31 3.07 Reallocation of Commitments in Event of Merger, Etc.. . . . . . . . 33 3.08 Certificates of Banks . . . . . . . . . . . . . . . . . . . . . . . 34 3.09 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE IV CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . 34 4.01 Conditions of Initial Loans . . . . . . . . . . . . . . . . . . . . 34 4.02 Conditions to All Borrowings. . . . . . . . . . . . . . . . . . . . 35 ARTICLE V REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . 36 5.01 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . 36 5.02 Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.03 Authorization and Approvals . . . . . . . . . . . . . . . . . . . . 36 5.04 Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . 36 5.05 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 37 5.06 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 5.07 Regulation U. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 5.08 Investment Company Act. . . . . . . . . . . . . . . . . . . . . . . 37 5.09 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 5.10 Holding Company . . . . . . . . . . . . . . . . . . . . . . . . . . 37 5.11 Environmental Condition . . . . . . . . . . . . . . . . . . . . . . 37 5.12 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . 38 ARTICLE VI AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 38 6.01 Compliance with Laws Etc. . . . . . . . . . . . . . . . . . . . . . 38 6.02 Reporting Requirements. . . . . . . . . . . . . . . . . . . . . . . 38 6.03 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 39 6.04 Maintenance of Insurance. . . . . . . . . . . . . . . . . . . . . . 40 6.05 Corporate Existence Etc.. . . . . . . . . . . . . . . . . . . . . . 40 6.06 Visitation Rights . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE VII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 40 7.01 Leverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.02 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE VIII EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 41 8.01 Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.02 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 8.03 Rights Not Exclusive. . . . . . . . . . . . . . . . . . . . . . . . 42 ARTICLE IX THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 9.01 Appointment and Authorization . . . . . . . . . . . . . . . . . . . 43 9.02 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . . . 43 9.03 Liability of Agent. . . . . . . . . . . . . . . . . . . . . . . . . 43 9.04 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . 43 9.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . 44 9.06 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . 44 9.07 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 45 9.08 Agent in Individual Capacity. . . . . . . . . . . . . . . . . . . . 45 9.09 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 45 9.10 Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . . . . 46 9.11 Co-Agents; Internet Agents. . . . . . . . . . . . . . . . . . . . . 47 ARTICLE X MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 10.01 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . 48 10.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 10.03 No Waiver: Cumulative Remedies. . . . . . . . . . . . . . . . . . . 49 10.04 Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 49 10.05 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 10.06 Payments Set Aside. . . . . . . . . . . . . . . . . . . . . . . . . 50 10.07 Binding Effect; Assignments; Participations . . . . . . . . . . . . 50 10.08 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 10.09 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 10.10 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 53 10.11 Preservation of Certain Matters . . . . . . . . . . . . . . . . . . 54 10.12 Notification of Addresses, Lending Offices Etc. . . . . . . . . . . 54 10.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 10.14 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 10.15 Governing Law; Jurisdiction . . . . . . . . . . . . . . . . . . . . 55 10.16 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . 55 10.17 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 56
SCHEDULES Schedule 2.01 Commitments Schedule 10.02 Notice Addresses, Payment and Lending Offices EXHIBITS Exhibit A Form of Notice of Borrowing Exhibit B Form of Notice of Conversion/Continuation Exhibit C Form of Compliance Certificate Exhibit D-1 Form of Opinion of Vice President and Assistant General Counsel of the Company Exhibit D-2 Form of Opinion of Vinson & Elkins L.L.P., Counsel to the Company Exhibit E Form of Note Exhibit F Form of Assignment and Acceptance REVOLVING CREDIT AGREEMENT dated as of September 22, 1997 COMPAQ COMPUTER CORPORATION, a Delaware corporation (the "Company"), the ------- several financial institutions from time to time party to this Agreement (collectively, the "Banks", and individually, a "Bank"), Bank of America ----- ---- National Trust and Savings Association, as administrative agent and as Internet agent for the Banks, The Chase Manhattan Bank, Citibank, N.A. and NationsBank of Texas, N.A., as syndication agents, and Morgan Guaranty Trust Company of New York, as Internet agent, agree as follows. ARTICLE I DEFINITIONS 1.01 Certain Defined Terms. The following terms have the following --------------------- meanings: "Acquiring Entity" has the meaning specified in Section 3.07. ----------------- "Adjusted CD Rate" means, for any Interest Period for each Adjusted CD Rate ------------------ Revolving Loan comprising part of the same Borrow-ing or an Adjusted CD Rate Swingline Loan, as the case may be, an interest rate per annum equal to the sum of: (a) the rate per annum obtained by dividing (i) the rate of interest determined by the Agent to be the average (rounded upward to the nearest whole multiple of 1/100 of 1% per annum, if such average is not such a multiple) of the consensus bid rate determined by each of the Reference Banks, in the case of Adjusted CD Rate Revolving Loans, or the Swingline Bank, in the case of an Adjusted CD Rate Swingline Loan, for the bid rates per annum, at 9:00 a.m. (Houston time) (or as soon thereafter as practicable) on the first day of such Interest Period, of New York certificate of deposit dealers of recognized standing selected by such Reference Bank or the Swingline Bank, as applicable, for the purchase at face value of certificates of deposit of such Reference Bank or the Swingline Bank, as applicable, in an amount substantially equal to such Reference Bank's Adjusted CD Rate Revolving Loan comprising part of such Borrowing, in the case of Adjusted CD Rate Revolving Loans, or the Adjusted CD Rate Swingline Loan, in the case of an Adjusted CD Rate Swingline Loan, and with a maturity equal to such Interest Period (provided that, if bid rate quotes from such dealers are not available to any Reference Bank or the Swingline Bank, as applicable, such Reference Bank or the Swingline Bank shall notify the Agent of a reasonably equivalent rate determined by it on the basis of another source or sources selected by it), by (ii) a percent-age equal to 100% minus the Adjusted CD Rate Reserve Percent-age for such Interest Period (the "Certificate of Deposit Rate"), plus ------------------------------ (b) the Assessment Rate for such Interest Period. The Adjusted CD Rate for the Interest Period for each Adjusted CD Rate Revolving Loan comprising part of the same Borrowing or an Adjusted CD Rate Swingline Loan, as the case may be, shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent as set forth above on the first day of such Interest Period, subject however, to the ------- ------- provisions of Sec-tion 2.14. "Adjusted CD Rate Revolving Loan" means a Revolving Loan which bears ----------------------------------- interest at the Adjusted CD Rate plus the Applicable Margin. "Adjusted CD Rate Reserve Percentage" for any Interest Period for each --------------------------------------- Adjusted CD Rate Revolving Loan comprising part of the same Borrowing or an Adjusted CD Rate Swingline Loan, as the case may be, means the reserve percentage applicable on the first day of such Interest Period under regulations issued from time to time by the FRB for determin-ing the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with deposits exceeding one billion dollars with respect to liabilities consisting of or including U.S. dollar nonpersonal time deposits in the United States with a maturity equal to such Interest Period. "Adjusted CD Rate Swingline Loan" means a Swingline Loan which bears interest -------------------------------- at the Adjusted CD Rate plus the Applicable Margin. "Affiliate" means, as to any Person, any other Person which, directly or --------- indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" means BofA in its capacity as administrative agent for the Banks ----- hereunder, and any successor administrative agent. "Agent-Related Persons" means BofA and any successor administrative agent ---------------------- arising under Section 9.09, together with their respective Affiliates (including, in the case of BofA, the Arranger), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Agent's Payment Office" means the address for payments set forth on Schedule ----------------------- -------- 10.02 or such other address as the Agent may from time to time specify. - ----- "Agreement" means this Revolving Credit Agreement. --------- "Applicable Fee Amount" means, for any date, the per annum percentage ----------------------- amount set forth below based on the Applicable Rating on such date:
Applicable Rating Fee Percentage - ------------------ --------------- A+/A1 (or higher). 0.0600% A/A2 . . . . . . . 0.0650% A-/A3. . . . . . . 0.0725% BBB+/Baa1. . . . . 0.0800% BBB/Baa2 . . . . . 0.1000% BBB-/Baa3. . . . . 0.1500% BB+/Ba1. . . . . . 0.1750% (or lower, or no Applicable Rating)
"Applicable Margin" means, on any date and with respect to each CD Loan or ------------------ Offshore Loan outstanding on such date, the applicable margin (on a per annum basis) set forth below based on the Applicable Rating on such date:
Applicable . . . . CD Offshore Rating . . . . . . Loans Loans - ------------------ ------- --------- A+/A1 (or higher). 0.1900% 0.1900% A/A2 . . . . . . . 0.2000% 0.2000% A-/A3. . . . . . . 0.2300% 0.2300% BBB+/Baa1. . . . . 0.2500% 0.2500% BBB/Baa2 . . . . . 0.3250% 0.3250% BBB-/Baa3. . . . . 0.4000% 0.4000% BB+/Ba1. . . . . . 0.6000% 0.6000% (or lower, or no Applicable Rating)
Provided, that at any time as the aggregate outstanding principal amount of - -------- Revolving Loans, together with the aggregate outstanding principal amount of "Revolving Loans" under, and as that term is defined in, the 364-Day Credit Agreement, exceeds 50% of the combined Commitments of all the Banks, together with the combined "Commitments" of all the lenders under, and as that term is defined in, the 364-Day Credit Agreement (and any time after the termination of commitments to lend under Section 8.02(a) or under Section 2.09(b), or of the 364-Day Credit Agreement, as applicable), the Applicable Margin in respect of CD Loans and Offshore Loans hereunder shall be increased by an additional 0.100 percent per annum. "Applicable Rating" means the most favorable ratings issued from time to ------------------ time by S&P or Moody's as applicable to the Company's senior unsecured long-term debt; provided that (a) if the most favorable ratings established by -------- such rating agencies indicate two different pricing levels, the level corresponding to the more favorable of such ratings shall apply, (b) if only one such rating agency shall provide a rating as to the Company's senior unsecured long-term debt, the pricing level shall be determined based upon such rating, and (c) if the ratings system of either of S&P or Moody's shall change prior to the date all Obligations have been paid and the Commitments cancelled, the Company, Agent and Banks shall negotiate in good faith to amend this Agreement promptly to reflect such changed system. "Arranger" means BancAmerica Securities, Inc., a Delaware corporation. -------- "Assessment Rate" for any Interest Period for each Adjusted CD Rate Revolving ---------------- Loan comprising part of the same Borrowing or an Adjusted CD Rate Swingline Loan, as the case may be, means the rate determined by the Agent as equal to the annual assessment rate in effect on the first day of such Interest Period payable to the FDIC by a member of the Bank Insurance Fund that is classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification within the meaning of 12 C.F.R. 327.3) for insuring time deposits at offices of such member in the United States; or, in the event that the FDIC shall at any time hereafter cease to assess time deposits based upon such classifications or successor classifications, equal to the maximum annual assessment rate in effect on such day that is payable to the FDIC by commercial banks (whether or not applicable to any particular Bank) for insuring time deposits at offices of such banks in the United States. "Assignment and Acceptance" means an Assignment and Acceptance substantially --------------------------- in the form of Exhibit F. ---------- "Attorney Costs" means and includes the reasonable fees and disbursements of --------------- any law firm or other external counsel and the reasonable allocated cost of internal counsel. "Bank" has the meaning specified in the introductory clause hereto. ---- References to the "Banks" shall include references to BofA in its capacity as the Swingline Bank. For purposes of clarification only, to the extent that BofA may have any rights or obligations in addition to those of the Banks due to its status as the Swingline Bank, its status as such will be specifically referenced. "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. ---------------- 101, et seq.). "Base Loan" means any Base Rate Revolving Loan or any Base Rate Swingline ---------- Loan. "Base Rate" means, for any day, the higher of: (a) 1/2% above the latest ---------- Federal Funds Rate, and (b) the rate of interest in effect for such day as publicly announced from time to time by the Bank which is the Agent at its principal office, as its "prime" or "reference" rate (or comparable rate, if such Bank does not so designate a "prime" or "reference" rate). The prime or reference rate is a rate set by such Bank based upon various factors including such Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the prime or reference rate announced by such Bank shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Revolving Loan" means a Revolving Loan that bears interest based on ------------------------ the Base Rate. "Base Rate Swingline Loan" means a Swingline Loan which bears interest based -------------------------- on the Base Rate. "BofA" means Bank of America National Trust and Savings Association, a ---- national banking association. "Borrowing" means a borrowing hereunder consisting of (a) Revolving Loans of --------- the same Type made to the Company on the same day by the Banks, or (b) a Swingline Loan made to the Company by the Swingline Bank, in each case pursuant to Article II. "Borrowing Date" means any date on which a Borrowing occurs under Section 2.03 -------------- or 2.05. "Business Day" means (i) any day of the year except Saturday, Sunday and any ------------- day on which banks are required or authorized to close in New York City or San Francisco and (ii) if the applicable Business Day relates to any Offshore Loan, any day which is a "Business Day" described in clause (i) and which is also a day for trading by and between banks in the London interbank Eurodollar market. "Certificate of Deposit Rate" has the meaning specified in the definition of ----------------------------- "CD Lending Office" means, with respect to any Bank, the office of such Bank ------------------- specified as its "CD Lending Office" opposite its name on Schedule 10.02 or in -------------- the document pursuant to which it became a party hereto as contemplated by Section 2.06, 3.06(a), 3.07 or 10.07(c) (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 Company and the Agent. "CD Loan" means any Adjusted CD Rate Revolving Loan or any Adjusted CD Rate -------- Swingline Loan. "Change in Control" means the direct or indirect acquisition by any person (as ----------------- such term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act), or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act), of (a) beneficial ownership of issued and outstanding shares of voting stock of a corporation or other entity, the result of which acquisition is that such person or such group possesses in excess of 50% of the combined voting power of all then-issued and outstanding voting stock of such corporation or other entity, or (b) the power to elect, appoint, or cause the election or appointment of at least a majority of the members of the board of directors of such corporation or other entity. "Closing Date" means the date on which all conditions precedent set forth in ------------- Section 4.01 are satisfied or waived by all Banks. "Code" means the Internal Revenue Code of 1986, and regulations promulgated ---- thereunder. "Commitment", as to each Bank, has the meaning specified in Section 2.01(a). ---------- "Commitment Percentage" means, as to any Bank at any time, the percentage ---------------------- equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Bank's Commitment divided by the combined Commitments of all Banks. "Company" means Compaq Computer Corporation, a Delaware corporation and ------- successors thereto. "Compliance Certificate" means a certificate substantially in the form of ----------------------- Exhibit C. - ---------- "Consolidated Net Worth" means at any date the consoli-dated stockholders' ------------------------ equity of the Company and its consolidated Subsidiaries (excluding any Redeemable Preferred Stock of the Company). "Consolidated Tangible Net Worth" means at any date Consolidated Net Worth ---------------------------------- less the amount, if any, in excess of $25,000,000 of consolidated "intangible assets" (as defined below) included in determining Consolidated Net Worth. For the purposes of this definition, "intangible assets" means the sum of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to December 31, 1996 in the book value of any asset owned by the Company or a Subsidiary of the Company and (ii) all unamortized goodwill, patents, trademarks, service marks, trade names, copy-rights, organization or developmental expenses and other intangible items. "Conversion/Continuation Date" means any date on which, under Section 2.04, ----------------------------- the Company (a) converts Revolving Loans of one Type to another Type, or (b) continues as Revolving Loans of the same Type, but with a new Interest Period, Revolving Loans having Interest Periods expiring on such date. "Debt" of any Person means, at any date, without duplica-tion, (i) obligations ---- for the repayment of money borrowed which are or should be shown on a balance sheet as debt in accordance with GAAP, (ii) obligations as lessee under leases which, in accordance with GAAP, are capital leases, (iii) non-contingent reimbursement and payment obligations with respect to letters of credit, bank guaranties or banker's acceptances, and (iv) guaranties of payment or collection of any obligations described in clauses (i), (ii) and (iii) of other Persons; provided, that clauses (i), (ii) and (iii) include, in the case -------- of obligations of the Company or any Subsidiary, only such obligations as are or should be shown as debt or capital lease lia-bi-lities on a consolidated balance sheet in accordance with GAAP; and provided, further, that the -------- ------- liability of any Person as a general partner of a partner-ship for Debt of such partnership, if the partnership is not a Subsidiary of such Person, shall not constitute "Debt." "Default" means any event or circumstance which, with the giving of notice, ------- the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Dollars", "dollars" and "$" each mean lawful money of the United States. ------- ------- - "Domestic Lending Office" means, with respect to any Bank, the office of such ------------------------ Bank specified as its "Domestic Lending Office" opposite its name on Schedule -------- 10.02 or in the document pursuant to which it became a party hereto as - ----- contemplated by Section 2.06, 3.06(a), 3.07 or 10.07(c) or such other office of such Bank as such Bank may from time to time specify to the Company and the Agent. "Eligible Assignee" means (i) a commercial bank organized under the laws of ------------------ the United States, or any state thereof, and having a combined capital and surplus of at least $200,000,000; (ii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development or a political subdivision of any such country, and having a combined capital and surplus of at least $200,000,000, provided -------- that, unless otherwise agreed to by the Agent and the Company, such bank is acting through a branch or agency located in the United States; and (iii) a Person that is primarily engaged in the business of commercial banking and that is (A) a Subsidiary of a Bank, (B) a Subsidiary of a Person of which a Bank is a Subsidiary, or (C) a Person of which a Bank is a Subsidiary. "Environment" or "Environmental" has the meanings set forth in the ----------- ------------- Comprehensive Environmental Response, Compensation and Liability Act at 42 U.S.C. 9601(8) (1982). "Environmental Protection Statute" means any United States local, state or ---------------------------------- federal, or any foreign, law, statute, regulation, order, consent decree or other agreement or Requirement of Law pertaining to the protection or regulation of the Environment, including, without limitation, those laws, statutes, regulations, orders, decrees, agreements and other Requirements of Law relating to the disposal, cleanup, production, storing, refining, handling, transferring, processing or transporting of Hazardous Waste, Hazardous Substances or any pollutant or contaminant, wherever located. "ERISA" means the Employee Retirement Income Security Act of 1974, and ----- regulations promulgated thereunder. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation ------------------------ D of the FRB. "Event of Default" means any of the events or circumstances specified in ------------------ Section 8.01. "Exchange Act" means the Securities Exchange Act of 1934, and regulations ------------- promulgated thereunder. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental ---- Authority succeeding to any of its principal functions. "Federal Funds Rate" means, for any day, the rate set forth in the weekly -------------------- statistical release designated as H.15(519), published by the FRB on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Agent. "FRB" means the Board of Governors of the Federal Reserve System, and any --- Governmental Authority succeeding to any of its principal functions. "GAAP" means generally accepted accounting principles set forth from time to ---- time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "Governmental Authority" means any nation or government, any state or other ----------------------- political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Hazardous Substance" has the meaning set forth in the Comprehensive -------------------- Environmental Response, Compensation and Liability Act at 42 U.S.C. 9601(14) and also includes each other substance considered to be a hazardous substance under any analogous statute or regulation. "Hazardous Waste" has the meaning set forth in the Resource Conservation and ---------------- Recovery Act at 42 U.S.C. 6903(5) and also includes each other substance considered to be a hazardous waste under any analogous statute or regulation (including 40 C.F.R. 261.3). "Highest Lawful Rate" means, with respect to each Bank, the maximum --------------------- nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Loans or on other indebtedness outstanding under this Agreement or the Notes applicable to such Bank which is presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. "Information" has the meaning specified in Section 10.10. ----------- "Insolvency Proceeding" means (a) any case, action or proceeding before any ---------------------- court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under Federal, state or foreign law, including the Bankruptcy Code. "Interest Payment Date" means (a) as to any Revolving Loan other than a Base ----------------------- Rate Revolving Loan, the last day of each Interest Period applicable to such Loan, provided, however, that if any Interest Period for (i) an Adjusted CD -------- ------- Rate Revolving Loan exceeds 90 days, the date that falls 90 days after the beginning of such Interest Period is also an Interest Payment Date, or (ii) a LIBOR Revolving Loan exceeds three months, the date that falls three months, six months or nine months, if any, after the beginning of (and prior to the end of) such Interest Period is also an Interest Payment Date, (b) as to any Base Rate Revolving Loan, the last Business Day of each calendar quarter, and (c) as to any Swingline Loan, the last day of the Interest Period applicable to such Loan. "Interest Period" means (a) as to any Adjusted CD Rate Revolving Loan, the ---------------- period commencing on the Borrowing Date or on the Conversion/Continuation Date on which a Revolving Loan is converted into or continued as an Adjusted CD Rate Revolving Loan, and ending on the date 30, 60, 90 or 180 days thereafter, as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, (b) as to any LIBOR Revolving Loan, the period commencing on the Borrowing Date or on the Conversion/Continuation Date on which a Revolving Loan is converted into or continued as a LIBOR Revolving Loan, and ending on the day which numerically corresponds to such date one, two, three or six months (and any other period that is 12 months or less and is available to all of the Banks in the given instance) thereafter (or if such month has no numerically corresponding day, on the last Business Day of such month), as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, and (c) as to any Swingline Loan, the period commencing on the Borrowing Date of such Loan and ending on such date, not more than 10 days later, as agreed upon by the Company and the Swingline Bank at the time of the Borrowing of such Loan; provided that: -------- (i) if any Interest Period pertaining to a CD Loan would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day; (ii) if any Interest Period pertaining to an Offshore Loan would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; and (iii) no Interest Period for any Loan shall extend beyond the date set forth in clause (a) of the definition of "Revolving Termination Date". "IRS" means the United States Internal Revenue Service. --- "Lending Office" means, as to any Bank, the office or offices of the Bank --------------- specified as its "CD Lending Office" or "Domestic Lending Office" or "LIBOR Lending Office", as the case may be, on Schedule 10.02, or such other office -------------- or offices as the Bank may from time to time notify the Company and the Agent. "LIBO Rate" means, for any Interest Period for each LIBOR Revolving Loan ---------- comprising part of the same Borrowing or a LIBOR Swingline Loan, as the case may be, an interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which dollar deposits in immediately available funds are offered by each of the Reference Banks, in the case of LIBOR Revolving Loans, or the Swingline Bank, in the case of a LIBOR Swingline Loan, to leading banks in the London interbank Eurodollar 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 LIBOR Revolving Loan of such Reference Bank comprising part of such Borrowing, in the case of LIBOR Revolving Loans, or the LIBOR Swingline Loan, in the case of a LIBOR Swingline Loan, to be outstanding during such Interest Period and for a period equal to such Interest Period. The LIBO Rate for each Interest Period for each LIBOR Revolving Loan comprising part of the same Borrowing or a LIBOR Swingline Loan, as the case may be, shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent as set forth above two Business Days before the first day of such Interest Period, subject, however, ------- ------- to the provisions of Section 2.14. "LIBOR Lending Office" means, with respect to any Bank, the office of such ---------------------- Bank specified as its "LIBOR Lending Office" opposite its name on Schedule 10.02 or in the document pursuant to which it became a party hereto as contemplated by Section 2.06, 3.06(a), 3.07 or 10.07(c) (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 Company and the Agent. "LIBOR Revolving Loan" means a Revolving Loan which bears interest at the LIBO -------------------- Rate plus the Applicable Margin. "LIBOR Swingline Loan" means a Swingline Loan which bears interest at the LIBO -------------------- Rate plus the Applicable Margin. "Loan" means an extension of credit, in the form of (a) a Revolving Loan by a ---- Bank to the Company, which may be a Base Rate Revolving Loan, Adjusted CD Rate Revolving Loan or LIBOR Revolving Loan (each, a "Type" of Revolving Loan), or ---- (b) a Swingline Loan by the Swingline Bank to the Company, which may be a Base Rate Swingline Loan, Adjusted CD Rate Swingline Loan or LIBOR Swingline Loan (each, a "Type" of Swingline Loan); in each case pursuant to Article II. ---- "Loan Documents" means this Agreement, the Notes and all other documents --------------- delivered to the Agent or any Bank in connection herewith. "Majority Banks" means at any time Banks holding more than 50% of the combined -------------- Commitments of all the Banks, or, if at such time there are no Commitments hereunder, Banks holding more than 50% of the then aggregate unpaid principal amount of the Loans, including the Swingline Loans. "Margin Stock" means "margin stock" as such term is defined in Regulation G, U ------------ or X of the FRB. "Material Adverse Effect" means any event or condition which would have a ------------------------- material adverse effect on the condition (financial or otherwise), business or properties of the Company and its Subsidiaries on a consolidated basis. "Minimum Tranche" means: (a) in respect of Revolving Loans comprising part of --------------- the same Borrowing, or to be converted or continued under Section 2.04, (i) in the case of Base Rate Revolving Loans, $5,000,000 or any multiple of $1,000,000 in excess thereof; and (ii) in the case of Adjusted CD Rate Revolving Loans and LIBOR Revolving Loans, $10,000,000 or any multiple of $1,000,000 in excess thereof; and (b) in respect of any Swingline Loan, $1,000,000 or any multiple of $500,000 in excess thereof, unless otherwise agreed by the Swingline Bank. "Moody's" means Moody's Investors Service, Inc. and any successor thereto that ------- is a nationally recognized rating agency. "New Affiliate Bank" has the meaning specified in Section 3.06. -------------------- "No Loan Date" means any Business Day on which (a) no principal amount of any ------------- Revolving Loan is outstanding, and (b) no Notice of Borrowing with respect to Revolving Loans is pending or deemed pending pursuant to Article II. "Note" has the meaning specified in Section 2.02. ---- "Notice of Borrowing" means a notice in substantially the form of Exhibit A. --------------------- --------- "Notice of Conversion/Continuation" means a notice in substantially the form ----------------------------------- of Exhibit B. ---------- "Obligations" means all advances, debts, liabilities, obligations, covenants ----------- and duties arising under any Loan Document, owing by the Company to any Bank, including the Swingline Bank, the Agent, or any Person required to be indemnified, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "Offshore Loan" means any LIBOR Revolving Loan or any LIBOR Swingline Loan. -------------- "Other Taxes" means any present or future stamp or documentary taxes or any ------------ other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document. "Person" means an individual, partnership, corporation, limited liability ------ company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Preferred Stock" means, as applied to any corporation, shares of such ---------------- corporation which shall be entitled to preference or priority over any other shares of such corporation in respect of either the payment of dividends or the distribution of assets upon liquidation. "Prescribed Forms" shall mean such duly executed and filed form(s) or ----------------- statement(s), and in such number of copies, which may, from time to time, be prescribed by law and which, pursuant to applicable provisions of (a) an income tax treaty between the United States and the country of residence of the Bank providing the form(s) or statement(s), (b) the Code, or (c) any applicable rule or regula-tion under the Code, permit the Company and the Agent to make payments hereunder for the account of such Bank free of deduction or withholding of United States income or other similar taxes. "Redeemable" means, as applied to any Preferred Stock, any Preferred Stock ---------- which (i) the issuer undertakes to redeem at a fixed or determinable date or dates (other than pursuant to the exercise of an option to redeem by the issuer, if the failure to exercise such option would not materially adversely affect the business, consolidated financial position or consolidated results of operations of the issuer and its subsidiaries taken as a whole), whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer, or (ii) is redeemable at the option of the holder. "Reference Banks" means BofA, NationsBank of Texas, N.A. and Citibank, N.A. ---------------- "Replacement Bank" has the meaning specified in Section 3.06(a). ----------------- "Requirement of Law" means, as to any Person, any law (statutory or common), -------------------- treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Responsible Officer" means the chief executive officer, the president, the -------------------- chief financial officer or the treasurer of the Company. "Restricted Subsidiary" means any Subsidiary of the Company which has ---------------------- non-intercompany assets with an aggregate book value exceeding 10% of the Consolidated Tangible Net Worth of the Company based upon, at the time of determination, the most recent year-end audited consolidated financial statements of the Company. "Resulting Increased Commitment" has the meaning specified in Section 3.07. -------------------------------- "Revolving Loan" has the meaning specified in Section 2.01(a). --------------- "Revolving Termination Date" means the earlier to occur of: ---------------------------- (a) September 22, 2002, as such date may be extended pursuant to Section 2.06; and (b) the date on which the commitments of the Banks to make Loans terminate in whole in accordance with Section 2.07, Section 2.09(b) or Section 8.02. "S&P" means Standard & Poor's Rating Group and any successor thereto that --- is a nationally recognized rating agency. "SEC" means the Securities and Exchange Commission, or any Governmental --- Authority succeeding to any of its principal functions. "Senior Debt Indenture" means that certain indenture dated as of March 1, 1994 --------------------- between the Company and NationsBank of Texas, N.A., as Trustee, without giving effect to any amendment, modification, termination or cancellation thereof. "Specified Transaction," in respect of the Company, means any transaction or ---------------------- related set of transactions, that results, directly or indirectly, in (i) any sale, lease or exchange of all or substantially all of its property, (ii) the consolidation of the Company with any other Person (unless the Company is the surviving entity), or (iii) a merger of the Company with or into any other Person (unless the Company is the surviving entity), if in connection with such sale, lease, exchange, consolidation or merger any consent, approval or authorization of the shareholders of the Company is required under any of the Company's organizational documents, or any Requirement of Law. "Subordinated Debt" means any Debt of the Company (i) that expressly provides ------------------ that it is subordinate in right of payment to the Loans made by the Banks hereunder and under the 364-Day Credit Agreement, and (ii) under the terms of which no payments of principal shall be payable (whether by scheduled maturity, required prepayment, or otherwise, unless as a result of the acceleration of such Debt, in accordance with the terms thereof) prior to the date set forth in clause (a) of the definition of "Revolving Termination Date." "Subsidiary" of a Person means any corporation, association, partnership, ---------- limited liability company, business trust, joint stock company, joint venture or other business entity of which more than 50% of the voting stock or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. "Surviving Bank" has the meaning specified in Section 3.07. --------------- "Swingline Bank" means BofA. --------------- "Swingline Commitment", as to the Swingline Bank, has the meaning specified in -------------------- Section 2.01(b). "Swingline Loan" has the meaning specified in Section 2.01(b). --------------- "Taxes" means any and all present or future taxes, levies, imposts, ----- deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, taxes imposed on its net income, and franchise taxes imposed on its net income, by the jurisdiction (or any political subdivision thereof) under the laws of which such Bank or the Agent, as the case may be, is organized or maintains a lending office. "364-Day Credit Agreement" means that U.S.$1,000,000,000 Revolving Credit -------------------------- Agreement dated as of this date among the Company, BofA as Administrative Agent and the lenders party thereto, under which such lenders have agreed to extend credit to the Company on a 364-day basis. "364-Day Credit Agreement Termination Date" means the date upon which the --------------------------------------------- Agent has received evidence, in form and substance satisfactory to the Agent, that the commitments of the lenders under the 364-Day Credit Agreement have been duly cancelled or terminated and that all principal, interest, fees, expenses and other amounts outstanding thereunder have been paid in full. "Total Capitalization" means, at any time, the sum (without duplication) of --------------------- (a) Total Senior Debt, (b) the total outstanding principal amount (or the book carrying amount of such Debt if issued at a discount) of Subordinated Debt of the Company and its consolidated Subsidiaries, (c) Consolidated Net Worth less any amount thereof attributable to "minority interests" (as defined below), and (d) Redeemable Preferred Stock of the Company and its consolidated Subsidiaries. For the purpose of this definition, "minority interests" means any investment or interest of the Company in any corporation, partnership or other entity to the extent that the total amount thereof owned by the Company (directly or indirectly) constitutes 50% or less of all outstanding interests or investments in such corporation, partnership or entity. "Total Senior Debt" means, at any time, the principal amount of all ------------------- consolidated Debt of the Company and its consolidated Subsidiaries other than Subordinated Debt. "Type" has the meaning specified in the definition of "Loan." ---- "United States" and "U.S." each mean the United States of America. -------------- ---- 1.02 Other Interpretive Provisions. (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement. Subsection, Section, Article, Schedule and Exhibit references are to this Agreement unless otherwise specified. The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. The term "including" is not limiting and means "including without limitation." (c) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." (d) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation and (iii) references to IRS forms, SEC forms, FRB statistical releases or other forms, reports or documents of any Governmental Authority are to be construed as including all forms, reports or other documents that consolidate, amend or replace the forms, reports or documents. (e) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (f) This Agreement and the other Loan Documents are the result of negotiations among the Agent, the Company and the other parties, have been reviewed by counsel to the Agent, the Company and such other parties, and are the products of all parties. Accordingly, they shall not be construed against the Banks or the Agent merely because of the Agent's or Banks' involvement in their preparation. 1.03 Accounting Principles. (a) Unless the context otherwise ---------------------- clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company. ARTICLE II THE CREDITS 2.01 Amounts and Terms of Commitments. (a) Each Bank severally ------------------------------------ agrees, on the terms and conditions set forth herein, to make loans (each such loan a "Revolving Loan") to the Company from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date, in an aggregate principal amount not to exceed at any time outstanding, together with such Bank's Commitment Percentage of all Swingline Loans then outstanding, the amount set forth on Schedule 2.01 (as such Schedule is deemed modified pursuant to this Article II or Article III or Section 10.07) (as such amount may be increased or reduced pursuant to Sections 2.06, 2.07, 2.08, 2.09, 3.06, 3.07 or 8.02, such Bank's "Commitment"); provided, however, that, after giving effect to any Borrowing of Revolving Loans, the aggregate principal amount of all outstanding Revolving Loans and Swingline Loans shall not at any time exceed the combined Commitments of all the Banks. Within the limits of each Bank's Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this Section 2.01(a), prepay under Section 2.09(a) and reborrow under this Section 2.01(a). (b) The Swingline Bank agrees, on the terms and conditions set forth herein, to make a portion of the combined Commitments of all the Banks available to the Company by making swingline loans (each such loan a "Swingline Loan") to the Company from time to time on any Business Day during --------------- the period from the 364-Day Credit Agreement Termination Date to the Revolving Termination Date, in an aggregate principal amount not to exceed at any time outstanding $50,000,000 (as such amount may be reduced pursuant to Sections 2.07, 2.08, 2.09, 3.06 or 8.02, the Swingline Bank's "Swingline Commitment"), -------------------- notwithstanding the fact that such Swingline Loans, when aggregated with the Swingline Bank's outstanding Revolving Loans, may exceed the Swingline Bank's Commitment; provided, however, that, after giving effect to any Borrowing of a -------- ------- Swingline Loan, the aggregate principal amount of all outstanding Revolving Loans and Swingline Loans shall not at any time exceed the combined Commitments of all the Banks. Within the foregoing limits, and subject to the other terms and conditions hereof, the Company may borrow under this Section 2.01(b), prepay under Section 2.09(a) and reborrow pursuant to this Section 2.01(b). 2.02 Notes. The Loans made by each Bank are evidenced by a note in ----- substantially the form of Exhibit E ("Note") payable to the order of that ---------- ---- Bank, evidencing the aggregate indebtedness of the Company to such Bank resulting from the Loans owed to such Bank. Each Bank may endorse on the schedules annexed to its Notes, the date, amount and maturity of each Loan made by it and the amount of each payment of principal made by the Company with respect thereto. Each Bank is irrevocably authorized by the Company to endorse its Notes, and each Bank's record shall be prima facie evidence of the ----- ----- matters reflected therein; provided, however, that the failure of a Bank to -------- ------- make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Company hereunder or under any such Note to such Bank. 2.03 Procedure for Revolving Loan Borrowings. (a) Each Borrowing of --------------------------------------- Revolving Loans shall be made upon the Company's irrevocable written notice delivered to the Agent as described in Section 10.02 in the form of a Notice of Borrowing prior to 11:00 a.m. (Houston time) (i) one Business Day prior to the requested Borrowing Date, in the case of Adjusted CD Rate Revolving Loans, (ii) three Business Days prior to the requested Borrowing Date, in the case of LIBOR Revolving Loans, and (iii) on the requested Borrowing Date, in the case of Base Rate Revolving Loans, specifying: (A) the amount of the Borrowing, which shall be in an aggregate amount not less than the Minimum Tranche; (B) the requested Borrowing Date, which shall be a Business Day; (C) the Type of Revolving Loans comprising the Borrowing; (D) in the case of Adjusted CD Rate Revolving Loans and LIBOR Revolving Loans, the duration of the Interest Period applicable to such Loans included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, such Interest Period shall be 90 days (in the case of an Adjusted CD Rate Revolving Loan) and three months (in the case of a LIBOR Revolving Loan); provided, however, that with respect to a Borrowing, if any, to be made on the - -------- ------- Closing Date, the Notice of Borrowing shall be delivered to the Agent not later than 11:00 a.m. (Houston time) on the Closing Date and such Borrowing will consist of Base Rate Revolving Loans only. (b) Upon receipt of the Notice of Borrowing, the Agent will promptly notify each Bank thereof and of the amount of such Bank's Commitment Percentage of such Borrowing. (c) Each Bank will make the amount of its Commitment Percentage of such Borrowing available to the Agent for the account of the Company at the Agent's Payment Office on the Borrowing Date requested by the Company in immediately available funds by 1:00 p.m. (Houston time) in the case of a Borrowing comprised of Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, and by 1:00 p.m. (Houston time) in the case of a Borrowing comprised of Base Rate Revolving Loans. The proceeds of all such Loans will then be made available to the Company by the Agent by wire transfer of immediately available funds in accordance with written instructions provided to the Agent by the Company, unless on the date of the Borrowing all or any portion of the proceeds thereof shall then be required to be applied to the repayment of any outstanding Swingline Loans pursuant to Section 2.05(f), in which case such proceeds or portion thereof shall be applied to the repayment of such Swingline Loans. (d) After giving effect to any Borrowing of Revolving Loans, there may not be more than (i) four different Interest Periods in effect in respect of all Adjusted CD Rate Revolving Loans together then outstanding and (ii) four different Interest Periods in effect in respect of all LIBOR Revolving Loans together then outstanding. 2.04 Conversion and Continuation Elections for Revolving Loan ----------------------------- Borrowings. (a) The Company may, upon irrevocable written notice to the Agent under subsection (b) of this Section: (i) elect, on any Business Day, in the case of Base Rate Revolving Loans, or on the last day of the applicable Interest Period, in the case of Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, to convert any such Loans (or any part thereof in an amount not less than the Minimum Tranche) into Revolving Loans of another Type; or (ii) elect to renew on the last day of the applicable Interest Period any Revolving Loans having Interest Periods maturing on such day (or any part thereof in an amount not less than the Minimum Tranche); provided, that if at any time the aggregate amount of Adjusted CD Rate - -------- Revolving Loans or LIBOR Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than the Minimum Tranche, such Loans shall automatically convert into Base Rate Revolving Loans, and on and after such date the right of the Company to continue such Loans as, and convert such Loans into, Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans shall terminate, except that if and so long as each such ------ Revolving Loan shall be of the same Type and have the same Interest Period as Revolving Loans comprising another Borrowing or other Borrowings, and the aggregate unpaid principal amount of all such Loans of all such Borrowings shall equal or exceed $10,000,000, the Company shall have the right to continue all such Loans as, or to convert all such Loans into, Revolving Loans of such Type having such Interest Period. (b) The Company shall deliver a Notice of Conversion/Continuation to be received by the Agent not later than 11:00 a.m. (Houston time) at least (i) one Business Day in advance of the Conversion/Continuation Date, if the Revolving Loans are to be converted into or continued as Adjusted CD Rate Revolving Loans; (ii) three Business Days in advance of the Conversion/Continuation Date, if the Revolving Loans are to be converted into or continued as LIBOR Revolving Loans; and (iii) on the Conversion/Continuation Date, if the Revolving Loans are to be converted into Base Rate Revolving Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of Revolving Loans to be converted or renewed; (C) the Type of Revolving Loans resulting from the proposed conversion or continuation; and (D) other than in the case of conversions into Base Rate Revolving Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to any Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, the Company has failed to select timely a new Interest Period to be applicable to such Loans, the Company shall be deemed to have elected to convert such Loans into Base Rate Revolving Loans. (d) The Agent will promptly notify each Bank of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by the Company under this Section, the Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Revolving Loans held by each Bank with respect to which the notice was given. (e) Unless the Majority Banks otherwise agree, during the existence of a Default or Event of Default, the Company may not elect to have a Revolving Loan converted into or continued as an Adjusted CD Rate Revolving Loan or a LIBOR Revolving Loan with an Interest Period exceeding one month (in the case of a LIBOR Revolving Loan) or 30 days (in the case of an Adjusted CD Rate Revolving Loan). (f) After giving effect to any conversion or continuation of Revolving Loans, there may not be more than (i) four different Interest Periods in effect in respect of all Adjusted CD Rate Revolving Loans together then outstanding and (ii) four different Interest Periods in effect in respect of all LIBOR Revolving Loans together then outstanding. 2.05 Procedure for Swingline Borrowings. (a) Each Borrowing of a ---------------------------------- Swingline Loan shall be made upon the Company's irrevocable written notice to the Agent as described in Section 10.02 in the form of a Notice of Borrowing prior to 11:00 a.m. (Houston time) (i) one Business Day prior to the requested Borrowing Date, in the case of an Adjusted CD Rate Swingline Loan, (ii) three Business Days prior to the requested Borrowing Date, in the case of a LIBOR Swingline Loan, and (iii) on the requested Borrowing Date, in the case of a Base Rate Swingline Loan, specifying: (i) the amount of such Loan, which shall be an amount not less than the Minimum Tranche; (ii) the requested Borrowing Date, which shall be a Business Day, (iii) the duration of the Interest Period applicable to such Loan, which shall not be more than 10 days, and (iv) if the product of the amount of such Loan and the number of days in the applicable Interest Period equals or exceeds $15,000,000, the Type of Swingline Loan. Upon receipt of the Notice of Borrowing, the Agent will promptly provide the Swingline Bank with a copy thereof. (b) If the product of the amount of a requested Swingline Loan and the number of days in the applicable Interest Period equals or exceeds $15,000,000, such Loan shall bear interest at the LIBO Rate plus the Applicable Margin, the Adjusted CD Rate plus the Applicable Margin or the Base Rate, as selected by the Company pursuant to Section 2.05(a). If the product of the amount of a requested Swingline Loan and the number of days in the applicable Interest Period is less than $15,000,000, such Loan shall bear interest at the Base Rate. (c) Unless the Swingline Bank has received notice prior to 11:00 a.m. (Houston time) on the relevant Borrowing Date from the Agent (including at the request of any Bank) (i) directing the Swingline Bank not to make the requested Swingline Loan as a result of the limitation set forth in the proviso set forth in Section 2.01(b), or (ii) that one or more conditions specified in Article IV are not then satisfied; then, subject to the terms and ---- conditions hereof, the Swingline Bank will, not later than 2:00 p.m. (Houston time) on the Borrowing Date specified in such Notice of Borrowing, make the amount of the requested Swingline Loan available to the Company by wire transfer of immediately available funds in accordance with written instructions provided to the Agent by the Company. The Swingline Bank agrees that, if it has received notice described in clause (i) or (ii) above, it will not make the requested Swingline Loan to the Company. (d) After giving effect to any Borrowing of a Swingline Loan, there may not be more than three different Swingline Loans outstanding at any one time. (e) The Agent will notify the Banks of any Swingline Loan Borrowing or repayment thereof promptly after any such Borrowing or repayment. (f) If (i) any Swingline Loan shall remain outstanding at 11:00 a.m. (Houston time) on the last day of the Interest Period applicable to such Loan and by such time on such day the Agent shall have received neither (A) a Notice of Borrowing delivered pursuant to Section 2.03 requesting that Revolving Loans be made pursuant to Section 2.01(a) on such day in an amount at least equal to the principal amount of such Swingline Loan, nor (B) any other notice indicating the Company's intent to repay such Swingline Loan with funds obtained from other sources, or (ii) any Swingline Loans shall remain outstanding during the existence of a Default or Event of Default and the Swingline Bank shall in its sole discretion notify the Agent that the Swingline Bank desires that such Swingline Loans be converted into Revolving Loans; then, the Agent shall be deemed to have received a Notice of Borrowing ---- from the Company pursuant to Section 2.03 requesting that Base Rate Revolving Loans be made pursuant to Section 2.01(a) on such day (in the case of the circumstances described in clause (i) above) or on the first Business Day subsequent to the date of such notice from the Swingline Bank (in the case of the circumstances described in clause (ii) above) in an amount equal to the aggregate amount of such Swingline Loans, and the procedures set forth in Sections 2.03(b) and 2.03(c) shall be followed in making such Base Rate Revolving Loans; provided, that such Base Rate Revolving Loans shall be made -------- notwithstanding the Company's failure to comply with the conditions specified in Section 4.02; and provided, further, that if a Borrowing of Revolving Loans -------- ------- becomes legally impracticable and if so required by the Swingline Bank at the time such Revolving Loans are required to be made by the Banks in accordance with this Section 2.05(f), each Bank agrees that in lieu of making Revolving Loans as described above, such Bank shall purchase a participation from the Swingline Bank in the applicable Swingline Loans in an amount equal to such Bank's Commitment Percentage of the aggregate principal amount of such Swingline Loans, and the procedures set forth in Sections 2.03(b) and 2.03(c) shall be followed in connection with the purchases of such participations. The proceeds of such Base Rate Revolving Loans, shall be applied to repay such Swingline Loans. A copy of each notice given by the Agent to the Banks pursuant to this Section 2.05(f) with respect to the making of Revolving Loans or the purchases of participations, as the case may be, shall be promptly delivered by the Agent to the Company. Each Bank's obligation in accordance with this Agreement to make the Revolving Loans or purchase the participations, as contemplated by this Section 2.05(f), shall be absolute and unconditional and shall not be affected by any circumstance, including (1) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Swingline Bank, the Company or any other Person for any reason whatsoever; (2) the occurrence or continuance of a Default or an Event of Default; or (3) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 2.06 Increase and Extension of Commitments. (a) The Company shall --------------------------------------- have the right, without the consent of the Banks but subject to the approval of the Agent (which approval shall not be unreasonably withheld), to effectuate from time to time an increase in the total Commitmentsunder this Agreement by adding to this Agreement one or more Persons that are Eligible Assignees (who shall, upon completion of the requirements stated in this Section, constitute "Banks" hereunder), or by allowing one or more Banks to increase their Commitments hereunder, so that such added and increased Commitments shall equal the increase in Commitments effectuated pursuant to this Section; provided that (i) no increase in Commitments pursuant to this Section shall result in the total Commitments exceeding $3,400,000,000 or shall result in the aggregate amount of the increases in the Commitments effectuated pursuant to this Section since the date of this Agreement being in excess of the sum of $400,000,000 plus the aggregate amount (but not greater than $100,000,000) of all non-ratable reductions and terminations of Commitments effectuated pursuant to Section 2.08; (ii) no Bank's Commitment shall be increased without the consent of such Bank; (iii) there has occurred and is continuing no Default or Event of Default, and (iv) there has been no ratable reduction of Commitments pursuant to Section 2.07. The Company shall deliver or pay, as applicable, to the Agent each of the following items with respect to each Eligible Assignee (and each existing Bank whose Commitment will increase) prior to 11:00 a.m. (Houston time) (A) five Business Days prior to the requested effective date of such increase in the Commitments, if such date is a No Loan Date, or (B) ten Business Days prior to the requested effective date of such increase in the Commitments, if such date is not a No Loan Date: (1) a written notice of the Company's intention to increase the total Commitments pursuant to this Section, which shall specify each new Eligible Assignee, if any, the changes in amounts of Commitments that will result, and such other information as is reasonably requested by the Agent; (2) a document in form and substance as may be reasonably required by the Agent-, executed and delivered by each new Eligible Assignee and each Bank agreeing to increase its Commitment, pursuant to which it becomes a party hereto or increases its Commitment, as the case may be, which document, in the case of a new Eligible Assignee, shall (among other matters) specify the CD Lending Office, Domestic Lending Office and LIBOR Lending Office of such new Eligible Assignee; (3) a Note in the principal amount of the Commit-ment of each new Eligible Assignee, or a replacement Note in the principal amount of the increased Commitment of each Bank agreeing to increase its Commitment, as the case may be, executed and delivered by the Company, which Note shall be in form and substance as may be reasonably required by Agent; and (4) a non-refundable processing fee of $4,000, for the sole account of the Agent. Upon receipt of any notice referred to in clause (1) above, the Agent will promptly notify each Bank thereof. Upon execution and delivery of such documents and the payment of such fee, such new Eligible Assignee shall constitute a "Bank" hereunder with a Commitment as specified therein, or such Bank's Commitment shall increase as specified therein, as the case may be. The Company agrees to pay to the Banks on demand any and all amounts to the extent payable pursuant to Section 3.02 as a result of any such prepayment of Loans occasioned by the foregoing increase in the Commitments. (b) Not less than four years and 30 days nor more than four years and 60 days before the then current Revolving Termination Date, the Company may, by written request delivered to the Agent, request that the Revolving Termination Date be extended for a period of one year from the then-current Revolving Termination Date. The Agent shall notify the Banks of any such request. Such extension shall only be effective upon the approval thereof in writing by the Agent and all of the Banks (which approval may be given or withheld in each such Person's sole discretion). If such approval is given, the Agent will notify the Company and the Banks thereof, and this Agreement shall be deemed to be amended to reflect such one-year extension of the Revolving Termination Date. Each request for an extension of the Revolving Termination Date under this Section shall contain a certification by a Responsible Officer that, as of the date of such request and as of the then current Revolving Termination Date, (i) the representations and warranties in Article V are and will be true and correct in all material respects on and as of each such date with the same effect as if made on and as of each such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date), and (ii) no Default or Event of Default exists or would result from such extension. 2.07 Ratable Reduction or Termination of Commitments. The Company ------------------------------------------------- may, upon not less than three Business Days' prior notice to the Agent, terminate all the Commitments, or permanently reduce all the Commitments by an aggregate minimum amount of $10,000,000 or any multiple of $1,000,000 in excess thereof; unless, after giving effect thereto and to any prepayments of ------ Loans made on the effective date thereof, (i) the then-outstanding principal amount of all Revolving Loans and Swingline Loans would exceed the amount of the combined Commitments of all the Banks then in effect, or (ii) the then-outstanding principal amount of all Swingline Loans would exceed the amount of the Swingline Commitment then in effect, as adjusted pursuant to the last sentence of this Section 2.07. Once reduced in accordance with this Section, the Commitments may not be increased. Any such reduction of the Commitments shall be applied ratably to each Bank's Commitment according to its Commitment Percentage. At no time shall the Swingline Commitment exceed the combined Commitments of all the Banks, and any reduction of the Commitments which reduces the combined Commitments of all the Banks below the then-current amount of the Swingline Commitment shall result in an automatic corresponding reduction of the Swingline Commitment to the amount of the combined Commitments of all the Banks, as so reduced, without any action on the part of the Swingline Bank. 2.08 Non-Ratable Reduction or Termination of Commitments. The Company --------------------------------------------------- shall have the right, without the consent of any Bank, but subject to the approval of the Agent (which consent shall not be unreasonably withheld), to reduce in part or to terminate in whole the Commitment of one or more Banks non-ratably, provided that (i) the effective date of any such reduction or -------- termination of Commitments shall be a No Loan Date, (ii) after giving effect thereto and to any prepayments of Swingline Loans made on the effective date thereof, the then-outstanding principal amount of all Swingline Loans shall not exceed the amount of the Swingline Commitment then in effect, as adjusted pursuant to the penultimate sentence of this Section 2.08; (iii) on the effective date of any such reduction or termination (x) no Default or Event of Default shall have occurred and be continuing, (y) the senior unsecured long-term debt of the Company is rated BBB- or better by S&P or Baa3 or better by Moody's, and (z) the Company shall pay to any Bank whose Commitment is terminated all amounts owed by the Company to such Bank under this Agreement (including accrued commitment fees), (iv) the aggregate amount of each non-ratable reduction shall be at least $5,000,000, and (v) the aggregate amount of all such non-ratable reductions and terminations of Commitments since the date of this Agreement shall not exceed the sum of $100,000,000 plus the aggregate amount (but not greater than $100,000,000) of all increases in Commitments effectuated pursuant to Section 2.06. At no time shall the Swingline Commitment exceed the combined Commitments of the Banks, and any reduction of the Commitment of one or more Banks non-ratably which reduces the combined Commitments of the Banks below the then-current amount of the Swingline Commitment shall result in an automatic corresponding reduction of the Swingline Commitment to the amount of the combined Commitments of the Banks, as so reduced, without any action on the part of the Swingline Bank. The Company shall give the Agent three Business Days' notice of the Company's intention to reduce or terminate any Commitment pursuant to this Section. 2.09 Optional and Mandatory Prepayments. (a) Subject to Section ------------------------------------- 3.02, the Company may, at any time or from time to time by irrevocable notice to the Agent, not later than 11:00 a.m. (Houston time) (i) one Business Day prior to a prepayment of any CD Loan, (ii) three Business Days prior to a prepayment of any Offshore Loan, or (iii) on the Business Day of a prepayment of any Base Loan, ratably prepay Loans in whole or in part, in minimum amounts of $5,000,000 or any multiple of $1,000,000 in excess thereof. Such notice of prepayment shall specify the date and amount of such prepayment, whether the Loans to be prepaid are Revolving Loans or Swingline Loans, the Type(s) of any Loans to be prepaid and the specific Borrowing or Borrowings pursuant to which such Loans were made. The Agent will promptly notify each Bank, in the case of the prepayment of Revolving Loans, or the Swingline Bank, in the case of the prepayment of Swingline Loans, of its receipt of any such notice, and of such Bank's Commitment Percentage of such prepayment, as applicable. If such notice is given by the Company, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid. (b) Immediately upon the occurrence of any Specified Transaction or at any time prior to the date that is 180 days after the date of consummation of such Specified Transaction, the Agent shall at the request of, and may with the consent of, the Majority Banks, in their sole and absolute discretion, (i) by notice to the Company pursuant to Section 10.02, declare the outstanding principal amount of all Loans, together with accrued interest, amounts payable pursuant to Section 3.02 and all other amounts outstanding hereunder, to be immediately due and payable, whereupon such amounts shall immediately be paid by the Company, and (ii) by notice to the Company pursuant to Section 10.02, declare the obligation of each Bank to make Loans, including the obligation of the Swingline Bank to make Swingline Loans, be terminated, whereupon such obligations shall be terminated immediately. (c) On the date of any increase in the total Commitments pursuant to Section 2.06, the Company shall prepay all Revolving Loans outstanding on such date, together with accrued interest thereon and amounts payable pursuant to Section 3.02; provided, however, that, notwithstanding the foregoing sentence, -------- if after giving effect to such an increase in the total Commitments there are no new Banks hereunder and the Commitment Percentage of each Bank is unchanged from its Commitment Percentage immediately prior to such increase, then the Company shall not be required to prepay any Revolving Loans and related amounts outstanding on such date. (d) Any mandatory prepayment under subsection (b) or (c) of this Section shall be made by the Company without presentment, demand, protest or other notice of any kind, except as provided in subsection (b), all of which are expressly waived by the Company. 2.10 Repayment. The Company shall repay to the Agent for the account --------- of each Bank on the Revolving Termination Date the aggregate principal amount of all Revolving Loans outstanding on such date. The Company shall repay to the Agent for the account of the Swingline Bank the outstanding principal amount of each Swingline Loan on the last day of the Interest Period applicable thereto. 2.11 Interest. (a) Each Loan shall bear interest on the outstanding -------- principal amount thereof from the applicable Borrowing Date until paid at a rate per annum equal to the Adjusted CD Rate, the LIBO Rate or the Base Rate, as the case may be (and subject, in the case of Revolving Loans, to the Company's right to convert to other Types of Revolving Loans under Section 2.04), plus, in the case of CD Loans and Offshore Loans, the Applicable Margin; provided, however, that in no event shall the applicable rate payable to any Bank exceed the Highest Lawful Rate applicable to such Bank. (b) Interest on each Loan shall be paid to the Agent for the account of each Bank, in the case of Revolving Loans, or the Swingline Bank, in the case of Swingline Loans, in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans under Section 2.09 for the portion of the Loans so prepaid and upon payment in full thereof. (c) Any principal amount of any Loan which is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest, to the extent permitted by law, from the date on which such amount became due until such amount is paid in full, payable on demand, at a rate per annum equal at all times to the sum of the Base Rate in effect from time to time plus 1.50% per annum, provided, however, that in no event shall such rate as to any Bank -------- ------- exceed the Highest Lawful Rate applicable to such Bank. 2.12 Fees. The Company agrees to pay to the Agent for the account of ---- each Bank a commitment fee on the average daily amount by which such Bank's Commitment exceeds the aggregate outstanding principal amount of such Bank's Revolving Loans, from the date hereof until the Revolving Termination Date at a rate per annum equal to the Applicable Fee Amount, payable in arrears on the last Business Day of each calendar quarter during the term of such Bank's Commitment, and on the Revolving Termination Date. The Company shall pay to the Agent for its own account and the account of the Arranger such additional fees as are set forth in the fee letter dated June 29, 1997 among such Persons. 2.13 Computation of Fees and Interest. All computations of interest -------------------------------- for Base Rate Revolving Loans and Base Rate Swingline Loans, when the Base Rate is determined according to clause (b) of the definition of "Base Rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (but not to exceed as to any Bank the Highest Lawful Rate applicable to such Bank). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. 2.14 Interest Rate Determination and Protection. (a) Each ---------------------------------------------- Reference Bank and the Swingline Bank, as applicable, agrees to furnish to the Agent- timely information for the purpose of determining each Adjusted CD Rate or LIBO Rate, as applicable. If any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. (b) The Agent shall give prompt notice to the Company and the Banks of the applicable interest rate determined by the Agent for purposes of Section 2.11(a). (c) If fewer than two Reference Banks furnish timely informa-tion to the Agent for determining the LIBO Rate for any LIBOR Revolving Loans or the Adjusted CD Rate for any Adjusted CD Rate Revolving Loans, (i) the Agent shall forthwith notify the Company and the Banks that the interest rate cannot be deter-mined for such LIBOR Revolving Loans or Adjusted CD Rate Revolving Loans, as the case may be, (ii) each such Loan will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Revolving Loan (or if such Loan is then a Base Rate Revolving Loan, will continue as a Base Rate Revolving Loan), and (iii) the obligation of the Banks to make, or to convert Revolving Loans into or continue Revolving Loans as, Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, as the case may be, shall be suspended until the Agent shall notify the Company and the Banks that the circumstances causing such suspension no longer exist. (d) With respect to any Offshore Loan or CD Loan, upon request by the Company the Agent shall provide to the Company the information furnished by each Reference Bank or the Swingline Bank, as applicable, to enable the Agent to determine the LIBOR Rate or the Adjusted CD Rate, as the case may be, for such Loan. (e) If, with respect to any Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, the Majority Banks notify the Agent that the applicable interest rate for any Interest Period for such Loans cannot be reasonably determined or will not adequately reflect the cost to such Majority Banks of making, funding or maintaining their respective Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, as the case may be, for such Interest Period, the Agent shall forthwith so notify the Company and the Banks, whereupon (i) each such Revolving Loan will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Revolving Loan (or, if such Revolving Loan is then a Base Rate Revolving Loan, will continue as a Base Rate Revolving Loan), and (ii) the obligation of the Banks to make, or to convert Revolving Loans into or continue Revolving Loans as, Adjusted CD Rate Revolving Loans or LIBOR Revolving Loans, as the case may be, shall be suspended until the Agent shall notify the Company and the Banks that the circumstances causing such suspension no longer exist. (f) If the Swingline Bank notifies the Agent that the applicable interest rate for any Interest Period for any Adjusted CD Rate Swingline Loan or LIBOR Swingline Loan cannot be reasonably determined or will not adequately reflect the cost to the Swingline Bank of making, funding or maintaining such Loan, the Agent shall forthwith so notify the Company, whereupon the obligation of the Swingline Bank to make Adjusted CD Rate Swingline Loans or LIBOR Swingline Loans, as the case may be, shall be suspended until the Agent shall notify the Company that the circumstances causing such suspension no longer exist. 2.15 Payments by the Company. (a) Except as otherwise expressly -------------------------- provided herein, all payments by the Company shall be made in Dollars to the Agent for the account of the Banks, in the case of Revolving Loans, or the Swingline Bank, in the case of Swingline Loans, at the Agent's Payment Office and shall be made without setoff, recoupment or counterclaim. Such payments shall be made in immediately available funds no later than 1:00 p.m. (Houston time) on the date specified herein. The Agent will promptly distribute to each Bank its Commitment Percentage share (or other applicable share as expressly provided herein), in the case of Revolving Loans, or to the Swingline Bank, in the case of Swingline Loans, of such payment in like funds as received. Any payment received by the Agent later than the time specified above shall be deemed to have been received on the following Business Day, and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (c) Unless the Agent receives notice from the Company prior to the date on which any payment is due to the Banks or the Swingline Bank, as the case may be, that the Company will not make such payment in full as and when required, the Agent may assume that the Company has made such payment in full to the Agent on such date in immediately available funds, and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Bank or the Swingline Bank, as the case may be, on such due date an amount equal to the amount then due such Bank. If and to the extent the Company has not made such payment in full to the Agent, each Bank or the Swingline Bank, as applicable, shall repay to the Agent on demand such amount distributed to such Bank, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Bank until the date repaid. 2.16 Payments by the Banks to the Agent. (a) Unless the Agent ---------------------------------------- receives notice from a Bank on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Business Day prior to the proposed Borrowing Date, that such Bank will not make available as and when required hereunder to the Agent for the account of the Company the amount of that Bank's Commitment Percentage, in the case of a Revolving Loan Borrowing, or the Swingline Loan, in the case of a Swingline Loan Borrowing, the Agent may assume that each Bank, in the case of a Revolving Loan Borrowing, or the Swingline Bank, in the case of a Swingline Borrowing, has made such amount available to the Agent in immediately available funds on the Borrowing Date and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made available to the Company such amount, that Bank shall on the Business Day following such Borrowing Date make such amount available to the Agent, together with interest at the Federal Funds Rate for each day during such period. A notice of the Agent submitted to any Bank with respect to amounts owing under this subsection (a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Agent on the Business Day following the Borrowing Date, the Agent will notify the Company of such failure to fund and, upon demand by the Agent, the Company shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing, in the case of a Revolving Loan Borrowing, or at the applicable Swingline Rate, in the case of a Swingline Loan Borrowing. (b) The failure of any Bank to make any Revolving Loan on any Borrowing Date shall not relieve any other Bank of any obligation hereunder to make a Revolving Loan on such Borrowing Date, but no Bank shall be responsible for the failure of any other Bank to make the Revolving Loan to be made by such other Bank on any Borrowing Date. 2.17 Sharing of Payments, Etc. If, other than as expressly provided ------------------------ elsewhere herein, any Bank shall obtain on account of the Loans made by it any non-pro rata payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise), such Bank shall immediately (a) notify the Agent of such fact, and (b) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment with each of them in accordance with their Commitment Percentages; provided, however, that if all or any -------- ------- portion of such excess payment is thereafter recovered from the purchasing Bank, such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid therefor, together with an amount equal to such paying Bank's Commitment Percentage (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Company agrees that any Bank so purchasing a participation from another Bank may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Bank were the direct creditor of the Company in the amount of such participation. ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY 3.01 Taxes. (a) Any and all payments by the Company to each Bank or ----- the Agent under this Agreement and any Note shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Company shall pay all Other Taxes. (b) To the fullest extent permitted by applicable law, the Company agrees to indemnify and hold harmless each Bank and the Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.01) paid by such Bank or the Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Agent makes written demand therefor in accordance with this Section 3.01(b). (c) If the Company shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable under this Agreement or any Note to any Bank or the Agent, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section 3.01) such Bank or the Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Company shall make such deductions and withholdings; and (iii) the Company shall pay the full amount deducted or withheld to the relevant taxing or other authority in accordance with applicable law. (d) Notwithstanding anything to the contrary contained in this Agreement, each of the Company and the Agent shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or other similar taxes imposed by the United States of America from interest, fees or other amounts payable under this Agreement or any Note for the account of any Bank (without indemnification or the payment by the Company of increased amounts pursuant to clause (a), (b) or (c) above) other than a Bank (i) which is a domestic corporation (as defined in Section 7701 of the Code) for federal income tax purposes or (ii) which has the Prescribed Forms on file with the Company and the Agent for the applicable year, provided that if the Company -------- shall so deduct or withhold any such taxes, it shall provide a statement to the Agent and such Bank, setting forth the amount of such taxes so deducted or withheld, the applicable rate and any other information or documentation which such Bank or the Agent may reasonably request to assist such Bank or the Agent in obtaining any allowable credits or deductions for the taxes so deducted or withheld in the jurisdiction or jurisdictions in which such Bank is subject to tax. (e) Within 30 days after the date of any payment by the Company of Taxes or Other Taxes, the Company shall furnish the Agent the original or a certified copy of a receipt (if available) evidencing payment thereof, or other evidence of payment satisfactory to the Agent. (f) Each Bank shall use reasonable efforts (consistent with its internal policies and legal and regulatory restrictions) to select a jurisdiction for its Lending Office or change the jurisdiction of its Lending Office, as the case may be, so as to avoid the imposition of any Taxes or Other Taxes or to eliminate any such additional payment by the Company which may thereafter accrue; provided that no such selection or change shall be made if, in the -------- sole judgment of such Bank, such selection or change would be disadvantageous to such Bank. 3.02 Breakage Costs. If (a) any payment of principal of any CD Loan -------------- or Offshore Loan is made by the Company prior to the last day of an Interest Period relating to such Loan, or (b) the Company fails to borrow a Borrowing consisting of a CD Loan or an Offshore Loan on the date for such Borrowing specified in the Notice of Borrowing (except as permitted by and subject to the provisions of Sections 2.14(c), (e) and (f) and 3.04), then upon demand by any Bank, the Company shall pay to the Agent for the account of such Bank any amounts required to compensate such Bank for any losses, costs or expenses which it may reasonably incur as a result of such payment, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reasons of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain such Borrowing, but not including any cost of termination or liquidation of any hedge or related trading position (such as a rate swap, basis swap, forward rate transaction, interest rate option, cap, collar or floor transaction, swaption, or any other, similar transaction). For purposes of calculating amounts payable by the Company to the Banks under this Section, (i) each Offshore Loan made by a Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBO Rate used in determining such Offshore Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Offshore Loan is in fact so funded, and (ii) each CD Loan made by a Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the Certificate of Deposit Rate used in determining the Adjusted CD Rate for such CD Loan by the issuance of its certificate of deposit in a comparable amount and for a comparable period, whether or not such CD Loan is in fact so funded. 3.03 Increased Costs. (a) If, due to either: (i) after the date ---------------- hereof, the introduction of or any change (other than any change by way of imposition or increase of reserve requirements pursuant to Section 3.05) in or in the interpretation of any law or regulation by a Governmental Authority charged with the interpretation or administration thereof, or (ii) the compliance with any guideline enacted after the date hereof or request received after the date hereof from any Governmental Authority (whether or not having the force of law) the effect of which is to impose or modify any reserve, special deposit, insurance assessment, or similar requirement relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, any Bank(other than reserves maintained as provided for in Section 3.05), there shall be any actual increase in the cost to such Bank of agreeing to make or making, funding or maintaining any CD Loan or Offshore Loan, then the Company shall from time to time, upon demand by such Bank (with a copy of such demand to the Agent), pay to the Agent for the account of such Bank additional amounts sufficient to compensate such Bank for such actual increased cost. Promptly after any Bank becomes aware of any such introduction, change or proposed compliance, such Bank shall notify the Company thereof. No Bank shall be permitted to recover increased costs incurred or accrued more than 90 days prior to the date such notice is given to the Company, unless such change in law, regulation, enactment or request giving rise to increased costs hereunder is retroactive in effect and such Bank gives notice of demand for compensation not later than 90 days from the date on which such law or regulation is in effect or such enactment or request occurs. (b) If the Company so notifies the Agent within five Business Days after any Bank notifies the Company of any increased cost pursuant to the provisions of Section 3.03(a), the Company shall convert all Revolving Loans of the Type affected by such increased cost of all Banks then outstanding into Revolving Loans of another Type in accordance with Section 2.04 and, additionally, reimburse such Bank for such increased cost in accordance with Section 3.03(a). (c) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, charged with the interpretation or administration thereof, or compliance by any Bank (or its Lending Office) or the corporation controlling such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency has the effect of increasing the amount of capital required or expected to be maintained as a result of its Commitment hereunder, such Bank shall have the right to give prompt written notice to the Company with a copy to the Agent, which notice shall notify the Company of the additional amounts as shall be required to compensate such Bank for the increased cost to such Bank as a result of such increase in capital and shall certify that such costs are generally being charged by such Bank to other similarly situated borrowers under similar credit facilities and such amounts shall be paid promptly by the Company. No Bank shall be permitted to recover increased costs incurred or accrued more than 90 days prior to the date such notice is given to the Company, unless such adoption, change, request or directive giving rise to increase in capital is adopted or required retroactively and such Bank gives notice of demand for compensation not later than 90 days from the date on which such adoption, change, request or directive occurs. (d) Each Bank shall use its best efforts (consistent with its internal policies and legal and regulatory restrictions) to select a jurisdiction for its Lending Office or change the jurisdiction of its Lending Office, as the case may be, so as to avoid the imposition of any increased costs under this Section 3.03 or to eliminate the amount of any such increased cost which may thereafter accrue; provided that no such selection or change of the -------- jurisdiction for its Lending Office shall be made if, in the reasonable judgment of such Bank, such selection or change would be disadvantageous to such Bank. 3.04 Illegality. Notwithstanding any other provision of this ---------- Agreement, if any Bank shall notify the Agent that, after the date hereof, the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any Governmental Authority shall assert that it is unlawful, for any Bank or its LIBOR Lending Office to make any Offshore Loans or to continue to fund or maintain any Offshore Loan hereunder, then, on notice thereof and demand therefor by such Bank to the Company, (i) the obligation of such Bank to make Offshore Loans and to convert Revolving Loans into LIBOR Revolving Loans shall be suspended until the Agent shall notify the Company that the circumstances causing such suspension no longer exist, and (ii) the Company shall, if permitted by applicable law, convert on the last day of the applicable Interest Period, and if not so permitted, forthwith convert all LIBOR Revolving Loans of all Banks then outstanding into Revolving Loans of another Type in accordance with Section 2.04. 3.05 Reserves on Offshore Loans. If any Bank shall be required under -------------------------- regulations of the FRB to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as "Eurocurrency liabilities"), and if as a result thereof there is an increase in the cost to such Bank of agreeing to make or making, funding or maintaining Offshore Loans, the Company shall from time to time, upon demand by such Bank (with a copy of such demand to the Agent), pay to the Agent for the account of such Bank additional amounts, as additional interest hereunder, sufficient to compensate Bank for such increased cost. Increased costs under this Section 3.05 shall be payable by the Company on each Interest Payment Date on such Offshore Loans, provided the Company shall have received at least 15 days' prior written notice (with a copy to the Agent) of such additional interest from the Bank. If a Bank fails to give notice 15 days prior to the relevant Interest Payment Date, such additional interest shall be payable 15 days from receipt of such notice. No Bank shall be permitted to recover additional interest incurred or accrued more than 90 days prior to the date such notice is given to the Company, unless any such reserve requirement giving rise to additional interest hereunder is made or announced retroactively and such Bank gives notice of demand for compensation not later than 90 days from the date on which such requirement is in effect. 3.06 Replacement of Bank; Termination of Bank. In the event that any ---------------------------------------- Bank makes a demand for payment pursuant to Sections 3.01 or 3.03, or any Bank Has suspended its funding of Offshore Loans pursuant to Section 3.04, the Company shall have the right, if no Default or Event of Default then exists, to either replace such Bank in accordance with subsection (a) of this Section 3.06 or terminate such Bank's Commitment in accordance with subsection (b) of this Section 3.06. If any Banks that are not Affiliates as of the Closing Date become Affiliates after the Closing Date (each such Bank, a "New --- Affiliate Bank"), the Company shall have the right, if no Default or Event of - --------- ---- Default then exists, to either replace each such New Affiliate Bank (other than the New Affiliate Bank having the largest Commitment) in accordance with subsection (a) of this Section 3.06 or terminate each such New Affiliate Bank (other than the New Affiliate Bank having the largest Commitment) in accordance with subsection (b) of this Section 3.06. (a) If the Company determines to replace a Bank pursuant to this Section 3.06, the Company shall have the right to replace such Bank with an entity that is an Eligible Assignee (a "Replacement Bank"); provided that such ---------------- -------- Replacement Bank, (i) if it is not already a Bank, shall be reasonably acceptable to the Agent, (ii) shall unconditionally offer in writing (with a copy to the Agent) to purchase all of such Bank's rights hereunder and interest in the Loans owing to such Bank and the Note held by such Bank without recourse at the principal amount of such Note plus interest and fees accrued thereon to the date of such purchase on a date therein specified, and (iii) shall, along with the Bank to be replaced, execute and deliver to the Agent an Assignment and Acceptance pursuant to which such Replacement Bank becomes a party hereto with a Commitment equal to that of the Bank being replaced, including, in the case of the replacement of the Swingline Bank, the Swingline Commitment, which document shall (among other matters) specify the CD Lending Office, Domestic Lending Office and LIBOR Lending Office of such Replacement Bank. Upon satisfaction of the requirements set forth in the first sentence of this Section 3.06(a), acceptance of such offer to purchase by the Bank to be replaced, payment to such Bank of the purchase price in immediately available funds, and the payment by the Company of all requested costs accruing to the date of purchase which the Company is obligated to pay under Section 3.02 and all other amounts owed by the Company to such Bank (other than the principal of and interest on the Loans of such Bank purchased by the Replacement Bank and interest and fees accrued thereon to the date of purchase), and payment by the Replacement Bank to the Agent of a non-refundable processing fee of $4,000, the Replacement Bank shall constitute a "Bank" hereunder with a Commitment as so specified and the Bank being so replaced shall no longer constitute a "Bank" hereunder (with the signature pages and Schedule 2.01 being deemed amended to reflect same) and such Bank -------------- shall be relieved of its obligations hereunder. If, however, (x) a Bank accepts such an offer and such proposed Replacement Bank fails to purchase such rights and interest on such specified date in accordance with the terms of such offer, the Company shall continue to be obligated to pay the increased costs or additional amounts due to such Bank pursuant to Section 3.01, 3.03 or 3.05 (if a demand for repayment of increased costs or additional amounts pursuant to any of such Sections is the basis for the proposed replacement), as the case may be, or (y) the Bank proposed to be replaced fails to accept such purchase offer, the Company (if the basis for the proposed replacement is a demand for payment of increased costs or additional amounts pursuant to Sections 3.01, 3.03 or 3.05) shall not be obligated to pay to such Bank such increased costs or additional amounts to the extent incurred or accrued from and after the date of such purchase offer, but in each of the cases set forth in clauses (x) and (y), the Company shall continue to have the right to terminate such Bank's Commitment in accordance with Section 3.06(b). (b) In the event that the Company determines to terminate a Bank's Commitment pursuant to this Section 3.06 which, in the case of the Swingline Bank, includes the Swingline Commitment, the Company shall give notice to such Bank of the Company's election to terminate (a copy shall be sent to the Agent), and such termination shall become effective 15 days thereafter unless such Bank withdraws its request for additional compensation (with respect to a proposed termination based on a request for additional compensation) or reinstates its funding of Offshore Loans (with respect to a proposed termination based on a suspension of funding of Offshore Loans). On the date of the termination of the Commitment of any Bank pursuant to this Section 3.06(b), (x) the Company shall deliver notice of the effectiveness of such termination to such Bank and to the Agent, (y) the Company shall pay all amounts owed by the Company to such Bank under this Agreement or under the Note payable to such Bank (including principal of and interest on the Loans owed to such Bank, accrued commitment fees and amounts specified in such Bank's notice (if any) delivered pursuant to Sections 3.01, 3.03 or 3.05 as the case maybe, with respect to the period prior to such termination) and (z) upon the occurrence of the events set forth in clauses (x) and (y), such Bank shall cease to be a "Bank" hereunder for all purposes (except for purposes of the provisions of this Agreement which by their terms survive the termination of this Agreement) and such Bank shall be relieved of its obligations hereunder. 3.07 Reallocation of Commitments in Event of Merger, Etc. If after --------------------------------------------------- the Closing Date any Bank merges or consolidates with or into one or more other Banks, the surviving entity of such merger or consolidation (the "Surviving Bank") shall at the request of the Company, if no Default or Event --------------- of Default then exists, assign all or a portion of its Resulting Increased Commitment (as defined below) to one or more entities selected by the Company that are Eligible Assignees (each an "Acquiring Entity"); provided that (i) ---------------- -------- each Acquiring Entity shall unconditionally offer in writing (with a copy to the Agent) to purchase a portion of the Surviving Bank's Resulting Increased Commitment and the portion of the Revolving Loans owing to the Surviving Bank and the Note or Notes held by the Surviving Bank allocable to the amount of the Resulting Increased Commitment to be acquired; (ii) the portion of the Resulting Increased Commitment of the Surviving Bank acquired by each Acquiring Entity shall be in integral multiples of $1,000,000; (iii) the purchase price to be paid by the Acquiring Entity shall be the outstanding principal amount of the Revolving Loans owed to the Surviving Bank on the date of purchase (plus interest and fees accrued thereon) that are allocable to the amount of the Resulting Increased Commitment being acquired; (iv) each Acquiring Entity, if it is not already a Bank, shall be reasonably acceptable to the Agent; and (v) if any of the Surviving Bank's Loans must be prepaid prior to the last day of the Interest Period relating to such Loans, the Company shall pay amounts payable under Section 3.02 of this Agreement. Each assignment hereunder shall be accomplished in accordance with, and subject to the terms and conditions contained in, the third sentence of Section 10.07(c), and to the extent of any such assignment, the Surviving Bank shall be relieved of its obligations hereunder with respect to its assigned Commitment. To the extent that the Surviving Bank's Resulting Increased Commitment is not acquired by an Acquiring Entity, the Company shall have the right to terminate the Surviving Bank's Resulting Increased Commitment by notice given to the Agent and such Bank within 180 days after the effective date of such merger or consolidation. The termination shall be effective 15 days thereafter, provided that on the date of termination the Company shall have paid to the Surviving Bank all amounts owed by the Company to the Surviving Bank allocable to the amount of the Surviving Bank's Resulting Increased Commitment being terminated (including principal of the Revolving Loans owed to the Surviving Bank allocable to the portion of the Resulting Increased Commitment being terminated plus interest and fees accrued on such portion). The amounts owed by the Company to the Surviving Bank under this Agreement that are allocable to the amount of the Resulting Increased Commitment being acquired or terminated pursuant to this Section 3.07, shall be the product of (a) all amounts owed by the Company to the Surviving Bank hereunder on the date of acquisition or termination (including the outstanding principal amount of the Revolving Loans owed to the Surviving Bank and interest and fees accrued thereon), and (b) a fraction having as it numerator the amount of the Resulting Increased Commitment being acquired or terminated and having as its denominator the total amount of the Surviving Bank's Commitment without giving effect to such acquisition or termination. For the purposes of this Section 3.07, "Resulting Increased Commitment" shall mean (a) the total combined -------------------------------- Commitment of the Surviving Bank immediately following a merger or consolidation contemplated by this Section 3.07, minus (b) the amount of the largest Commitment (immediately prior to such merger or consolidation) of any Bank that was a party to such merger or consolidation, excluding the Swingline Commitment in the event the Swingline Bank is a Surviving Bank. 3.08 Certificates of Banks. Any Bank claiming reimbursement or ----------------------- compensation under this Article III shall, as part of each notice and demand for payment required under this Article III, deliver to the Company (with a copy to the Agent) a certificate setting forth in reasonable detail the amount and basis of the reimbursement or compensation payable to the Bank hereunder, certifying that such Bank is generally charging such reimbursement or compensation to other similarly situated borrowers under similar credit facilities, and such certificate shall be conclusive and binding on the Company in the absence of manifest error; provided that the determination of such amount shall be made in good faith in a manner generally consistent with such Bank's standard practices. 3.09 Survival. The agreements and obligations of the Company in this -------- Article III shall survive the payment of all other Obligations. ARTICLE IV CONDITIONS PRECEDENT 4.01 Conditions of Initial Loans. The obligation of each Bank to --------------------------- make its initial Loan hereunder, including the obligation of the Swingline Bank to make its initial Swingline Loan, is subject to the condition that the Agent have received on or before the Closing Date all of the following, in form and substance satisfactory to the Agent and each Bank: (a) Credit Agreement and Notes. This Agreement and the Notes ----------------------------- executed by each party thereto; (b) Resolutions; Incumbency. (i) Copies of the resolutions of the board ----------------------- of directors of the Company authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company; and (ii) a certificate of the Secretary or Vice President of the Company certifying the names and true signatures of the officers of the Company authorized to execute and deliver each Loan Document to be executed by the Company; (c) Organization Documents: Good Standing. Each of the following ---------------------------------------- documents: (i) the articles or certificate of incorporation and the bylaws of the Company as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date; and (ii) a good standing certificate for the Company from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation and of the State of Texas dated as of a recent date; (d) Legal Opinions. An opinion of Linda S. Auwers, Vice President and -------------- Assistant General Counsel of the Company, addressed to the Agent and the Banks, substantially in the form of Exhibit D-1, and an opinion of Vinson & ----------- Elkins L.L.P., counsel to the Company, addressed to the Agent and the Banks, substantially in the form of Exhibit D-2; ------------ (e) 364-Day Credit Agreement. Evidence that all conditions to closing of ------------------------ the 364-Day Credit Agreement have occurred; (f) Officer's Certificate. A certificate signed by a Responsible --------------------- Officer of the Company, dated as of the Closing Date, stating that (i) the representations and warranties contained in Article V are true and correct in all material respects on and as of such date, and (ii) no Default or Event of Default exists or would result from the initial Borrowing; (g) Termination of Commitments under Existing Credit Agreements. ----------------------------------------------------------- Evidence that the commitments to lend under the $500,000,000 Revolving Credit Agreement dated as of October 31, 1995 among the Company, the banks party thereto, Bank of America National Trust and Savings Association, as Administrative Agent, NationsBank of Texas, National Association and Citibank, N.A., as co-agents, as amended and restated by the parties as of October 29, 1996 and under the $1,000,000,000 Revolving Credit Agreement dated as of October 31, 1995 among the Company, the banks party thereto, Bank of America National Trust and Savings Association, as Administrative Agent, NationsBank of Texas, National Association and Citibank, N.A., as co-agents, as amended and restated by the parties as of October 29, 1996 (collectively, the "Existing Credit Agreements") have been terminated and that all principal, ---------------------------- interest, fees and other amounts due thereunder (including under Section 3.02 of each Existing Credit Agreement) have been paid or arrangements satisfactory to the Agent have been made for the payment thereof as of the Closing Date; and (h) Other Documents. Such other approvals, opinions, documents or ---------------- materials as the Agent or any Bank may reasonably request. 4.02 Conditions to All Borrowings. The obligation of each Bank to ---------------------------- make any Loan, including the obligation of the Swingline Bank to make any Swingline Loan, is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date: (a) Notice of Borrowing. The Agent shall have received a Notice of ------------------- Borrowing; (b) Continuation of Representations and Warranties. The representations ---------------------------------------------- and warranties in Article V shall be true and correct in all material respects on and as of such Borrowing Date with the same effect as if made on and as of such Borrowing Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date); and (c) No Existing Default. No Default or Event of Default shall exist or ------------------- shall result from such Borrowing. Each Notice of Borrowing submitted by the Company hereunder, and each making of a Borrowing by the Company, shall constitute a representation and warranty by the Company hereunder, as of the date of each such notice or request and as of each Borrowing Date, that the conditions in Section 4.02 are satisfied. ARTICLE V REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Agent and each Bank that: 5.01 Corporate Existence. The Company and each of its Restricted ------------------- Subsidiaries are duly incorporated or otherwise formed, validly existing and (if applicable) in good standing in each case under the laws of its jurisdiction of incorporation or formation and have all requisite power and all authority as a corporation, partnership or other form of business organization, governmental licenses, authorizations, certificates, consents and approvals required to carry on their respective businesses as now conducted in all material respects. 5.02 Corporate Power. The execution, delivery and performance by the --------------- Company of the Loan Documents and the consummation of the transactions contemplated by such Loan Documents are within the Company's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (a) the Company's charter or bylaws or (b) any law or regulation applicable to the Company, or (c) any material ("material" for the purposes of this representation meaning creating a liability of $50,000,000 or more) agreement binding on the Company, or, to its knowledge, any other agreement binding on the Company. 5.03 Authorization and Approvals. No authorization or approval or --------------------------- other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by the Company of the Loan Documents or the consummation of the transactions contemplated by such Loan Documents. 5.04 Enforceable Obligations. This Agreement has been duly executed ----------------------- and delivered by the Company. This Agreement is, and, when executed and delivered in accordance with this Agreement, each Note will be, the legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally, and by general principles of equity. 5.05 Financial Statements. The audited consolidated balance sheet of -------------------- the Company and its Subsidiaries as of December 31, 1996, and the related audited consolidated statements of income and cash flows for the fiscal year then ended (as shown on the Company's Form 10-K for the year ended December 31, 1996) and the unaudited consolidated balance sheet of the Company and its Subsidiaries as of June 30, 1997 and the related unaudited statements of income and cash flows for the fiscal quarter then ended (as shown on the Company's Form 10-Q for the quarter ended June 30, 1997), fairly present the consolidated financial condition of the Company and its Subsidiaries as of such dates and the consolidated results of operations of the Company and its Subsidiaries for such fiscal periods, all in accordance with GAAP except as otherwise expressly noted therein, subject (in the case of the unaudited balance sheet and income statement) to changes resulting from normal year-end audit adjustments. 5.06 Litigation. Except as disclosed in the Company's Form 10-K for ---------- the year ended December 31, 1996, or the Company's Forms 10-Q for the quarters ended March 31 and June 30, 1997, which were delivered to the Banks prior to the date hereof, or as further disclosed by the Company to the Banks and the Agent in writing prior to the date hereof, there is no pending or, to the knowledge of the Company, threatened action or proceeding affecting the Company or any of its Subsidiaries before any court, governmental agency or arbitrator, in which there is a reasonable likelihood of an adverse decision which could materially adversely affect the consolidated financial condition or operations of the Company and its Subsidiaries, taken as a whole. There is no pending or, to the knowledge of the Company, threatened action or proceeding affecting the Company which purports to affect the legality, validity, binding effect or enforceability of any of the Loan Documents. 5.07 Regulation U. Following the application of the proceeds of each ------------ Loan, not more than 25% of the value of the assets of the Company which are subject to any arrangement with the Agent or any Bank (herein or otherwise) whereby the Company's or any Subsidiary's right or ability to sell, pledge or otherwise dispose of assets is in any way restricted will be Margin Stock. 5.08 Investment Company Act. Neither the Company nor any of its ------------------------ Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 5.09 ERISA. The Company is in compliance with all applicable ----- provisions of ERISA except where the failure to comply would not have a Material Adverse Effect. 5.10 Holding Company. Neither the Company nor any of its Subsidiaries --------------- is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.11 Environmental Condition. Except as disclosed in the Company's ----------------------- Form 10-K Report for the year ended December 31, 1996 or in the Company's Form 10-Q Report for the quarter ended June 30, 1997 or as further disclosed by the Company to the Banks and the Agent in writing, the aggregate contingent and non-contingent liabilities of the Company and its Subsidiaries which are presently known to any Responsible Officer and reasonably expected to arise in connection with (a) the requirements of Environmental Protection Statutes or (b) any obligation or liability to any Person in connection with any Environmental matters, including any release or threatened release of any Hazardous Substance or Hazardous Waste, do not exceed 10% of the Consolidated Tangible Net Worth of the Company (excluding such liabilities to the extent covered by insurance if the insurer has confirmed that such insurance covers such liabilities). 5.12 No Material Adverse Change. Since December 31, 1996, there has -------------------------- been no material adverse change in the business, consolidated financial position or consolidated results of operation of the Company and its Subsidiaries taken as a whole. ARTICLE VI AFFIRMATIVE COVENANTS So long as any Bank shall have any Commitment hereunder, the Swingline Bank shall have any Swingline Commitment, or any Note shall remain unpaid, the Company will unless the Majority Banks waive compliance in writing: 6.01 Compliance with Laws, Etc. Comply and cause each of its -------------------------- Subsidiaries to comply in all material respects with all applicable laws, rules, regulations and orders, including compliance with the requirements of ERISA and Environmental Protection Statutes and the payment and discharge before delinquency of all taxes, assessments and governmental charges or levies imposed upon the Company or any of its Subsidiaries or any property of the Company or any of its Subsidiaries, in each case to the extent that the failure to comply, pay or discharge would have a material adverse effect on the Company and its Subsidiaries taken as a whole; provided that neither the -------- Company nor any Subsidiary of the Company shall be required to pay any such tax, assessment, charge or levy or comply with any requirement which is being contested in good faith and adequately reserved against to the extent required by GAAP. 6.02 Reporting Requirements. Furnish to the Agent and each of the ---------------------- Banks: (a) promptly after the filing or sending thereof and in any event not later than 115 days after the end of each fiscal year, a copy of the Company's annual report which it sends to its public security holders and a copy of the Company's report on Form 10-K which the Company files with the SEC for such year together with a duly-completed Compliance Certificate; (b) promptly after the filing thereof, and in any event within 60 days after the end of each of the first three fiscal quarters during each fiscal year, the Company's report on Form 10-Q which the Company files with the SEC for such quarter together with a duly completed Compliance Certificate; (c) promptly, but in any event within five Business Days after a Responsible Officer of the Company has obtained knowledge thereof, a notice of each Default or Event of Default, together with a statement of a Responsible Officer setting forth the details of such Default or Event of Default and the actions which the Company has taken and proposes to take with respect thereto; (d) promptly after the filing thereof, notice of filing of each of the reports on Form 8-K and each Schedule 13D (and any amendment thereto), if any, which the Company files with the SEC, together with a copy of such filing; (e) no later than five Business Days after the date of promulgation thereof by such rating agency, notice of any change in the Applicable Rating by S&P or Moody's that would change the Applicable Margin or Applicable Fee Amount; (f) promptly upon any Responsible Officer becoming aware thereof, notice of any transaction or event that is, or is reasonably anticipated to result in, a Specified Transaction or a Change in Control as to the Company; (g) promptly upon such date becoming reasonably determinable by any Responsible Officer (but no later than two Business Days after the effective date of any Specified Transaction or Change in Control), notice of the effective date of any Specified Transaction or Change in Control as to the Company; and (h) such other information respecting the condition or operations, financial or otherwise, of the Company and its Subsidiaries as any Bank through the Agent may from time to time reasonably request. Reports required to be delivered pursuant to subsections (a), (b) and (d) of this Section 6.02 shall be deemed to have been delivered on the date on which the Company posts such reports on the Company's website on the Internet at the website address listed on the signature pages hereof or when such report is posted on the SEC's website at www.sec.gov.; provided that the Company shall deliver paper copies of the reports referred to in subsections (a), (b) and (d) of this Section 6.02 to the Agent or any Bank who requests the Company to deliver paper copies until written notice to cease delivering paper copies is given by the Agent or such Bank and provided, further, that in every instance the Company shall provide paper copies of the Compliance Certificates required by subsections (a) and (b) and the notice required by subsection (d) of this Section 6.02 to the Agent and each of the Banks. Except for the Compliance Certificates referred to in subsections (a) and (b) of this Section 6.02, the Agent shall have no obligation to request the delivery or to maintain copies of the reports referred to in subsections (a), (b) or (d) of this Section 6.02 or to monitor compliance by the Company with any such request for delivery, and each Bank shall be solely responsible for requesting delivery to it or maintaining its copies of such reports. 6.03 Use of Proceeds. Use the proceeds of the Loans for general --------------- corporate purposes, including to backstop the Company's commercial paper program and for acquisitions, provided that such acquisitions would not cause a Default or Event of Default hereunder that is not waived by the Banks pursuant to Section 10.01 and are undertaken and consummated in accordance -------------- with all applicable Requirements of Law in all material respects. 6.04 Maintenance of Insurance. Maintain, and cause each of its ------------------------- Restricted Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Company and its Restricted Subsidiaries operate, provided that the Company and its Restricted Subsidiaries may self-insure to the extent and in the manner normal for companies of like size, type and financial condition. The Company may maintain its Restricted Subsidiaries' insurance on behalf of them. 6.05 Corporate Existence, Etc. Preserve and maintain, and cause each ------------------------ of its Restricted Subsidiaries to preserve and maintain, its corporate existence, rights and franchises; provided, however, that no Event of Default -------- ------- shall arise under this Section 6.05 as a result of any Specified Transaction if any prepayment required under Section 2.09(b) is timely made, or as a result of the termination of existence, rights and franchises of any Restricted Subsidiary pursuant to any merger or consolidation to which such Restricted Subsidiary is a party, and provided, further, that the Company or -------- ------- any Restricted Subsidiary shall not be required to preserve any right or franchise if the Company or such Restricted Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or such Restricted Subsidiary, as the case may be, and that the loss thereof is not disadvanta-geous in any material respect to the Banks. 6.06 Visitation Rights. From time to time and so long as any visit or ----------------- inspection will not unreasonably interfere with the operations of the Company and its Restricted Subsidiaries, upon reasonable notice, permit the Agent and any Bank or any agents or representatives thereof to examine the financial records and books of account of, and visit and inspect the properties of, the Company and any such Restricted Subsidiary, and to discuss the affairs, finances and accounts of the Company and any such Restricted Subsidiary with any of their respective officers or directors. ARTICLE VII NEGATIVE COVENANTS So long as any Bank shall have any Commitment hereunder, the Swingline Bank shall have any Swingline Commitment, or any Note shall remain unpaid, the Company will not, unless the Majority Banks waive compliance in writing: 7.01 Leverage Ratio. Permit, as of the last day of any fiscal --------------- quarter, its ratio of (a) the aggregate outstanding principal amount of Total Senior Debt to (b) Total Capitalization to be greater than 50%. 7.02 Liens. Fail to perform and observe any term, covenant or ----- agreement contained in Section 3.7 of the Senior Debt Indenture (as modified for purposes hereof as set forth in the proviso to the next sentence hereof). For the purposes of this Section 7.02, Section 3.7 and the definitions of all terms defined in the Senior Debt Indenture and used in or otherwise applicable to such Section 3.7 are hereby incorporated in this Agreement by reference as if such provisions and definitions were set forth in full herein; provided, -------- however, that solely for the purposes of this Section 7.02 the word - ------- "Securities" as used in the Senior Debt Indenture shall mean the Notes, the ---------- phrase "this Section 3.7" used therein shall mean this Section 7.02, and the word "Issuer" used therein shall mean the Company. ARTICLE VIII EVENTS OF DEFAULT 8.01 Event of Default. Any of the following shall constitute an ---------------- "Event of Default": ------------------ (a) Non-Payment. The Company fails to pay, (i) any principal on any ----------- Note when such principal is due and payable, (ii) any interest on any Note within five days after such interest becomes due and payable, or (iii) the commitment fee set forth in Section 2.12 within 15 days after such commitment fee becomes due and payable; or (b) Representation or Warranty. Any representation or warranty made -------------------------- by the Company or any Responsible Officer (including representations and warranties deemed made pursuant to Section 4.02) under or in connection with any Loan Document is incorrect in any material respect on or as of the date made or deemed made; or (c) Specific Defaults. The Company fails to perform or observe any ----------------- term, covenant or agreement contained in any of Sections 6.02(c), 6.02(f), 6.02(g), 7.01 or 7.02; or (d) Other Defaults. The Company fails to perform or observe any -------------- other term or covenant contained in this Agreement, and such default shall continue unremedied for a period of 30 days after written notice thereof is given to the Company by the Agent at the request of any Bank; or (e) Cross-Default. The Company or any Restricted Subsidiary (i) fails to ------------- make any payment of principal of or premium or interest on (A) any Debt outstanding under the 364-Day Credit Agreement, or (B) any Debt (other than Debt described in clause (iv) of the definition of Debt) which is outstanding in the principal amount of at least $100,000,000 in the aggregate of the Company or such Restricted Subsidiary (as the case may be), when such payment in respect of Debt described in clause (A) or (B) becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), and such failure continues after the applicable grace or notice period, if any, in effect on the date of such failure, event or condition in the agreement or instrument relating to any such Debt; or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Debt (other than Debt described in clause (iv) of the definition of Debt) and such failure continues after the applicable grace or notice period in effect on the date of such failure, event or condition, if any, if the effect of such failure, event or condition is to cause any such Debt to be declared to be due and payable prior to its stated maturity; or (f) Insolvency; Voluntary Proceedings. The Company or any Restricted --------------------------------- Subsidiary (i) generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) commences any Insolvency Proceeding with respect to itself; or (iii) takes any corporate action to effectuate or authorize any of the foregoing; or (g) Involuntary Proceedings. Any involuntary Insolvency Proceeding is ----------------------- commenced or filed against the Company or any Restricted Subsidiary, and such Involuntary Proceeding is not released, vacated or stayed within 60 days after the commencement or filing thereof; or (h) Judgments. Any judgment or order for the payment of money in excess --------- of $100,000,000 shall be rendered against the Company and remain unsatisfied and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) Change in Control. There shall occur a Change in Control of the ------------------ Company. 8.02 Remedies. If any Event of Default shall occur and be -------- continuing, the Agent shall, at the request of, or may, with the consent of, the Majority Banks, (a) by notice to the Company, declare the obligation of each Bank to make Loans, including the obligation of the Swingline Bank to make Swingline Loans, be terminated, whereupon such obligations shall be terminated; (b) by notice to the Company, declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document, to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise on behalf of itself and the Banks all other rights and remedies available to it and the Banks under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in -------- ------- subsection (f) or (g) of Section 8.01 (in the case of subsection (g) upon the expiration of the 60-day period mentioned therein), the obligation of each Bank to make Loans, including the obligation of the Swingline Bank to make Swingline Loans, shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Agent or any Bank. 8.03 Rights Not Exclusive. The rights provided for in this Agreement -------------------- and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity. ARTICLE IX THE AGENT 9.01 Appointment and Authorization. Each Bank hereby irrevocably ----------------------------- appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have 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. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement and in any other Loan Document with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. 9.02 Delegation of Duties. The Agent may execute any of its duties -------------------- under this Agreement or any other Loan Document by or through agents, employees 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 agent or attorney-in-fact that it selects with reasonable care. 9.03 Liability of Agent. None of the Agent-Related Persons shall (i) ------------------ be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in 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 the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person 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 any other Loan Document, or to inspect the properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 9.04 Reliance by Agent. (a) The Agent shall be entitled to rely, ------------------ and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or 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 counsel to the Company), independent accountants and other experts selected by 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 Majority Banks as it deems appropriate and, if it so requests, 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 or any other Loan Document in accordance with a request or consent of the Majority Banks or all of the Banks if required by Section 10.01 and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in Section 4.01, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank. 9.05 Notice of Default. The Agent shall not be deemed to have ------------------- knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Banks, unless the Agent shall have received written 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". The Agent will notify the Banks of its receipt of any such notice. The Agent shall take such action with respect to such Default or Event of Default as may be requested by the Majority Banks in accordance with Article VIII; provided, however, that unless and until the -------- ------- Agent has received any such request, 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 or in the best interest of the Banks. 9.06 Credit Decision. Each Bank acknowledges that none of the ---------------- Agent-Related Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Company hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Agent, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Agent-Related Persons. 9.07 Indemnification. Whether or not the transactions contemplated --------------- hereby are consummated, the Banks shall indemnify upon demand the Agent- Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), pro rata, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent-Related Persons in any way relating to or arising out of the Loan Documents or any action taken or omitted by an Agent-Related Person, provided, -------- however, that no Bank shall be liable for the payment to the Agent-Related - ------- Persons of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Person's gross negligence or willful misconduct. IT IS THE INTENTION OF THE BANKS THAT EACH AGENT-RELATED PERSON SHALL, TO THE EXTENT PROVIDED IN THIS SECTION 9.07, BE INDEMNIFIED FOR ITS ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE. Without limitation of the foregoing, each Bank shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) 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, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Company. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent. 9.08 Agent in Individual Capacity. The Bank serving as Agent and its ---------------------------- Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though the Bank serving as Agent were not the Agent hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, the Bank serving as Agent or its Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary) and acknowledge that the Agent shall be under no obligation to provide such information to them. With respect to its Loans, the Bank serving as Agent shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" include the Bank serving as Agent in its individual capacity. 9.09 Successor Agent. The Agent may, and at the request of the --------------- Majority Banks shall, resign as Agent upon 30 days' prior written notice to the Banks and the Company. If the Agent resigns under this Agreement, the Majority Banks shall appoint from among the Banks a successor agent for the Banks which successor agent shall be subject to approval by the Company. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Banks and the Company, a successor agent from among the Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article IX and Sections 3.01, 10.04 and 10.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder and under any other Loan Document until such time, if any, as the Majority Banks appoint a successor agent as provided for above. Notwithstanding the foregoing, however, BofA may not be removed as the Agent at the request of the Majority Banks unless BofA shall also simultaneously be replaced as Swingline Bank hereunder pursuant to documentation in form and substance reasonably satisfactory to BofA. 9.10 Withholding Tax. (a) If any Bank is a foreign corporation, --------------- foreign partnership or foreign trust within the meaning of the Code and such Bank claims exemption from, or a reduction of, United States withholding tax under Sections 1441 or 1442 of the Code, such Bank agrees with and in favor of the Agent, to deliver to the Agent: (i) if such Bank claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, two properly completed and executed IRS Forms 1001 and W-8 at least 30 days before the payment of any interest is due in the first calendar year and at least 30 days before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Bank claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Bank, two properly completed and executed copies of IRS Form 4224 at least 30 days before the payment of any interest is due in the first taxable year of such Bank and in each succeeding taxable year of such Bank during which interest may be paid under this Agreement; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. The Agent shall deliver one copy of each such form to the Company. Such Bank agrees to promptly notify the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Bank claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank, such Bank agrees to notify the Agent (which in turn shall notify the Company) of the percentage amount in which it is no longer the beneficial owner of Obligations of the Company to such Bank. To the extent of such percentage amount, the Agent (and the Company) will treat such Bank's IRS Form 1001 as no longer valid. (c) If any Bank claiming exemption from United States withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank, such Bank agrees to notify the Agent (which in turn shall notify the Company) of the percentage amount in which it is no longer the beneficial owner of Obligations of the Company to such Bank. To the extent of such percentage amount, the Agent (and the Company) will treat such Bank's Form 4224 as no longer valid. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Bank an amount equivalent to the applicable withholding tax after taking into account such eduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to the Agent, then the Agent may withhold from any interest payment to such Bank not providing such forms or other documentation an amount equivalent to the applicable withholding tax (without taking into account such reduction). (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered, was not properly executed, or because such Bank failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Bank shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Banks under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Agent. 9.11 Co-Agents; Internet Agents. No Bank identified on the facing -------------------------- page or signature pages of this Agreement solely as a "co-agent," "syndication agent" or "Internet agent" shall have any right, power, obligation, liability, responsibility or duty as such under this Agreement other than those applicable to all Banks. Without limiting the foregoing, no Bank so identified as a "co-agent," "syndication agent" or "Internet agent" shall have or be deemed to have any fiduciary relationship with any Bank. Each Bank acknowledges that it has not relied, and will not rely, on any of the Banks so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. ARTICLE X MISCELLANEOUS 10.01 Amendments and Waivers. No amendment or waiver of any ------------------------ provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Majority Banks and acknowledged by the Agent, and then such waiver shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that -------- ------- no such waiver, amendment, or consent shall, except as set forth below, do any of the following: (a) increase or extend the Commitment of any Bank (except as provided in Section 2.06) or reinstate any Commitment of any Bank terminated pursuant to Section 8.02 or Section 2.09(b), unless such waiver, amendment or consent is in writing and signed by such Bank and acknowledged by the Agent; (b) postpone or delay any date fixed for any payment of principal, interest or fees due to any Bank hereunder or under any Loan Document, unless such waiver, amendment or consent is in writing and signed by such Bank and acknowledged by the Agent; (c) reduce the principal of, or the rate of interest specified herein on any Revolving Loan made by any Bank, or any fees payable hereunder or under any other Loan Document to any Bank, unless such waiver, amendment or consent is in writing and signed by such Bank and acknowledged by the Agent; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes which is required for the Banks or any of them to take any action hereunder, unless such waiver, amendment or consent is in writing and signed by all the Banks and acknowledged by the Agent; or (e) amend this Section or any provision herein providing for consent or other action by all Banks, unless such waiver, amendment or consent is in writing and signed by all the Banks and acknowledged by the Agent; and, provided further, that (i) no amendment, waiver or consent shall, unless -------- ------- in writing and signed by the Agent in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Agent under this Agreement or any other Loan Document, and (ii) no amendment, waiver or consent shall, unless in writing and signed by the Swingline Bank in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Swingline Bank under this Agreement or any other Loan Document. 10.02 Notices. (a) All notices, requests and other communications ------- shall be in writing (including, unless the context expressly otherwise provides, by telecopier transmission, provided that any matter transmitted by telecopier shall be immediately preceded or confirmed by a telephone call to the recipient at the number specified on Schedule 10.02), and mailed, telecopied or delivered, to the address or telecopier number specified for notices on Schedule 10.02; or, as directed to the Company or the Agent, to such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Company and the Agent. (b) All such notices, requests and communications shall be effective, if sent by overnight courier, one Business Day after delivery to the courier company; if sent by telecopier, when received in legible form by the receiving telecopier equipment; if mailed, upon the fifth Business Day after the date deposited into the U.S. mail; or if delivered, upon delivery; provided that -------- (i) notices pursuant to Article II or IX shall not be effective until actually received by the Agent, and (ii) telecopied notices received by any party after its normal business hours (or on a day other than a Business Day) shall be effective on the next Business Day. (c) Any agreement of the Agent and the Banks herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Agent and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Agent and the Banks shall not have any liability to the Company or other Person on account of any action taken or not taken by the Agent or the Banks in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Loans shall not be affected in any way or to any extent by any failure by the Agent and the Banks to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent and the Banks of a confirmation which is at variance with the terms understood by the Agent and the Banks to be contained in the telephonic or facsimile notice. 10.03 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 preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 10.04 Costs and Expenses. The Company shall: -------------------- (a) whether or not the transactions contemplated hereby are consummated, pay for all reasonable costs and expenses incurred by the Agent in connection with the preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby; limited, however, in the case of the preparation, execution and delivery of the Loan Documents, to the Attorney Costs of the Agent as more fully provided in that certain letter agreement between the Company and the Agent dated July 29, 1997; and (b) pay or reimburse the Agent and each Bank within five Business Days after demand for all costs and expenses (including reasonable Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). 10.05 Indemnity. The Company agrees, to the fullest extent permitted --------- by law, to indemnify and hold harmless the Agent--Related Persons, and each Bank and its respective directors, officers, employees and agents, from and against any and all claims, damages, liabilities and expenses (including, without limitation, reasonable Attorney Costs) for which any of them may become liable or which may be incurred by or asserted against the Agent-Related Persons, or such Bank or any such director, officer, employee or agent (other than by another Bank or any successor or assign of another Bank), in each case in connection with or arising out of or by reason of any investigation, litigation, or proceeding, whether or not the Agent or such Bank or any such director, officer, employee or agent is a party thereto, arising out of, related to or in connection with any Loan Document or any transaction in which any proceeds of all or any part of the Loans are applied or proposed to be applied, EXPRESSLY INCLUDING ANY SUCH CLAIM, DAMAGE, LIABILITY OR EXPENSE ARISING OUT OF THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH INDEMNIFIED PERSON (but excluding any such claim, damage, liability or expense to the extent attributable to the gross negligence or willful misconduct of, or violation of any law or regulation by, any such indemnified Person). The undertaking in this Section shall survive the payment of all Obligations hereunder. 10.06 Payments Set Aside. To the extent that the Company makes a ------------------ payment to the Agent or the Banks, or the Agent or the Banks exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Bank severally agrees to pay to the Agent upon demand its pro rata or other applicable share of any amount so recovered from or repaid by the Agent. 10.07 Binding Effect; Assignments; Participations. (a) This ---------------------------------------------- Agreement shall become effective when it shall have been executed by the Company and the Agent and when the Agent shall have, as to each Bank, received a copy (including one transmitted by telecopier) of a signature page hereof executed by such Bank and thereafter shall be binding upon and inure to the benefit of and be enforceable by the Company, the Agent and each Bank and their respective successors and assignees, subject to Section 10.07(e) and except that the Company shall not have the right to assign its rights or obligations hereunder or any interest herein without the prior written consent of the Banks (other than an assignment effectuated by operation of law pursuant to a Specified Transaction). (b) Each Bank may grant participations to one or more commercial banks or other Persons, in each case in accordance with applicable law, in or to all or any part of, the Loans owing to, or the Commitment of, such Bank and the Note held by such Bank subject to Section 10.07(e), and to the extent of any such participation (unless otherwise stated therein) the purchaser of such participation shall, to the fullest extent permitted by law, have the same rights to payment hereunder and under such Loan and Note as it would have if it were such Bank hereunder, provided that (x) the originating Bank's -------- obligations under this Agreement, including, without limitation, its commitment to make loans to the Company hereunder, 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 Company, the other 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; (y) no such participant shall be entitled to receive any greater payment pursuant to Sections 3.01, 3.03 and 3.05 than such Bank would have been entitled to receive with respect to the rights assigned except as a result of circumstances arising after the date of such participation to the extent that such circumstances affect other Banks and participants generally; and (z) no Bank shall grant a participation that conveys to the participant the right to vote or consent under this Agreement, other than the right to vote upon or consent to (i) any increase in the amount of such Bank's Commitment; (ii) any reduction of the principal amount of, or interest to be paid on, such Bank's Loan or Note; (iii) any reduction of the commitment fee payable to such Bank; or (iv) any postponement of the due date in respect of any amounts owed to such Bank under any Loan Document. (c) In accordance with applicable law, any Bank may assign a portion, in an amount of at least $10,000,000 of its Commitment (or, if less, the amount of its total Commitment), together with a ratable portion of its Loans and other rights and obligations hereunder to an Eligible Assignee, with the prior written consents of the Agent and (unless there has occurred and is continuing an Event of Default) the Company, which consents shall not be unreasonably withheld, subject to Section 10.07(e); provided, however, that -------- ------- after giving effect to any proposed assignment by a Bank of its Commitment (other than an assignment of its total Commitment), such Bank's Commitment shall be at least $25,000,000, unless the Company and the Agent shall each have agreed to a lesser amount; provided, further, that neither the Company's -------- ------- nor the Agent's consent shall be required for, and the minimum amount for assignment shall not apply to, any assignment to an Eligible Assignee which already is a Bank party to this Agreement. In connection with the assignment by the Swingline Bank of all of its Commitment and Loans hereunder, the Swingline Commitment and Swingline Loans shall be included as part of the assignment transaction. Each such assigning Bank and Eligible Assignee to which an assignment has been made pursuant to this Section 10.07(c) shall execute and deliver to the Agent an Assignment and Acceptance, pursuant to which, in the case of an Eligible Assignee to which such an assignment has been made which is not already a Bank, such Eligible Assignee shall become a party to this Agreement, provided that, in the case of each such assignment, -------- (i) at such time Schedule 2.01 shall be deemed to be modified to reflect the -------------- Commitments of such assignee Bank and of the existing Banks, (ii) the Company shall issue new Notes to such assignee Bank and to the assigning Bank, if applicable, to reflect the revised Commitments and (iii) the Agent shall receive at the time of such assignment, from the assigning or assignee Bank, a non-refundable assignment fee of $4,000. To the extent of any assignment pursuant to this Section 10.07(c), the assigning Bank shall be relieved of its obligations hereunder with respect to its assigned Commitment. (d) In addition to the assignments and participations permitted under Section 10.07(b) and (c), any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under this Agreement and the Notes held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. (e) Unless an Event of Default has occurred and is continuing, no assignments or participations shall result in a Bank (together with its Affiliates) holding Commitments, or participations therein, in excess of $200,000,000 without the prior written consent of the Company. 10.08 Set-off. In addition to any rights and remedies of the Banks ------- provided by law, if an Event of Default exists or the Loans have been accelerated, to the fullest extent permitted by applicable law each Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Bank to or for the credit or the account of the Company against any and all Obligations owing to such Bank, now or hereafter existing, irrespective of whether or not the Agent or such Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Company and the Agent after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall -------- ------- not affect the validity of such set-off and application. 10.09 Interest. (a) It is the intention of the parties hereto that the -------- Agent and each Bank shall conform strictly to usury laws applicable to it, if any. Accordingly, if the transactions with the Agent or any Bank contemplated hereby would be usurious under applicable law, if any, then, in that event, notwithstanding anything to the contrary in this Agreement, the Notes or any other agreement entered into in connection with this Agreement or the Notes, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, taken, reserved, charged or received by the Agent or such Bank, as the case may be, under this Agreement, the Notes or under any other agreement entered into in connection with this Agreement or the Notes shall under no circumstances exceed the maximum amount allowed by such applicable law and any excess shall be cancelled automatically and, if theretofore paid, shall be refunded by the Agent or such Bank, as the case may be, to the Company, and (ii) in the event that the maturity of any Loan or other obligation payable to the Agent or such Bank, as the case may be, is accelerated or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to the Agent or such Bank, as the case may be, may never include more than the maximum amount allowed by such applicable law and excess interest, if any, to the Agent or such Bank, as the case may be, provided for in this Agreement or otherwise shall be cancelled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall, at the option of the Agent or such Bank, as the case may be, be credited by the Agent or such Bank, as the case may be, on the principal amount of the obligations owed to the Agent or such Bank, as the case may be, by the Company or refunded by the Agent or such Bank, as the case may be, to the Company. To the extent that Article 5069-1.04 of the Texas Revised Civil Statutes is relevant to any Bank for the purposes of determining the Highest Lawful Rate, such Bank hereby elects to determine the applicable rate ceiling under such Article by the indicated (weekly) rate ceiling from time to time in effect, subject to such Bank's right to subsequently change such rate ceiling in accordance with applicable law. Tex. Rev. Civ. Stat. Ann. art. 5069, ch. 15 (which regulates certain revolving credit loan accounts and revolving triparty accounts) shall not apply to this Agreement or the Notes. (b) In the event that at any time the interest rate applicable to any Loan made by any Bank would exceed the Highest Lawful Rate, the rate of interest to accrue on the Loans by such Bank shall be limited to the Highest Lawful Rate, but shall accrue, to the extent permitted by law, on the principal amount of the Loans made by such Bank from time to time outstanding, if any, at the Highest Lawful Rate allowed by applicable law until the total amount of interest accrued on the Loans made by such Bank equals the amount of interest which would have accrued if the interest rates applicable to the Loans pursuant to Article II had at all times been in effect. In the event that upon the final payment of the Loans made by any Bank and termination of the Commitment of such Bank, the total amount of interest paid to such Bank hereunder is less than the total amount of interest which would have accrued if the interest rates applicable to such Loans pursuant to Article II had at all times been in effect, then the Company agrees to pay to such Bank, to the extent permitted by law, an amount equal to the excess of (a) the lesser of (i) the amount of interest which would have accrued on such Loans if the Highest Lawful Rate had at all times been in-effect or (ii) the amount of interest which would have accrued if the interest rates applicable to such Loans pursuant to Article II had at all times been in effect over (b) the amount of interest otherwise accrued on such Loans in accordance with this Agreement. 10.10 Confidentiality. (a) Each Bank and the Agent acknowledge that --------------- certain confidential and proprietary information of the Company (the "Information") is a valuable, special, and a unique asset of the Company. Each Bank and the Agent agree that they will use the care specified below to keep all Information in confidence, and will not use any Information except as provided in this Section, or disclose any portion of the Information to any third party without the prior written consent of the Company except as provided in this Section. Each Bank and the Agent covenant to use the care specified below to not disclose such Information on behalf of itself, its officers, directors, agents, employees, and affiliates. Each Bank and the Agent shall use the same degree of care to protect the confidentiality of all Information as such Bank or the Agent, as the case may be, uses to protect its own confidential and proprietary information (which it does not wish to have published or disseminated). (b) Information provided by the Company to any Bank or the Agent, which the Company in good faith regards as Information hereunder shall be clearly marked by the Company as "Confidential," "Proprietary," or bear any other appropriate notice indicating the sensitive nature of the Information. Any tangible Information not easily markable shall be transmitted by the Company to such Bank or the Agent under cover of written letter which clearly identifies the Information and designates it as confidential "Information". All information conveyed to such Bank or the Agent orally relating to plans, forecasts, products or other non-public information shall be deemed confidential "Information". (c) If any Bank or the Agent is confronted with legal action to disclose Information received under this Agreement or otherwise makes disclosures of confidential information under clauses (ii), (iii) or (iv) of Section 10.10(e) (other than any disclosure to a regulatory authority pursuant to an examination of the books, records or affairs of such Bank or Agent), such Bank or the Agent, as the case may be, shall (to the extent permitted by applicable law) promptly notify the Company. (d) All Information disclosed or furnished under this Agreement shall remain the property of the Company. At the Company's request, the Information in tangible form shall be promptly returned or destroyed, together with all copies thereof unless such return or destruction is contrary to law, regulation, legal process, administrative order, or administrative request having, or deemed to have, the force of law. Upon request, the appropriate Bank or the Agent, as the case may be, shall provide written certification of the destruction. (e) Notwithstanding the foregoing, each Bank and the Agent may disclose Information (i) as has become generally available to the public, (ii) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Bank or to the FRB, or the FDIC or similar organizations (whether in the United States or elsewhere), (iii) as may be required or appropriate in response to any summons or subpoena or in connec-tion with any litigation, (iv) in order to comply with any law, order, regulation or ruling applicable to such Bank, (v) to any regulatory authority pursuant to an examination of the books, records or affairs of any Bank or the Agent, (vi) to the prospective transferee in connection with any contemplated transfer of any of the Notes or any interest therein by such Bank, provided, -------- that such prospective transferee executes an agreement with the Company or the transferor containing provisions substantially identical to those contained in this Section, (vii) to the extent reasonably required in connection with any litigation or proceeding to which the Agent, any Bank or their respective Affiliates may be party, (viii) to such Bank's independent auditors and other professional advisors, (ix) to the extent reasonably necessary to disclose in connection with the exercise of any remedy hereunder and under the Notes, or (x) as to any Bank, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company is party or is deemed party with such Bank. 10.11 Preservation of Certain Matters. Notwithstanding any other term ------------------------------- or provision hereof to the contrary, any entity ceasing to be a "Bank" for purposes of this Agreement, by virtue of any matter or event contemplated by Section 2.07, 2.08, 3.06 or 10.07 shall retain any and all rights arising under Section 10.05, and shall continue to remain responsible to the Agent for all liabilities under Section 9.07 and Section 9.10 relating to matters occurring prior to the termination of such entity as a "Bank." 10.12 Notification of Addresses, Lending Offices, Etc. Each Bank shall ------------------------------------------------ notify the Agent in writing of any changes in the address to which notices to the Bank should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. 10.13 Counterparts. This Agreement may be executed in any number of ------------ separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same agreement. 10.14 Severability. The illegality or unenforceability of any ------------ provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 10.15 GOVERNING LAW; JURISDICTION.(A) THIS AGREEMENT AND THE NOTES --------------------------- SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF NEW YORK; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY -------------------- NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND THE BANKS EACH WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW. 10.16 WAIVER OF JURY TRIAL. THE COMPANY, THE BANKS AND THE AGENT -------------------- EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 10.17 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT AND THE LOAN 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. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. [REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
Company's Notice Address: COMPAQ COMPUTER CORPORATION Compaq Computer Corporation P.O. Box 692000, MS110701 20555 State Highway 24 By: /s/ Ben K. Wells ---------------------------------- Houston, TX 77269-2000 Name: Ben K. Wells www.compaq.com Title: Assistant Treasurer Attn:Richard Harris Director, Capital Markets Treasury Richard.Harris@compaq.com BANK OF AMERICA NATIONAL TRUST Tel: (281) 518-6024 AND SAVINGS ASSOCIATION, as Administrative Fax: (281) 514-7400 Agent and as Internet Agent By: /s/ Kevin M. McMahon ----------------------------------- Name: Kevin M. McMahon Title: Managing Director BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Swingline Bank and as a Bank By: /s/ Kevin M. McMahon ----------------------------------- Name: Kevin M. McMahon Title: Managing Director CITIBANK, N.A., as Syndication Agent and as a Bank By: /s/ James M. Walsh ----------------------------------- Name: James M. Walsh Title: Attorney-in-fact NATIONSBANK OF TEXAS, N.A., as Syndication Agent and as a Bank By: /s/ Timothy M. O'Connor ----------------------------------- Name: Timothy M. O'Connor Title: Vice President THE CHASE MANHATTAN BANK, as Syndication Agent and as a Bank By: /s/ David Staples ----------------------------------- Name: David Staples Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Internet Agent and as a Bank By: /s/ Jeffrey Hwang ----------------------------------- Name: Jeffrey Hwang Title: Vice President CARIPLO-CASSA DI RISPARMIO DELLE PROVINCIE LOMBARDE S.P.A. By: /s/ Anthony F. Giobbi ----------------------------------- Name: Anthony F. Giobbi Title: First Vice President By: /s/ Charles W. Kennedy ----------------------------------- Name: Charles W. Kennedy Title: First Vice President DEUTSCHE BANK AG, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ Ralf Hoffmann ----------------------------------- Name: Ralf Hoffmann Title: Vice President By: /s/ V. Shannon Sewsankar ----------------------------------- Name: V. Shannon Sewsankar Title: Assistant Vice President THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Cory M. Olson ----------------------------------- Name: Cory M. Olson Title: Authorized Agent FLEET NATIONAL BANK By: /s/ Frank Benesh ----------------------------------- Name: Frank Benesh Title: Vice President ING BANK N.V. By: /s/ Peter Nabney ----------------------------------- Name: Peter Nabney Title: General Manager By: /s/ Samantha de Foubert ----------------------------------- Name: Samantha de Foubert Title: Account Manager ROYAL BANK OF CANADA By: /s/ Brian W. Dixon ----------------------------------- For: Brian W. Dixon Title: Senior Manager BANCA COMMERCIALE ITALIANA, LOS ANGELES BRANCH By: /s/ Eduardo Bombieri ----------------------------------- Name: Eduardo Bombieri Title: Vice President & Manager By: /s/ Jack Wityak ----------------------------------- Name: Jack Wityak Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ Mark Marron ----------------------------------- Name: Mark Marron Title: Vice President BARCLAYS BANK PLC, NEW YORK BRANCH By: /s/ John Giannone ----------------------------------- Name: John Giannone Title: Director THE FUJI BANK, LIMITED, HOUSTON AGENCY By: /s/ Kenichi Tatara ----------------------------------- Name: Kenichi Tatara Title: Vice President & Manager NATIONAL AUSTRALIA BANK LIMITED By: /s/ Justin McCarty, III ----------------------------------- Name: Justin McCarty, III Title: Vice President BANCA DI ROMA, CHICAGO BRANCH By: /s/ Claudio Perna ----------------------------------- Name: Claudio Perna Title: Senior Vice President and Branch Manager By: /s/ Luigi Rocchi ----------------------------------- Name: Luigi Rocchi Title: Vice President BANCA MONTE DEI PASCHI DI SIENA, S.P.A. By: /s/ G. Natalicchi ----------------------------------- Name: G. Natalicchi Title: Senior Vice President & General Manager By: /s/ Brian R. Landy ----------------------------------- Name: Brian R. Landy Title: Vice President BANCA NAZIONALE DEL LAVORO S.P.A., NEW YORK BRANCH By: /s/ Giuliano Violetta ----------------------------------- Name: Giuliano Violetta Title: First Vice President By: /s/ Adolph S. Mascari ----------------------------------- Name: Adolph S. Mascari Title: Assistant Vice President BANCA POPOLARE DI MILANO, NEW YORK BRANCH By: /s/ Anthony Franco ----------------------------------- Name: Anthony Franco Title: Executive Vice President and General Manager By: /s/ Fulvio Montanri ----------------------------------- Name: Fulvio Montanri Title: First Vice President, Corporate Banking BANCO CENTRAL HISPANO AMERICANO, S.A., NEW YORK BRANCH By: /s/ Francesco Alcon ----------------------------------- Name: Francesco Alcon Title: Executive Vice President & General Manager BANK OF MONTREAL By: /s/ Bev Blucher ----------------------------------- Name: Bev Blucher Title: Senior Vice President THE BANK OF NEW YORK By: /s/ Alan Lyster ----------------------------------- Name: Alan Lyster Title: Vice President BANKBOSTON, N.A. By: /s/ Jay L. Massimo ----------------------------------- Name: Jay L. Massimo Title: Vice President BANQUE NATIONALE DE PARIS, HOUSTON AGENCY By: /s/ Thierry Bonetto ----------------------------------- Name: Thierry Bonetto Title: Deputy General Manager BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK AKTIENGELSELLSCHAFT, NEW YORK BRANCH By: /s/ Yoram Dankner ----------------------------------- Name: Yoram Dankner Title: Senior Vice President By: /s/ E.S. Atwell ----------------------------------- Name: E.S. Atwell Title: Vice President CORESTATES BANK, N.A. By: /s/ Scott Hoffman ----------------------------------- Name: Scott Hoffman Title: Vice President CREDITO ITALIANO By: /s/ Umberto Seretti /s/ Saiyed A. Abbas ------------------------------------------------------ Name: Umberto Seretti Saiyed A. Abbas Title: Vice President Assistant Vice President THE DAI-ICHI KANGYO BANK, LIMITED By: /s/ Seiji Imai ----------------------------------- Name: Seiji Imai Title: Vice President DEN DANSKE BANK AKTIESELSKAB, CAYMAN ISLANDS BRANCH By: /s/ John O'Neill ----------------------------------- Name: John O'Neill Title: Vice President By: /s/ Peter L. Hargraves ----------------------------------- Name: Peter L. Hargraves Title: Vice President DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH By: /s/ John W. Sweeney ----------------------------------- Name: John W. Sweeney Title: Assistant Vice President By: /s/ Denise M. Rohde ----------------------------------- Name: Denise M. Rohde Title: Assistant Treasurer THE INDUSTRIAL BANK OF JAPAN, LIMITED NEW YORK BRANCH By: /s/ Kazutoshi Kuwahara ----------------------------------- Name: Kazutoshi Kuwahara Title: Executive Vice President, Houston Office ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A. By: /s/ Robert Wurster ----------------------------------- Name: Robert Wurster Title: First Vice President By: /s/ Glen Binder ----------------------------------- Name: Glen Binder Title: Vice President KREDIET BANK N.V., GRAND CAYMAN BRANCH By: /s/ Robert Snauffer ----------------------------------- Name: Robert Snauffer Title: Vice President By: /s/ Tod R. Angus ----------------------------------- Name: Tod R. Angus Title: Vice President MARINE MIDLAND BANK By: /s/ John B Lyons ----------------------------------- Name: John B Lyons Title: Senior Vice President MELLON BANK, N.A. By: /s/ John M. Kailer ----------------------------------- Name: John M. Kailer Title: First Vice President NATIONAL WESTMINSTER BANK PLC, NEW YORK BRANCH By: /s/ Angela Bozorgmir ----------------------------------- Name: Angela Bozorgmir Title: Vice President NATIONAL WESTMINSTER BANK PLC, NASSAU BRANCH By: /s/ Angela Bozorgmir ----------------------------------- Name: Angela Bozorgmir Title: Vice President THE NORTHERN TRUST COMPANY By: /s/ John E. Burda ----------------------------------- Name: John E. Burda Title: Second Vice President PNC BANK, NATIONAL ASSOCIATION By: /s/ David J. Egan ----------------------------------- Name: David J. Egan Title: Senior Vice President THE SANWA BANK, LIMITED By: /s/ Matthew Patrick ----------------------------------- Name: Matthew Patrick Title: Vice President SKANDINAVISKA ENSKILDA BANKEN AB (PUBL), NEW YORK BRANCH By: /s/ Benjamin K.B. Young ----------------------------------- Name: Benjamin K.B. Young Title: Senior Account Executive By: /s/ Phillip F. Monternurro, Jr. ----------------------------------- Name: Phillip F. Monternurro, Jr. Title: Vice President SOCIETE GENERALE FINANCE (IRELAND) LIMITED By: /s/ Ther se Leonard ----------------------------------- Name: Therese Leonard Title: Account Manager By: /s/ Jacinta Conroy ----------------------------------- Name: Jacinta Conroy Title: Loans Administrator STANDARD CHARTERED BANK By: /s/ Peter G.R. Dodds ----------------------------------- Name: Peter G.R. Dodds Title: Vice President By: /s/ Kristina McDavid ----------------------------------- Name: Kristina McDavid Title: Vice President THE SUMITOMO BANK, LIMITED By: /s/ Harumitsu Seki ----------------------------------- Name: Harumitsu Seki Title: General Manager THE SUMITOMO TRUST & BANKING CO., LTD., LOS ANGELES AGENCY By: /s/ Ninoos Y. Benjamin ----------------------------------- Name: Ninoos Y. Benjamin Title: Vice President & Manager SWISS BANK CORPORATION, NEW YORK BRANCH By: /s/ Gary Riddell ----------------------------------- Name: Gary Riddell Title: Director By: /s/ James J. Diaz ----------------------------------- Name: James J. Diaz Title: Director TORONTO DOMINION BANK (TEXAS), INC. By: /s/ Darlene Riedel ----------------------------------- Name: Darlene Riedel Title: Vice President WELLS FARGO BANK, N.A. By: /s/ Ken Taylor ----------------------------------- Name: Ken Taylor Title: Assistant Vice President WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By: /s/ Alan S. Bookspan /s/ Thomas Lee ------------------------------------------------- Name: Alan S. Bookspan Thomas Lee Title: Vice President Associate EXHIBIT A --------- NOTICE OF BORROWING Bank of America National Trust and Savings Association, as Administrative Agent Agency Administrative Services #5596 1850 Gateway Blvd. Concord, CA 94520-3281 Attn: Compaq AO [Date] Ladies and Gentlemen: This Notice of Borrowing is delivered pursuant to Section [2.03] [2.05] of the $3,000,000,000 Revolving Credit Agreement, dated as of September 22, 1997 (together with all amendments, if any, from time to time made thereto, the "Credit Agreement"), among Compaq Computer Corporation, a Delaware corporation (the "Company"), certain Banks parties thereto and Bank of America National Trust and Savings Association, as administrative agent for such Banks. Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. The Company hereby irrevocably requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the "Proposed Borrowing") as required by Section [2.03(a)] [2.05(a)] of the Credit Agreement: (i) The Borrowing Date of the Proposed Borrowing is ________________, 199___. *[(ii) The type of Revolving Loans comprising the Proposed Borrowing is [Base Rate Revolving Loans] [Adjusted CD Rate Revolving Loans] [LIBOR Revolving Loans].] **[(ii) The type of Swingline Loan comprising the Proposed Borrowing is a [Base Rate Swingline Loan] [Adjusted CD Rate Swingline Loan] [LIBO Rate Swingline Loan].] - ------------------ * To be included for a Proposed Borrowing comprised of Revolving Loans. ** To be included for a Proposed Borrowing comprised of a Swingline Loan. (iii) The [aggregate] amount of the Proposed Borrowing is $___________. (iv) The duration of the Interest Period for each CD Loan or Offshore Loan made as part of the Proposed Borrowing is _______ (days) (months). The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing: (A) the representations and warranties contained in Article V of the Credit Agreement are true and correct in all material respects on and as of such Borrowing Date with the same effect as if made on and as of such Borrowing Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they are true and correct in all material respects as of such earlier date); and (B) no Default or Event of Default exists or shall result from such Proposed Borrowing. Very truly yours, COMPAQ COMPUTER CORPORATION By: Name: Title: EXHIBIT B --------- CONVERSION/CONTINUATION NOTICE Bank of America National Trust and Savings Association, as Administrative Agent Agency Administrative Services #5596 1850 Gateway Blvd. Concord, CA 94520-3281 Attn: Compaq AO [Date] Ladies and Gentlemen: This Conversion/Continuation Notice is delivered pursuant to Section 2.04 of the $3,000,000,000 Revolving Credit Agreement, dated as of September 22, 1997 (together with all amendments, if any, from time to time made thereto, the "Credit Agreement"), among Compaq Computer Corporation, a Delaware corporation (the "Company"), certain Banks parties thereto and Bank of America National Trust and Savings Association, as administrative agent for such Banks. Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. The Company hereby requests that on _____________, _____, (1) $__________ of the presently outstanding principal amount of the Revolving Loans originally made on ___________, 199__ [and $______________ of the presently outstanding principal amount of the Revolving Loans originally made on __________________, 199__], (2) all presently being maintained as *[Adjusted CD Rate Revolving Loans] [Base Rate Revolving Loans] [LIBOR Revolving Loans], (3) be [converted into] [continued as], - ------------------ * Select appropriate interest rate option. (4) **[Adjusted CD Rate Revolving Loans having as Interest Period of ___ days] [LIBOR Revolving Loans having an Interest Period of ___ months] [Base Rate Revolving Loans]. The Company has caused this Conversion/Continuation Notice to be executed and delivered this _____ day of _____________, _____. COMPAQ COMPUTER CORPORATION By: Name: Title: - ------------------ ** Unless otherwise agreed, a Revolving Loan cannot be converted into or continued as an Adjusted CD Rate Revolving Loan or a LIBOR Revolving Loan with an Interest Period exceeding one month (in the case of a LIBOR Revolving Loan) or 30 days (in the case of an Adjusted CD Rate Revolving Loan) during the existence of a Default or Event of Default. EXHIBIT C --------- COMPLIANCE CERTIFICATE This Compliance Certificate is delivered pursuant to Section 6.02 of the $3,000,000,000 Revolving Credit Agreement dated as of September 22, 1997 (together with all amendments, if any, from time to time made thereto, the "Credit Agreement") among Compaq Computer Corporation, a Delaware corporation (the "Company"), certain Banks parties thereto and Bank of America National Trust and Savings Association, as adminis-trative agent for such Banks. Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. The undersigned certifies, represents and warrants as follows: (a) The Leverage Ratio of the Company as of ___________, 19__ was ____%. [Insert calculation in reasonable detail] (b) There exists on the date of this Compliance Certificate no Default or Event of Default under the Credit Agreement. EXECUTED AND DELIVERED this ____ day of ______________, _____. COMPAQ COMPUTER CORPORATION By: Name: Title: EXHIBIT D-1 ----------- [Date] To each of the Banks parties to the $3,000,000,000 Revolving Credit Agreement dated as of September 22, 1997 among Compaq Computer Corporation, such Banks, Bank of America National Trust and Savings Association, as administrative agent and as Internet agent, The Chase Manhattan Bank, Citibank, N.A. and NationsBank of Texas, N.A., as syndication agents, and Morgan Guaranty Trust Company of New York, as Internet agent Re: Compaq Computer Corporation Revolving Credit Agreement ----------------------------------------------------------- Ladies and Gentlemen: As Vice President and Assistant General Counsel of Compaq Computer Corporation, a Delaware corporation (the "Company"), I am familiar with the $3,000,000,000 Revolving Credit Agreement dated as of September 22, 1997 (the "Credit Agreement") among the Company, the Banks listed on the signature pages thereof, Bank of America National Trust and Savings Association, as administrative agent for such Banks (the "Agent") and as Internet agent, The Chase Manhattan Bank, Citibank, N.A. and NationsBank of Texas, N.A., as syndication agents, and Morgan Guaranty Trust Company of New York, as Internet agent. In such capacity, I am also familiar with the Certificate of Incorporation and Bylaws of the Company and the corporate records of the Company. This opinion is being furnished to you pursuant to Section 4.01(d) of the Credit Agreement. Terms used herein but not defined herein shall have the same meaning ascribed to such terms in the Credit Agreement. Before rendering this opinion, I (or other attorneys with the Company's legal department acting under my direction) have examined the Credit Agreement and the Loan Documents, and have examined and relied upon originals or photostatic or certified copies of such corporate records, certificates of officers of the Company and of public officials, and such agreements, documents and instru-ments, and have made such investigations of law, as I or such other attorneys have deemed relevant and necessary as the basis for the opinion hereinafter expressed. In such examination, I or such other attorneys assumed the genuineness of all signatures (other than signatures of officers of the Company on the Loan Documents), the authenticity of all documents submitted to us as originals, and the conformity to original documents of all documents submitted to us as photostatic or certified copies. On the basis of the foregoing, I am of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except to the extent failure to obtain such licenses, authorizations, consents or approvals would not materially adversely affect the business, consolidated financial position or consolidated results of operations of the Company and its Subsidiaries taken as a whole. 2. The execution, delivery and performance by the Company- of the Loan Documents are within the Company's corporate powers, have been duly authorized by all necessary corporate action on the part of the Company, and do not contravene, or constitute a default under, (a) the Restated Certificate of Incorporation or Bylaws of the Company, (b) any contractual restriction contained in any material (meaning for the purposes of this opinion those creating a monetary liabi-lity of $50,000,000 or more) indenture, loan or credit agree-ment, receivables sale or financing agreement, lease financing agreement, capital lease, mortgage, security agreement, bond or note, or any guaranty of any of such obligations to which the Company is a party, or, to my knowledge, any other agreement or instrument to which the Company is a party, or (c) any judgment, injunction, order or decree known to me to be binding upon the Company. The execution, delivery and performance by the Company of the Loan Documents will not result in the creation or imposi-tion of any lien, security interest or other charge or encumbrance on any asset of the Company. The Credit Agreement and the Notes have been duly executed and delivered by the Company. 3. No Governmental Approval (as such term is hereinafter defined) is required to be made or obtained by the Company for the execution, delivery and performance by the Company of the Loan Documents. As used herein, the term "Government Approval" means any notice to, filing or registration with, or consent, authorization, or approval that is, in my experience, normally required in a transaction of the type evidenced by the Loan Documents and that is to be made with or rendered by (x) the federal government of the United States or any agency or instrumentality thereof; (y) the state of Texas or any political subdivision thereof, but excluding any laws, rules or regulations relating to (i) pollution or protection of the environment, (ii) zoning, land use, building or construction, (iii) labor, employee rights and benefits, and occupational safety and health, and (iv) utility regulation, state and federal securities and blue sky laws, rules or regulations of any county, municipality, or similar political subdivision or any agency or instrumentality thereof. 4. Except as disclosed in the Company's Form 10-K for the year ended December 31, 1996, or the Company's Forms 10-Q for the quarters ended March 31 and June 30, 1997, there is no action, suit or proceeding pending or, to my knowledge, threatened against the Company or any of its Subsidiaries before any court or arbitrator or any governmental agency, in which there is a reasonable possibility of an adverse decision which could materially adversely affect the consolidated financial condition or operations of the Company and its Subsidiaries taken as a whole or which in any manner draws into question the validity of the Credit Agreement or any other Loan Document. 5. Neither the Company nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 6. Neither the Company nor any Subsidiary is a "holding company", a "subsidiary company" of a "holding company", an "affiliate" of a "holding company" or an "affiliate" of a "subsidiary company" of a "holding company", in each case as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. The opinions set forth above are subject to the following qualifications: (a) In rendering the opinions expressed in paragraph 2 above, neither I nor any other attorney acting under my direction have made any examination of any accounting or financial matters related to financial covenants contained in certain documents to which the Company may be subject, and I express no opinion with respect thereto. (b) This opinion is limited in all respects to the laws of the State of Texas and the General Corporation Law of the State of Delaware and Federal law. (c) In rendering the opinion expressed in paragraph 4 above, I (or the other attorneys acting under my direction) have only reviewed the files and records of the Company and its Subsidiaries, and we have consulted with such senior officers of the Company and its Subsidiaries as we have deemed necessary. This opinion is solely for the benefit of the Banks, the Agent and their respective successors, assigns and participants and may not be relied upon in connection with any other transaction or by any other person. Very truly yours, /S/ Linda S. Auwers --------------------- Linda S. Auwers Vice President and Assistant General Counsel EXHIBIT D-2 ----------- (713) 758-3516 (713) 615-5381 September 22, 1997 To Each of the Banks Parties to the $3,000,000,000 Revolving Credit Agreement dated as of September 22, 1997 among Compaq Computer Corporation, such Banks, Bank of America National Trust and Savings Association, as Administrative Agent and as Internet Agent, The Chase Manhattan Bank, Citibank, N.A. and NationsBank of Texas, N.A., as Syndication Agents and Morgan Guaranty Trust Company of New York, as Internet Agent Re: Compaq Computer Corporation Revolving Credit Agreement Ladies and Gentlemen: This opinion is furnished to you pursuant to Section 4.01(d) of the $3,000,000,000 Revolving Credit Agreement, dated as of September 22, 1997 (the "Credit Agreement"), among Compaq Computer Corporation (the "Company"), the Banks parties thereto, Bank of America National Trust and Savings Association, as Administrative Agent and Internet Agent for such Banks, The Chase Manhattan Bank, Citibank, N.A., and NationsBank of Texas, N.A., as syndication agents, and Morgan Guaranty Trust Company of New York, as Internet Agent. Except as otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. We have acted as counsel for the Company in connection with the preparation, execution, delivery and effectiveness of the Credit Agreement and the other Loan Documents. In that connection, we have examined: (1) The Credit Agreement; (2) The Notes (together with the Credit Agreement, the "Loan Documents"); and (3) Such other materials as we have deemed necessary to render the opinions provided herein. We have also made such investigations of law as we have deemed necessary and relevant as a basis for our opinion. As to various questions of fact material to our opinion, we have, with your permission and without independent verification, relied upon the representations made in the Loan Documents. Based upon the foregoing, and subject to the qualifications, exceptions, limitations and assumptions set forth herein, we are of the opinion that: (i) Under the laws of the State of New York, the Loan Documents constitute the legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms; (ii) None of the execution or delivery by the Company of the Loan Documents or the borrowing or repayment by the Company of the loans evidenced by the Loan Documents contravenes any provision of Applicable Law. For the purposes of this clause (ii), "Applicable Law" means any law, rule, or regulation that is, in our experience, normally applicable in a transaction of the type evidenced by the Loan Documents and that is enacted or promulgated by (1) the federal government of the United States or any agency or instrumentality thereof (including, without limitation, Regulations G, U, and X promulgated by the Board of Governors of the Federal Reserve System), or (2) the State of New York or any political subdivision thereof, but excluding any laws, rules, or regulations of any county, municipality or similar political subdivision or any agency or instrumentality thereof. The opinions set forth herein are subject in all respects to the following qualifications, limitations, exceptions and assumptions: (a) The opinions set forth above are subject, as to enforceability, to the effects of any applicable bankruptcy (including, without limitation, preference and fraudulent conveyance), insolvency, reorganization, moratorium or similar laws affecting creditor's rights generally. The opinions set forth above are also subject, as to enforceability, to the effects of general principles of equity (regardless of whether considered in proceedings in equity or at law), including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, and the possible unavailability of specific performance or injunctive relief. (b) In rendering the opinions set forth herein, we have assumed, with your permission and without independent verification (i) the due authorization, execution and delivery of the Loan Documents by all parties to such Loan Documents (other than the Company) and that each such Loan Document is valid, binding and enforceable against the parties thereto other than the Company, (ii) the legal capacity of natural persons, (iii) the genuineness of all signatures, (iv) the authenticity of all documents submitted to us as originals, and (v) the conformity to original documents of all documents submitted to us as copies. (c) In rendering the opinions set forth above, we have, with your permission and without independent verification, relied upon the opinion of Linda S. Auwers, Vice President and Assistant General Counsel of the Company, dated of even date herewith, with respect to the following matters: (i) the due incorporation, valid existence and good standing of the Company under the laws of the State of Delaware, (ii) the Company's corporate power and authority to execute, deliver and perform the Loan Documents, (iii) the Company's having duly authorized, executed and delivered the Loan Documents, and (iv) the Company's execution, delivery and performance of the Loan Documents do not and will not violate or conflict with, result in a breach of, or constitute a default under (A) the certificate of incorporation or by-laws of the Company, (B) any material agreement to which the Company is a party or by which the Company or any of its properties may be bound, or (C) any order applicable to the Company of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over the Company or any of its properties (d) In rendering our opinions set forth herein, we have assumed, with your permission and without independent verification, that (i) the Company is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended; and (ii) the Company is not a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. (e) We express no opinion with respect to the following provisions to the extent that the same are contained in the Loan Documents: (i) provisions purporting to waive notices, objections, demands, legal defenses, statutes of limitation, rights to trial by jury, and other benefits and rights that cannot be waived under applicable law; (ii) provisions granting one party a power of attorney or authority to execute documents on behalf of another party; and (iii) provisions releasing, exculpating or exempting a party from, or requiring the indemnification of a party for, liability for its own action or inaction, to the extent that the same are inconsistent with public policy. (f) In rendering our enforceability opinion with respect to provisions providing for the appointment of an agent for service of process on behalf of the Company, we have assumed that such agent will provide timely notice to the Company of the commencement of legal proceedings. (g) We have not been called upon to, and accordingly do not, express any opinion as to the various state and federal laws regulating banks or the conduct of their business that may relate to the Loan Documents or the transactions contemplated thereby. Without limiting the generality of the foregoing, we express no opinion as to the effect of the law of any jurisdiction other than the State of New York wherein the Administrative Agent may be located or where an enforcement of the Loan Documents may be sought that limits the rates of interest chargeable or collectible. (h) The opinions expressed herein are as of the date hereof only, and we assume no obligation to update or supplement such opinions to reflect any fact or circumstance that may hereafter come to our attention or any change in law that may hereafter occur or become effective. (i) The foregoing opinions and conclusions were given only in respect of the laws of the State of New York and, to the extent specifically referred to herein, the Federal laws of the United States of America. This opinion has been delivered at your request for the purposes contemplated by the Credit Agreement. Without our prior written consent, this opinion is not to be utilized or quoted for any other purpose (other than (i) to participants, prospective Eligible Assignees and prospective participants, (ii) to governmental authorities having jurisdiction over any Bank or participant, and (iii) pursuant to legal process) and no one other than you or Eligible Assignees hereafter becoming parties to the Credit Agreement is entitled to rely thereon; provided that Linda S. Auwers, Vice President and Assistant General Counsel of the Company, may rely on this opinion for the purposes of rendering her opinion in connection with the Loan Documents. Very truly yours, /s/ VINSON & ELKINS L.L.P. ----------------------------- VINSON & ELKINS L.L.P. EXHIBIT E --------- PROMISSORY NOTE U.S. $__________ Dated: September 22, 1997 FOR VALUE RECEIVED, the undersigned, Compaq Computer Corporation, a Delaware corporation (the "Company"), HEREBY PROMISES TO PAY to the order of __________________________________________________ (the "Bank") for the account of its applicable Lending Office (as defined in the Credit Agreement referred to below) on the Revolving Termination Date (as defined in the Credit Agreement) the principal sum of __________________ U.S. dollars (U.S. $__________) or, if less, the aggregate unpaid principal amount of the [Revolving] Loans (as defined in the $3,000,000,000 Revolving Credit Agreement dated as of September 22, 1997, among the Company, the Bank, certain other lenders parties thereto, Bank of America National Trust and Savings Association, as administrative agent and as Internet agent, The Chase Manhattan Bank, Citibank, N.A. and NationsBank of Texas, N.A., as syndication agents, and Morgan Guaranty Trust Company of New York, as Internet agent; such Revolving Credit Agreement, as amended from time to time being herein referred to as the "Credit Agreement") owing to the Bank outstanding on the Revolving Termination Date (as defined in the Credit Agreement) [, together with the principal amount of any outstanding Swingline Loans (as defined in the Credit Agreement) made by the Bank as Swingline Bank (as defined in the Credit Agreement)]. The Company promises to pay interest on the unpaid principal amount of each Loan owing to the Bank from the date of such Loan until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to Bank of America National Trust and Savings Association, as Administrative Agent, at the Agent's Payment Office (as defined in the Credit Agreement), in immediately available funds. Each Loan owed to the Bank by the Company pursuant to the Credit Agreement, and all payments made on account of principal thereof, shall be recorded by the Bank and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Promissory Note; provided that the failure of the Bank to make any such -------- recordation or endorsement shall not affect the obligations of the Company hereunder or under the Credit Agreement. This Promissory Note is one of the Notes referred to in, and is subject to and is entitled to the benefits of, the Credit Agreement. The Credit Agreement, among other things, (i) provides for the making of [Revolving] Loans by the Bank to the Company from time to time in an aggregate amount not to exceed the U.S. dollar amount first above mentioned [and the making of Swingline Loans by the Bank as Swingline Bank to the Company from time to time in an aggregate amount not to exceed the Swingline Commitment (as such terms are defined in the Credit Agreement)], the indebtedness of the Company resulting from each Loan owing to the Bank being evidenced by this Promissory Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. This Promissory Note shall be governed by, and construed in accordance with, the internal laws of the State of New York. COMPAQ COMPUTER CORPORATION By: Name: Title: LOANS AND PAYMENTS OF PRINCIPAL Amount of Amount Principal Unpaid of Type of Paid or Principal Notation Date Loan Loan Prepaid Balance Made By - ---- ------ ------- --------- --------- -------- EXHIBIT F --------- ASSIGNMENT AND ACCEPTANCE AGREEMENT This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and --------------- Acceptance"), dated as of __________, _____, is made between ____________________ (the "Assignor") and ____________________ (the -------- "Assignee"). RECITALS -------- WHEREAS, the Assignor is party to the $3,000,000,000 Revolving Credit Agreement dated as of September 22, 1997 (as the same may be extended, renewed, amended or restated from time to time, the "Credit Agreement"), among ---------------- COMPAQ COMPUTER CORPORATION (the "Company"), the financial institutions from ------- time to time party thereto (including the Assignor, the "Banks") and BANK OF ----- AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as administrative agent for the Banks (in such capacity, the "Agent"). Any terms defined in the Credit ----- Agreement and not defined in this Assignment and Acceptance are used herein as defined in the Credit Agreement; WHEREAS, as provided under the Credit Agreement, the Assignor has committed to making [(i)] Revolving Loans to the Company in an aggregate amount not to exceed $__________ (the "Commitment") [, and (ii) Swingline ---------- Loans to the Company in an aggregate amount not to exceed $__________ (the "Swingline Commitment")]; ------------------- WHEREAS, the [Assignor has made Revolving Loans in the aggregate principal amount of $__________ to the Company] and [Swingline Loans in the aggregate principal amount of $__________ to the Company] [no Revolving Loans [or Swingline Loans] are outstanding under the Credit Agreement]; and WHEREAS, the Assignor wishes to assign to the Assignee [part of the] [all] rights and obligations of the Assignor under the Credit Agreement in respect of [(i)] its Commitment in an amount equal to $__________, [together with a ratable portion of its outstanding Revolving Loans] [and (ii) its Swingline Commitment in an amount equal to $__________, [together with a ratable portion of its outstanding Swingline Loans], in an aggregate amount equal to $___________] (collectively, the "Assigned Amount"), on the terms and --------------- subject to the conditions set forth herein, and the Assignee wishes to accept assignment of such rights and to assume such obligations from the Assignor on such terms and subject to such conditions; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: 1. Assignment and Acceptance. --------------------------- (a) Subject to the terms and conditions of this Assignment and Acceptance, (i) the Assignor hereby sells, transfers and assigns to the Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from the Assignor, without recourse and without representation or warranty (except as provided in this Assignment and Acceptance) __% (the "Assignee's Percentage --------------------- Share") of (A) the Commitment [and the corresponding Revolving Loans,] [and - ----- the Swingline Commitment [and the corresponding Swingline Loans]] of the Assignor, and (B) all related rights, benefits, obligations, liabilities and indemnities of the Assignor under and in connection with the Credit Agreement and the Loan Documents. [If appropriate, add paragraph specifying payment to Assignor by Assignee of outstanding principal of, accrued interest on, and fees with respect to, Revolving Loans [and Swingline Loans] assigned.] (b) With effect on and after the Effective Date (as defined herein), the Assignee shall be a party to the Credit Agreement and succeed to all of the rights and be obligated to perform all of the obligations of a Bank [and the Swingline Bank] under the Credit Agreement, including the requirements concerning confidentiality and the payment of indemnification, with a Commitment [and the Swingline Commitment] in an [aggregate] amount equal to the Assigned Amount. The Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank [and the Swingline Bank]. It is the intent of the parties hereto that the Commitment of the Assignor shall, as of the Effective Date, be reduced pro rata by an amount equal to the Assigned Amount relating thereto [and the Swingline Commitment shall be entirely assumed by the Assignee,] and the Assignor shall relinquish its rights (except its rights with respect to indemnification or compensation arising out of an event occurring before the Effective Date) and be released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. (c) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignee's Commitment will be $__________[, and the Assignee's Swingline Commitment will be $__________]. (d) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignor's Commitment will be $__________[, and the Assignor's Swingline Commitment will be $0]. 2. Payments. -------- (a) As consideration for the sale, assignment and transfer contemplated in Section 1, the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an amount equal to $__________, representing [the principal amount of the Swingline Loans and] the Assignee's Percentage Share of the principal amount of the Revolving Loans of the Assignor. (b) The [Assignor] [Assignee] further agrees to pay to the Agent a processing fee in the amount specified in Section 10.07(c) of the Credit Agreement. 3. Reallocation of Payments. -------------------------- Any interest, fees and other payments accrued to the Effective Date with respect to the Commitment [and the related Revolving Loans] [, and the Swingline Commitment [and the Swingline Loans]] shall be for the account of the Assignor. Any interest, fees and other payments accrued on and after the Effective Date with respect to the Assigned Amount shall be for the account of the Assignee. Each of the Assignor and the Assignee agrees that it will hold in trust for the other party any interest, fees and other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt. 4. Independent Credit Decision. ----------------------------- The Assignee (a) acknowledges that it has received a copy of the Credit Agreement and the Schedules and Exhibits thereto, together with copies of the most recent financial statements referred to in Section 6.02 of the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Assignment and Acceptance; and (b) agrees that it will, independently and without reliance upon the Assignor, 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 and legal decisions in taking or not taking action under the Credit Agreement. 5. Effective Date; Notices. ------------------------- (a) As between the Assignor and the Assignee, the effective date for this Assignment and Acceptance shall be __________, ____ (the "Effective --------- Date"); provided, that the following conditions precedent have been satisfied -------- on or before the Effective Date: (i) this Assignment and Acceptance shall be executed and delivered by the Assignor and the Assignee; (ii) the consent of the Company and the Agent required for an effective assignment of the Assigned Amount by the Assignor to the Assignee under Section 10.07(c) of the Credit Agreement shall have been duly obtained and shall be in full force and effect as of the Effective Date; (iii) the Assignee shall pay to the Assignor all amounts due to the Assignor under this Assignment and Acceptance; and (iv) the processing fee referred to in Section 2(b) hereof and in Section 10.07(c) of the Credit Agreement shall have been paid to the Agent. (b) Promptly following the execution of this Assignment and Acceptance, the Assignor shall deliver to the Company and the Agent for acknowledgment by the Agent a Notice of Assignment in the form attached hereto as Schedule 1. 6. Agent. ----- (a) The Assignee hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the Banks pursuant to the terms of the Credit Agreement. [(b) The Assignee shall assume no duties or obligations held by the Assignor in its capacity as Agent under the Credit Agreement.] [INCLUDE ONLY IF ASSIGNOR IS AGENT] 7. Withholding Tax. ---------------- The Assignee (a) represents and warrants to the Agent and the Company that under applicable law and treaties no tax will be required to be withheld by the Assignor with respect to any payments to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized under the laws of any jurisdiction other than the United States or any State thereof) to the Agent and the Company prior to the time that the Agent or the Company is required to make any payment of principal, interest or fees hereunder, duplicate executed originals of either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein the Assignee claims entitlement to the benefits of a tax treaty that provides for a complete exemption from U.S. federal income withholding tax on all payments hereunder) and agrees to provide new Forms 4224 or 1001 upon the expiration of any previously delivered form or comparable statements in accordance with applicable U.S. law and regulations and amendments thereto, duly executed and completed by the Assignee, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding tax exemption. 8. Representations and Warranties. -------------------------------- (a) The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any lien, security interest or other adverse claim; (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance and to fulfill its obligations hereunder; (iii) no notices to, or consents, authorizations or approvals of, any person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance, and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any person is required of it for such execution, delivery or performance; and (iv) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignor, enforceable against the Assignor in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles. (b) The Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto. The Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition or statements of the Company, or the performance or observance by the Company, of any of its respective obligations under the Credit Agreement or any other instrument or document furnished in connection therewith. (c) The Assignee represents and warrants that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance, and to fulfill its obligations hereunder; (ii) no notices to, or consents, authorizations or approvals of, any person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance; and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any person is required of it for such execution, delivery or performance; (iii) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignee, enforceable against the Assignee in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles; and (iv) it is an Eligible Assignee. 9. Further Assurances. ------------------- The Assignor and the Assignee each hereby agrees to execute and deliver such other instruments, and take such other action, as either party may reasonably request in connection with the transactions contemplated by this Assignment and Acceptance, including the delivery of any notices or other documents or instruments to the Company or the Agent, which may be required in connection with the assignment and assumption contemplated hereby. 10. Miscellaneous. ------------- (a) Any amendment or waiver of any provision of this Assignment and Acceptance shall be in writing and signed by the parties hereto. No failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Assignment and Acceptance shall be without prejudice to any rights with respect to any other or further breach thereof. (b) All payments made hereunder shall be made without any set-off or counterclaim. (c) The Assignor and the Assignee shall each pay its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Assignment and Acceptance. (d) This Assignment and Acceptance may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. (e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. The Assignor and the Assignee each irrevocably submits to the non-exclusive jurisdiction of any State or Federal court sitting in New York over any suit, action or proceeding arising out of or relating to this Assignment and Acceptance and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State or Federal court. Each party to this Assignment and Acceptance hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. (f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER ORAL OR WRITTEN). [Other provisions to be added as may be negotiated between the Assignor and the Assignee, provided that such provisions are not inconsistent with the Credit Agreement.] IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed and delivered by their duly authorized officers as of the date first above written. IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed and delivered by their duly authorized officers as of the date first above written. [Name of Assignor] By: Title: Address: [Name of Assignee] By: Title: Address: SCHEDULE 1 NOTICE OF ASSIGNMENT AND ACCEPTANCE ----------------------------------- Date: _______________________ Bank of American National Trust and Savings Association, as Agent 1850 Gateway Blvd. Concord, CA 94520-3281 Attention: Agency Management Services #5596 Bank of American National Trust and Savings Association, as Agent High Technology #3697 555 California Street, 41st Fl. San Francisco, CA 94104-1502 Attention: Kevin McMahon, Managing Director Compaq Computer Corporation - ----------------------------- - ----------------------------- - ----------------------------- Ladies and Gentlemen: We refer to the $3,000,000,000 Revolving Credit Agreement, dated as of September 22, 1997 (as the same may be extended, renewed, amended or restated from time to time, the "Credit Agreement"), among Compaq Computer Corporation ---------------- (the "Company"), the financial institutions party thereto (the "Banks") and ------- ----- Bank of America National Trust and Savings Association, as administrative agent for the Banks (in such capacity, the "Agent"). Terms defined in the ----- Credit Agreement are used herein as therein defined. 1. We hereby give you notice of, and request your consent to, the assignment by _______________ (the "Assignor") to _______________ (the -------- "Assignee") of _____% of the right, title and interest of the Assignor in and -------- to the Credit Agreement (including the right, title and interest of the Assignor in and to the Commitment [and the Swingline Commitment] of the Assignor and all outstanding Loans made by the Assignor) pursuant to the Assignment and Acceptance Agreement attached hereto (the "Assignment and -------------- Acceptance"). Before giving effect to such assignment, the Assignor's - ---------- Commitment is $__________ and the aggregate amount of its outstanding Loans is $__________[, and the Assignor's Swingline Commitment is $__________ and the aggregate amount of its outstanding Swingline Loans is $__________]. 2. The Assignee agrees that, upon receiving the consent of the Agent and, if applicable, the Company, to such assignment, the Assignee will be bound by the terms of the Credit Agreement as fully and to the same extent as if the Assignee were the Bank originally holding such interest in the Credit Agreement. 3. The following administrative details apply to the Assignee: (A) Notice Address: Assignee name: -------------------------------------------- Address: -------------------------------------------- -------------------------------------------- -------------------------------------------- Attention: -------------------------------------------- Telephone: (___)_____________________________________ Telecopier: (___)_____________________________________ Telex (Answerback): ------------------------------------ (B) Payment Instructions: Account No.: -------------------------------------------- At: -------------------------------------------- -------------------------------------------- -------------------------------------------- Reference: -------------------------------------------- Attention: -------------------------------------------- 4. You are entitled to rely upon the representations, warranties and covenants of each of the Assignor and Assignee contained in the Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of Assignment and Acceptance to be executed by their respective duly authorized officials, officers or agents as of the date first above written. Very truly yours, [Name of Assignor] By: Name: Title: [Name of Assignee] By: Name: Title: ACKNOWLEDGED AND ASSIGNMENT CONSENTED TO: COMPAQ COMPUTER CORPORATION By: -------------------------- Name: Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: -------------------------- Name: Title:
SCHEDULE 2.01 ------------- COMMITMENTS ----------- Amount of Name of Bank Commitment % - ------------------------------------------------------------- ----------------- ------------- Bank of America National Trust and Savings Association 187,500,000.00 6.25000000 The Chase Manhattan Bank 187,500,000.00 6.25000000 Citibank, N.A. 187,500,000.00 6.25000000 Nationsbank of Texas, N.A. 187,500,000.00 6.25000000 Morgan Guaranty Trust Company of New York 150,000,000.00 5.00000000 Cariplo - Cassa di Risparmio Delle Provincie Lombarde S.p.A. 97,500,000.00 3.25000000 Deutsche Bank AG 97,500,000.00 3.25000000 The First National Bank of Chicago 97,500,000.00 3.25000000 Fleet National Bank 97,500,000.00 3.25000000 Ing Bank N.V. 97,500,000.00 3.25000000 Royal Bank of Canada 97,500,000.00 3.25000000 Banca Commerciale Italiana 55,500,000.00 1.85000000 Bank of Tokyo - Mitsubishi Trust Company 55,500,000.00 1.85000000 Barclays Bank PLC 55,500,000.00 1.85000000 The Fuji Bank, Limited 55,500,000.00 1.85000000 National Australia Bank Limited 55,500,000.00 1.85000000 Banca di Roma 37,500,000.00 1.25000000 Banca Monte Dei Paschi di Siena, S.p.A. 37,500,000.00 1.25000000 Banca Nazionale del Lavoro S.p.A. 37,500,000.00 1.25000000 Banca Popolare di Milano 37,500,000.00 1.25000000 Banco Central Hispano Americano, S.A. 37,500,000.00 1.25000000 Bank of Montreal 37,500,000.00 1.25000000 The Bank of New York 37,500,000.00 1.25000000 Bankboston, N.A. 37,500,000.00 1.25000000 Banque Nationale de Paris 37,500,000.00 1.25000000 Bayerische Hypotheken - Und Wechsel - Bank 37,500,000.00 1.25000000 Corestates Bank, N.A. 37,500,000.00 1.25000000 Credito Italiano 37,500,000.00 1.25000000 The Dai-Ichi Kangyo Bank, Limited 37,500,000.00 1.25000000 Den Danske Bank Aktieselskab 37,500,000.00 1.25000000 Dresdner Bank AG 37,500,000.00 1.25000000 The Industrial Bank of Japan, Limited 37,500,000.00 1.25000000 Istituto Bancario San Paolo di Torino S.p.A. 37,500,000.00 1.25000000 Kredietbank N.V. 37,500,000.00 1.25000000 Marine Midland Bank 37,500,000.00 1.25000000 Mellon Bank, N.A. 37,500,000.00 1.25000000 National Westminster Bank plc 37,500,000.00 1.25000000 The Northern Trust Company 37,500,000.00 1.25000000 PNC Bank, National Association 37,500,000.00 1.25000000 The Sanwa Bank, Limited 37,500,000.00 1.25000000 Skandinaviska Enskilda Banken AB (Publ) 37,500,000.00 1.25000000 Societe Generale Finance (Ireland) Limited 37,500,000.00 1.25000000 Standard Chartered Bank 37,500,000.00 1.25000000 The Sumitomo Bank, Limited 37,500,000.00 1.25000000 The Sumitomo Trust & Banking Co., Ltd. 37,500,000.00 1.25000000 Swiss Bank Corporation 37,500,000.00 1.25000000 Toronto Dominion (Texas), Inc. 37,500,000.00 1.25000000 Wells Fargo Bank, N.A. 37,500,000.00 1.25000000 Westdeutsche Landesbank Girozentrale 37,500,000.00 1.25000000 ================= ============= TOTAL $3,000,000,000.00 100.00000000
EX-21 8 EXHIBIT 21 Subsidiaries: A/O Tandem Computers A/O Tandem Computers ACI Canada EFTS Limited Atalla Corporation ATCP Partnership Automated Monitoring and Control International, Inc. Bit Jugglers, Inc. Compaq Asia Pte. Ltd. Compaq Canada Incorporated/Incorporee Compaq Capital Corporation Compaq Cayman Islands, Ltd. Compaq Computer (Malaysia) Sdn. Bhd. Compaq Computer (Proprietary) Limited Compaq Computer (Thailand) Ltd. Compaq Computer A/S Compaq Computer AB Compaq Computer AE Compaq Computer AG Compaq Computer Asia Pte. Ltd. Compaq Computer Asia/Pacific Pte. Ltd. Compaq Computer Australia Pty. Limited Compaq Computer B.V. Compaq Computer Brasil - Industria e Comercio LTDA Compaq Computer Commercializadora, S. A. DE C. V. Compaq Computer Corporation Compaq Computer Customer Services Limited Compaq Computer de Argentina S.A. Compaq Computer de Colombia S.A. Compaq Computer de Mexico, S.A. de C.V. Compaq Computer de Venezuela, S.A. Compaq Computer EMEA GmbH Compaq Computer FZE Compaq Computer Gesmbh Compaq Computer GmbH Compaq Computer GmbH - Russia Representative Office Compaq Computer Group Limited Compaq Computer Hong Kong Limited Compaq Computer Hong Kong Limited - Beijing Representative Office Compaq Computer Hong Kong Limited - Changdu Representative Office Compaq Computer Hong Kong Limited - Guangzhou Representative Office Compaq Computer Hong Kong Limited - Shanghai Representative Office Compaq Computer Hong Kong Limited - Shenyang Representative Office Compaq Computer India Private Limited Compaq Computer Int'l Corp - Compaq Distribution Center Europe - Branch Compaq Computer International Corporation Compaq Computer Korea Limited Compaq Computer Limited Compaq Computer Ltd. Compaq Computer Manufacturing Limited Compaq Computer N.V./S.A. Compaq Computer N.V./S.A. - Luxembourg Rep Office Compaq Computer New Zealand Limited Compaq Computer Norway AS Compaq Computer OY Compaq Computer Portugal, Lda. Compaq Computer S.A.R.L. Compaq Computer S.p.A. Compaq Computer Taiwan Limited Compaq Computer Technologies (China) Co. Ltd. Compaq Computer Ticaret A. S. Compaq Computer Trading Limited Liability Company Compaq Computer, S.A. Compaq Computer, Sp.zo.o. Compaq Computer, spol. s.r.o. Compaq FSC (Barbados) Inc. Compaq Holdings B.V. Compaq Holdings Pte. Ltd. Compaq Houston Investment Corporation Compaq Industrial, Comercial, Importadora E Exportadora Ltda. Compaq Interests, Inc. Compaq International Corporation Compaq International Procurement Corporation Compaq International Procurement Corporation - Taiwan Representative Office Compaq Kabushiki Kaisha Compaq Latin Amercia Corporation - Chile Branch Compaq Latin America Corporation Compaq Latin America Corporation - Argentina Branch Compaq Latin America Corporation - Puerto Rico Sales Office Compaq Latin America Sucursal Del Peru Compaq Latin America Sucursal Ecuador Compaq Technologies (Australia) Proprietary Limited Compaq TSO, Inc. Compaq Ventures Corporation Compaq Ventures Corporation - Indonesia Representative Office Compaq Ventures, Pte. Ltd. Compaq-Austin, Inc. Compaq-Dallas, Inc. Connectivity, Ltd. CPQ Holdings, Inc. Divacto B.V. Eco-Infobase GmbH Globeset, Inc. Governmind B.V. Micro Communications GMBH Microcom (South Africa) Pty. Ltd. Microcom (UK) Limited Microcom Australasia Pty. Limited Microcom Caribe, Inc. Microcom E.M.A. Microcom K.K. Microcom Systems, Inc. Microcom, Inc. MNP Hong Kong Limited MNP S.A.R.L. - France MNP Sales B. V. Neodyne Consulting Ltd. Nihon Tandem Rental Co., Ltd. Nihon Tandem Systems Co., Ltd. Nihon Tandem Systems K.K. Nonstop Manufacturing Pty. Ltd. Phon, LLC PT Tandem Computers Indonesia PT Tandem Computers Indonesia Shanghai Tandem Software Systems Co. Ltd. Silicon Artists, Inc. Tandem Chile SA Tandem Computer GES.m.b.H. Tandem Computer GES.m.b.H. Tandem Computer Systems Sdn. Bhd. Tandem Computer Systems Sdn. Bhd. Tandem Computers (Norway) A/S Tandem Computers AG Tandem Computers (Hong Kong) Limited Tandem Computers (Hungary) Incorporated Tandem Computers (Israel) Ltd. Tandem Computers (Macau) Limited Tandem Computers A/S Tandem Computers AB Tandem Computers Asia Ltd. Tandem Computers Asia-Pacific Incorporated Tandem Computers B.V. Tandem Computers Canada Limited Tandem Computers Credit Corporation Tandem Computers De Mexico, S.A. De C.V. Tandem Computers Del Peru S.A. Tandem Computers do Brasil Inc. & CIA Tandem Computers do Brasil Inc. Tandem Computers Europe Incorporated Tandem Computers Europe Incorporated - Netherlands Branch Tandem Computers Europe Incorporated - UK Branch Tandem Computers Export Corporation Tandem Computers FSC, Inc. Tandem Computers GmbH Tandem Computers Hungaria KKT Tandem Computers Iberica, S.A. Tandem Computers Incorporated Tandem Computers Incorporated - Puerto Rico - Sales Rep. Office Tandem Computers India Ltd. Tandem Computers International Incorporated - Malaysia Branch Tandem Computers International Incorporated - Thailand Branch Tandem Computers International (Thailand) Ltd. Tandem Computers International Incorporated Tandem Computers International Incorporated - Philippines Branch Tandem Computers Investment Corporation Tandem Computers Investments do Brasil Inc. Tandem Computers Italia S.P.A. Tandem Computers Italia S.P.A. Tandem Computers Japan, Limited Tandem Computers Korea Ltd. Tandem Computers Korea Ltd. Tandem Computers Limited Tandem Computers Limited - Ireland Branch Tandem Computers Manufacturing, Inc. Tandem Computers Marketing, Inc. Tandem Computers Pty. Ltd. Tandem Computers Pty. Ltd. - New Zealand Branch Tandem Computers S.A. Tandem Computers S.A./N.V. Tandem Computers S.A./N.V.- Luxembourg Branch Tandem Computers South Asia Ltd. Tandem Computers SP. Z O.O. Tandem de Argentina Incorporated Tandem Employees Emergency Relief Fund, Inc. Tandem Finland OY Tandem Laboratories Ltd. Tandem PRC Incorporated Tandem PRC Incorporated - Guangzhou Rep. Office Tandem PRC Incorporated - Shanghai Rep. Office Tandem PRC Incorporated -Beijing Rep. Office Tandem South Africa (Pty) Limited Tandem Taiwan Incorporated Tandem/Simplicity A, Inc. Tandem/Simplicity B, Inc. Twinco A/S Twinsoft A/S Twinsoft Asia Pte Ltd. Twinsoft B.V. Twinsoft GmbH Twinsoft Italia Srl Twinsoft N.V. Twinsoft S.A. Twinsoft SA Twinsoft UK LTD. Yura Corp. EX-23 9 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 333-40729) and to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-43595, 333-42375, 333-34743, 333-34699, 333-31265, 33-44115, 33-31819, 33-23504, 33-7499, 2-89925, 33-10106, 33-38044, 33-16987, 33-62603) of Compaq Computer Corporation of our report dated January 21, 1998, except as to Note 11, which is as of January 26, 1998, appearing on page 20 of Compaq Computer Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. We also consent to the references to us under the heading "Selected Consolidated Financial Data" in the Annual Report on Form 10-K for the year ended December 31, 1997. However, it should be noted that Price Waterhouse LLP has not prepared or certified such "Selected Consolidated Financial Data." /s/ PRICE WATERHOUSE LLP - ------------------------ PRICE WATERHOUSE LLP Houston, Texas February 19, 1998 EX-27 10
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPAQ COMPUTER CORPORATION'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1997 DEC-31-1997 6,418 344 2,891 243 1,570 12,017 4,026 2,041 14,631 5,202 0 2,096 0 0 7,333 14,631 24,584 24,584 17,833 17,833 1,069 19 164 2,758 903 1,855 0 0 0 1,855 1.23 1.19 Includes research and development costs, purchased in-process technology and merger-related costs.
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