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<SEC-DOCUMENT>0000950134-96-000963.txt : 19960329
<SEC-HEADER>0000950134-96-000963.hdr.sgml : 19960329
ACCESSION NUMBER: 0000950134-96-000963
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 17
CONFORMED PERIOD OF REPORT: 19960128
FILED AS OF DATE: 19960328
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: DELL COMPUTER CORP
CENTRAL INDEX KEY: 0000826083
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571]
IRS NUMBER: 742487834
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0131
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-17017
FILM NUMBER: 96540390
BUSINESS ADDRESS:
STREET 1: 2214 W BRAKER LN
STREET 2: STED
CITY: AUSTIN
STATE: TX
ZIP: 78758
BUSINESS PHONE: 5123384400
MAIL ADDRESS:
STREET 1: 2112 KRAMER LN - BLDG 1
CITY: AUSTIN
STATE: TX
ZIP: 78758
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<DESCRIPTION>FORM 10-K FISCAL YEAR END 01-28-96
<TEXT>
<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 28, 1996
COMMISSION FILE NUMBER 0-17017
DELL COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 74-2487834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
2214 WEST BRAKER LANE, SUITE D, AUSTIN, TEXAS 78758-4053
(Address, including Zip Code, of registrant's principal executive offices)
(512) 338-4400
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.01 per share
Preferred Stock Purchase Rights
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/
<TABLE>
<S> <C>
AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT AS OF MARCH 22, 1996.................................... $2,347,100,735
--------------
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 22, 1996........... 90,248,455
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</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report is incorporated herein
by reference from the Registrant's definitive proxy statement relating to the
annual meeting of stockholders to be held in 1996, which definitive proxy
statement shall be filed with the Securities and Exchange Commission within 120
days after the end of the fiscal year to which this Report relates.
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<PAGE> 2
PART I
ITEM 1 -- BUSINESS
GENERAL
Dell Computer Corporation (the "Company") designs, develops, manufactures,
markets, services and supports a wide range of computer systems, including
desktops, notebooks and network servers, and also markets software, peripherals
and service and support programs. With revenue of approximately $5.3 billion for
fiscal 1996 (which ended on January 28, 1996), the Company is the world's
leading direct marketer of computer systems and one of the top seven computer
vendors in the world.
The Company is a Delaware corporation that was incorporated in October
1987, succeeding to the business of a predecessor Texas corporation (also named
Dell Computer Corporation) that was originally incorporated in May 1984. Based
in Austin, Texas, the Company conducts operations worldwide through wholly owned
subsidiaries. See "Item 1 -- Business -- Geographic Areas of Operations" below.
Unless otherwise specified, references herein to the "Company" are references to
the Company and its consolidated subsidiaries. The Company operates in one
principal industry segment.
The Company's common stock, par value $.01 per share (the "Common Stock"),
is listed on The Nasdaq National Market under the symbol "DELL." See "Item
5 -- Market for Registrant's Common Equity and Related Stockholder
Matters -- Market Information" below.
BUSINESS STRATEGY
The Company's business strategy is customer-focused and aims to deliver the
best customer experience through direct, comprehensive customer relationships,
cooperative research and development with technology partners, custom-built
computer systems and service and support programs tailored to customer needs.
The Company believes that this approach provides it with several competitive
advantages. The approach eliminates the need to support an extensive network of
wholesale and retail dealers, thereby avoiding typical dealer mark-ups, the
higher inventory costs associated with the wholesale/retail channel and the
competition for retail shelf space, while reducing the obsolescence risk
associated with products in a rapidly changing technological market. In
addition, direct customer contact allows the Company to maintain, monitor and
update a database of information about customers and their current and future
product and service needs, which can be used to shape future product offerings
and post-sale service and support programs.
Comprehensive Customer Relationships. The Company seeks to develop and
utilize direct customer relationships to understand end-users' needs and to
deliver high quality computer products and services tailored to meet those
needs. With respect to major account customers, the relationship begins prior to
sale, when the Company works with the customer to plan a strategy to meet that
customer's current and future technology needs. The direct relationship
continues after the sale, as dedicated account teams consisting of sales,
customer service and technical personnel continue to support the customer's
technology objectives. The Company also establishes direct relationships with
small-to-medium business and individual customers, although some of those
relationships may not be as extensive as the relationships with major account
customers. All of these direct customer relationships provide the Company with a
flow of information about its customers' plans and requirements and enable it to
weigh their needs against emerging technologies.
Cooperative Research and Development. The Company also attempts to develop
cooperative, meaningful relationships with the world's most advanced technology
companies. Working with these companies, the Company's engineers manage quality,
integrate technologies and design and manage system architecture. This
cooperative approach allows the Company to determine the best
<PAGE> 3
method and timing for delivering new technologies to the market. The Company's
goal is to deliver the right technology to its customers at the right time.
Custom-Built Computers. The Company was founded on the principle that
delivering computers custom-built to specific customer orders is the best
business model for providing solutions that are truly relevant to end-user
needs. This build-to-order, flexible manufacturing process enables the Company
to achieve faster inventory turnover and reduced inventory levels and allows the
Company to rapidly incorporate new technologies and components into its product
offerings.
Custom-Tailored Service and Support Programs. In the same way that the
Company's computer products are built-to-order, service and support programs are
designed to fit specific customer requirements. The Company offers a broad range
of service and support programs through its own technical personnel and its
direct management of specialized service suppliers. These services range from
telephone support to on-site customer-dedicated systems engineers.
While the Company believes that its business strategy provides it with
competitive advantages, there are many factors that may affect the Company's
business and the success of its operations. These factors include general
economic and business conditions; the level of demand for computers; the level
and intensity of competition in the computer industry and the pricing pressures
that may result; the ability of the Company to timely and effectively manage
periodic product transitions and component availability; the ability of the
Company to develop new products based on new or evolving technology and the
market's acceptance of those products; the ability of the Company to manage its
inventory levels to minimize excess inventory, declining inventory values and
obsolescence; the product, customer and geographic sales mix of any particular
period; and the Company's ability to continue to improve its infrastructure
(including personnel and systems) to keep pace with the growth in its overall
business activities. For a discussion of these and other factors affecting the
Company's business and prospects, see "Item 1 -- Business -- Factors Affecting
the Company's Business and Prospects" below.
GEOGRAPHIC AREAS OF OPERATIONS
The Company's products are currently sold in more than 130 countries
worldwide. During fiscal 1996, the Company continued the consolidation of its
worldwide operations into distinct geographic regions to support its customers
in each area through fully integrated, regional business units. Under the
regionalized structure, the Company's global business operations are divided
into four distinct geographic regions. The Americas region, which is based in
Austin, Texas, covers the United States, Canada and Latin America. The Europe
region, which is based in Bracknell, England, covers the European countries and
also some countries in the Middle East and Africa. The Asia Pacific region,
which is based in Hong Kong, covers the Far East (exclusive of Japan), Australia
and New Zealand. The Japan region covers only Japan and is based in Tokyo.
The Company's corporate headquarters is located in Austin, Texas. The
Company's manufacturing facilities are located in Austin, Texas; Limerick,
Ireland; and Penang, Malaysia. Construction of the Malaysian facility, which
also houses the Asia Pacific Customer Center, was started and completed during
fiscal 1996. See "Item 2 -- Properties" below.
For financial information about the results of the Company's operations by
geographic region for each of the last three fiscal years, see Note 13 of Notes
to Consolidated Financial Statements included in "Item 8 -- Financial Statements
and Supplementary Data."
The Company intends to continue to expand its international activities by
increasing its market presence in existing markets through strengthening its
marketing and sales compensation programs, by improving its infrastructure, by
pursuing additional distribution opportunities and by entering new markets.
There can be no assurance, however, that the Company will be successful in its
efforts to expand geographically. In addition, international activities are
subject to special risks. See "Item 1 -- Business -- Factors Affecting the
Company's Business and Prospects" below.
2
<PAGE> 4
PRODUCT PORTFOLIO
The Company offers a wide range of computer systems, including desktops,
notebooks and network servers, as well as software, peripherals and service and
support programs.
Desktop Computer Systems. The OptiPlex(TM) line of desktop computer systems
is the Company's mainstream offering for corporate and other major account
customers who require advanced features, performance and networkability. The
OptiPlex DGX series is designed for advanced users; the OptiPlex GX series is
designed for mainstream business users; and the OptiPlex G and OptiPlex X series
are designed for value-oriented users. All of these systems utilize Pentium(R)
processors from Intel Corporation, with the OptiPlex DGX series offering single
or dual processor configurations. The Company also offers the OptiPlex 486/E
series, which is based on 486 processors.
The Company has two lines of desktop computer systems that are designed
primarily for small-to-medium businesses and individual users. The Dell
Dimension(TM) XPS line is targeted at technologically sophisticated users and
includes systems based on Intel's Pentium Pro(R) processors and systems based on
Pentium processors. The Dell Dimension line is designed for the more value-
oriented user and is based on Pentium processors.
Notebook Computers. The Company offers two lines of notebook or portable
computers. The systems within the Latitude(TM) X-Series line are high
performance systems optimized for corporate enterprise and network enterprise
connectivity. The systems within the Latitude L-Series line are performance
systems optimized for remote connectivity and highly mobile usage.
Servers. The PowerEdge(R) line of network servers consists of systems that
can operate as file servers, database servers, applications servers and
communications/groupware servers in a networked computing environment. The
PowerEdge XL series is designed for large, complex network environments of 500
or more users and includes systems that may be configured with one, two or four
Pentium processors. The PowerEdge XE-2 and PowerEdge SP-2 series are designed
for mid-sized networks and include systems that may be configured with one or
two Pentium processors. The PowerEdge EL series is an entry-level design for
small workgroups and is based on the Pentium processor. The PowerEdge Web Server
is an Internet World Wide Web information server and consists of a PowerEdge EL
server with preinstalled network and communications software.
Software and Peripheral Products. In addition to its own branded products,
the Company offers a broad range of software and peripheral products through its
DellWare(R) program. Through DellWare, the Company offers more than 7,000 of the
most popular software packages and hardware and communication peripherals. The
Company's ReadyWare(SM) program is a collection of more than 60 popular software
applications and interface cards that can be factory-installed on any computer
system the Company sells.
Service and Support. The Company enhances its product offerings with a
number of specialized services, including custom hardware and software
integration and network installation and support. The Company offers
next-business-day delivery, as well as an extended training and support program
from Software Support, Inc., on more than 125 of its software offerings. For
additional discussion of the Company's service and support programs, see "Item
1 -- Business -- Service and Support" below.
MARKETING AND SALES
The Company's customers range from major accounts, which include large
corporations, government agencies and medical and educational institutions, to
small businesses and individuals. The Company creates specialized marketing
approaches tailored to meet the needs of each type of customer. No single
customer accounted for more than 10% of the Company's consolidated net sales
during any of the last three fiscal years.
3
<PAGE> 5
Major Accounts. The Company has a broad base of business among Fortune
500(R) companies and governmental, medical and educational institutions
worldwide. The Company holds a U.S. General Services Administration Schedule
contract, through which it sells to U.S. federal governmental agencies.
The Company maintains a field sales force calling on major account
customers and prospects. The Company develops direct sales marketing programs
and services specifically geared to these major account customers. Account
management teams, consisting of sales, customer service and technical support
representatives, form long-term customer relationships to provide each major
account customer with a single source of assistance on issues ranging from order
placement to system configuration, connectivity and technology transitioning. To
support these teams, the Company has account executives in many major cities
around the world. For customers with in-house maintenance organizations, the
Company offers a variety of programs, including specialized computer training
programs, a repair parts assistance program and other customized programs to
provide access to the Company's technical support team. Customized product
delivery and service programs are available on a worldwide basis. See "Item
1 -- Business -- Service and Support" below.
The Company supplements its direct marketing strategy by marketing through
value-added resellers ("VARs") that customize the Company's computer systems
with specific end-user applications through the addition of hardware, software
or services. Because VARs frequently package complete application-specific
solutions, they are able to benefit from the Company's custom manufacturing and
technical and marketing support programs. To provide VARs with added
flexibility, the Company offers several programs tailored directly to their
needs. For example, VARs can purchase complete systems from the Company and have
them shipped directly to the user's installation site, allowing VARs to reduce
inventory, handling and other related costs.
Net sales from major account customers totaled $3.36 billion in fiscal
1996, $2.31 billion in fiscal 1995 and $1.84 billion in fiscal 1994,
representing a 45% increase from fiscal 1995 to fiscal 1996 and a 26% increase
from fiscal 1994 to fiscal 1995. As a percentage of consolidated net sales,
sales to this customer group represented approximately 63% in fiscal 1996, 67%
in fiscal 1995 and 64% in fiscal 1994.
Small-to-Medium Businesses and Individuals. The Company also has a
significant base of business among small-to-medium businesses and individuals.
Typically, these customers are knowledgeable computer users and are not
first-time buyers of computer systems. The Company maintains a sales force that
markets its products and services to these customers by advertising in trade and
general business publications and by mailing a broad range of direct marketing
publications, such as promotional pieces, catalogs and customer newsletters. The
Company believes these customers value its ability to provide reliable, custom
configured computer systems at competitive prices, knowledgeable sales
assistance, post-sale support and on-site service offerings.
Net sales from small-to-medium business and individual customers totaled
$1.93 billion in fiscal 1996, $1.16 billion in fiscal 1995 and $1.03 billion in
fiscal 1994, representing a 67% increase from fiscal 1995 to fiscal 1996 and a
12% increase from fiscal 1994 to fiscal 1995. As a percentage of consolidated
net sales, sales to this customer group represented approximately 37% in fiscal
1996, 33% in fiscal 1995 and 36% in fiscal 1994.
SERVICE AND SUPPORT
The Company offers a variety of service and support programs in all of its
geographic markets. The following is a brief description of the service and
support programs offered exclusively or primarily to the Company's U.S.
customers. A full line of warranty, service and support options are available in
the Company's international markets, but these options can vary significantly
based on the local market and customer requirements.
4
<PAGE> 6
Standard Programs. Most of the Company's systems include a standard
one-year, next-business-day, on-site service contract. In addition, basic
warranty coverage includes a three-year limited warranty for OptiPlex desktop
systems, Latitude notebook systems and PowerEdge server systems and a one-year
limited warranty for Dell Dimension XPS and Dell Dimension desktop systems. The
three-year warranties include one year of parts and labor coverage and two
additional years of parts only coverage, while the one-year warranties include a
year of parts and labor coverage. The Company also provides a 30-day "Total
Satisfaction" money back guarantee for any U.S. end-user customer buying
directly from the Company.
The Company's SelectCare(SM) service and support program comes standard
with all desktop and notebook systems. This program includes a toll-free
hardware support line that is accessible 24 hours a day, 7 days a week for the
life of all of the Company's systems. The technical specialists staffing this
line maintain close contact with the Company's marketing, manufacturing and
product design groups and have on-line access to each customer's original
system configuration and service history. Customers purchasing notebook
computer systems are provided with access to a separate, dedicated toll-free
line staffed with mobile computing technicians 24 hours a day, 7 days a week.
The Company's BusinessCare(SM) program comes standard with all PowerEdge server
systems. This program, which is designed for corporate users with servers on
local or wide area networks, includes one year of parts and labor on-site
service, two additional years of parts delivery service and five assistance
calls to the Company's network operating system support technicians.
The Company offers alternative support avenues through the Internet and
many of the on-line subscription services such as CompuServe, America Online and
Prodigy. The Company also provides customers anytime access to the Company's
bulletin board for technical information that is menu-driven and fully
interactive, as well as access to its TechFax(SM) system (a fax-back service)
and its AutoTech system (an interactive voice response unit).
Many of the Company's systems include software that enables customers to
diagnose and communicate system problems. Several systems also include a
built-in diagnostics program that can provide on-line information about system
malfunctions.
Additional Options. Recognizing that customer service and support
requirements vary, the Company offers customers the opportunity to customize
their SelectCare or BusinessCare program by selecting additional levels of
service and support to satisfy their individual needs. Customers may supplement
the standard one-year service contract with extended service contracts providing
up to five additional years of next-business-day, on-site service. BusinessCare
customers may upgrade to BusinessCare Plus, which provides three years of
four-hour on-site response, 24 hours a day.
Through the DellPlus program, the Company offers specialized services
designed to satisfy customers' unique hardware and software integration
requirements. With this program, a customer's particular integration
requirements (whether hardware related, such as specialized network cards, video
and graphic boards, modems, tape drives or hard drives; or software related,
such as customer proprietary software applications or drivers) can be satisfied
at the time the customer's systems are manufactured. This is in addition to the
Company's ReadyWare program, which is a collection of more than 60 popular
software applications and interface cards that can be factory-installed.
The Company offers around-the-clock software support on more than 125 of
the most popular software applications. Single users may subscribe to this
support on a 90-day or one-year basis, while multi-user groups can arrange for
hourly blocks of access.
The Company also offers a variety of on-site installation services that can
be customized to meet the needs of each specific customer. These services
include basic installation and orientation, system connectivity and functional
testing, external peripheral installation, internal device installation and file
server and advanced system installation.
5
<PAGE> 7
Many of the Company's service and support programs, particularly the
software support and on-site service programs, are provided through independent
third-party contractors. In the United States, such contractors include Software
Support, Inc., BancTec Service Corp. and Digital Equipment Corporation.
MANUFACTURING
The Company operates manufacturing facilities in Austin, Texas; Limerick,
Ireland; and Penang, Malaysia. Construction of the Malaysian facility, which
also houses the Company's Asia Pacific Customer Center, began in March 1995 and
was completed in October 1995; this facility began production in November 1995.
The Company's manufacturing process consists of assembly, functional
testing and quality control of the Company's computer systems. Testing and
quality control processes are also applied to components, parts and
subassemblies obtained from suppliers. The Company's build-to-order
manufacturing process is designed to allow the Company to quickly produce
customized computer systems and to achieve rapid inventory turnover and reduced
inventory levels, which lessens the Company's exposure to the risk of declining
inventory values. This flexible manufacturing process also allows the Company to
incorporate new technologies or components into its product offerings quickly.
The build-to-order manufacturing process makes it more difficult, however, for
the Company to achieve the same manufacturing efficiencies as computer
manufacturers that sell standardized products in high volume.
The Company contracts with Sony Corporation and Quanta Computer, Inc. to
manufacture unconfigured base notebook computers. The Company then custom
configures these systems for shipment to customers.
Quality control is maintained through the testing of components, parts and
subassemblies at various stages in the manufacturing process. Quality control
also includes a burn-in period for completed units after assembly, on-going
production reliability audits, failure tracking for early identification of
production and component problems and information from the Company's customers
obtained through its direct relationships and service and support programs. The
Company conducts a voluntary vendor certification program, under which qualified
vendors commit to meet defined quality specifications. Both the U.S. and Ireland
manufacturing facilities have been certified as meeting ISO 9002 quality
standards; the Malaysian facility, having only been in production since November
1995, is not yet eligible for this certification.
PRODUCT DEVELOPMENT
The Company's product development efforts are focused on designing and
developing reasonably priced computer systems that adhere to industry standards
and incorporate the technologies and features that the Company believes are the
most desired by its customers. To accomplish this objective, the Company must
evaluate, obtain and incorporate new hardware, software, communications and
peripherals technologies that are primarily developed by others. The Company's
product development team includes programmers, technical project managers and
engineers experienced in system architecture, logic board and chip design,
sub-system development, mechanical engineering, manufacturing processing and
operating systems design. This cross-functional approach to product design has
enabled the Company to develop systems with improved functionality,
manufacturability, reliability, serviceability and performance, while keeping
costs competitive. The Company takes steps to ensure that new products are
compatible with industry standards and that they meet cost objectives based on
competitive pricing targets.
The Company bases its product development efforts on cooperative,
meaningful relationships with the world's most advanced technology companies.
These working relationships allow the Company to use its direct marketing model
and build-to-order manufacturing process to deliver, on
6
<PAGE> 8
a timely and cost-effective basis, those emerging technologies that are most
important to its customers.
The Company spent $95 million in fiscal 1996 on research, development and
engineering activities, compared with $65 million in fiscal 1995 and $49 million
in fiscal 1994. The amount the Company spends on research, development and
engineering activities is determined as part of the annual budget process and is
based on cost-benefit analyses and revenue forecasts. The Company prioritizes
activities to focus on projects that it believes will have the greatest market
acceptance and achieve the highest return on the Company's investment.
PATENTS, TRADEMARKS AND LICENSES
The Company holds 127 U.S. patents and eight foreign patents. At January
28, 1996, the Company had 334 U.S. patent applications pending and 30 foreign
applications pending in several European and Asian countries. The Company's
United States patents expire in years 2005 through 2013. The inventions claimed
in those patents and patent applications cover aspects of the Company's current
and possible future computer system products and related technologies. The
Company is developing a portfolio of patents that it anticipates will be of
value in negotiating intellectual property rights with others in the industry.
The Company has obtained U.S. federal trademark registration for its DELL
word mark and its Dell logo mark. The Company owns registrations for 19 of its
other marks in the United States. As of January 28, 1996, the Company had
pending applications for registration of 12 other trademarks. The DELL word
mark, Dell logo and other trademark and service mark registrations in the United
States may be renewed as long as the marks continue to be used in interstate
commerce. The Company believes that establishment of the DELL mark and logo in
the United States is material to the Company's operations. The Company has also
applied for or obtained registration of the DELL mark and several other marks in
approximately 91 other countries or jurisdictions where the Company conducts or
anticipates expanding its international business. The Company has also taken
steps to reserve corporate names and to form non-operating subsidiaries in
certain foreign countries where the Company anticipates expanding its
international business. The Company is precluded from obtaining a registration
for trademarks consisting of or incorporating the term "Dell" in certain foreign
countries, although the Company does not believe that its inability to register
"Dell" as a trademark in such countries will have a material adverse effect on
its business.
On March 5, 1993, the Company and Texas Instruments, Inc. ("TI") entered
into an agreement to cross-license their respective patent portfolios. Under the
terms of the agreement, the Company makes annual royalty payments to TI. The
agreement expires on January 31, 1998.
In August 1993, the Company and International Business Machines Corporation
("IBM") entered into a patent license agreement, under which the parties
licensed to each other, within prescribed fields of use, all current patents and
all patents entitled to an effective application filing date prior to February
1, 1999 that are owned by either of the parties or any of their subsidiaries.
The Company makes annual royalty payments to IBM under the agreement. The
agreement terminates on the latest expiration date of the patents licensed
thereunder.
The Company has entered into non-exclusive licensing agreements with
Microsoft Corporation giving the Company the right to distribute various
software packages and the MS-DOS, Windows and Windows 95 operating system
software. The Company has also entered into various other software licensing
agreements with other companies.
From time to time, other companies and individuals assert exclusive patent,
copyright, trademark or other intellectual property rights to technologies or
marks that are important to the computer industry or the Company's business. The
Company evaluates each claim relating to its
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<PAGE> 9
products and, if appropriate, seeks a license to use the protected technology.
The licensing agreements generally do not require the counterparty to assist the
Company in duplicating its patented technology nor do these agreements protect
the Company from trade secret, copyright or other violations by the Company or
its suppliers in developing or selling these products.
INFRASTRUCTURE
Management Information Systems. The Company's management information
systems enable the Company to track each unit sold from the initial sales
contacts, through the manufacturing process to post-sale service and support.
The system assists the Company in tracking key information about many of its
customers. The Company is able to target marketing activities specifically to
particular types of customers using its database to assess purchasing trends,
advertising effectiveness and customer and product groupings. This database,
unique to the Company's direct model, allows the Company to gauge customer
satisfaction issues and also provides the opportunity to test new propositions
in the marketplace prior to product or service introductions.
The Company is in the process of transitioning its management information
systems to more fully integrate them on an enterprise-wide basis, to reduce
redundancy and to incorporate enhanced functionality. The Company currently
expects this transition, which involves both hardware and software enhancements,
to continue at least through fiscal 1999. See "Item 1 -- Business -- Factors
Affecting the Company's Business and Prospects -- Strength of Infrastructure"
below.
Employees. At January 28, 1996, the Company had approximately 8,400
full-time employees. Approximately 5,600 of those employees were located in the
United States, and approximately 2,800 were located in other countries. The
Company has never experienced a work stoppage due to labor difficulties and
believes that its employee relations are good.
GOVERNMENT REGULATION
In the United States, the Federal Communications Commission (the "FCC")
regulates the radio frequency emissions of computing equipment. The FCC has
established two standards for computer products, Class A and Class B. Only Class
B products may be sold for use in a residential environment. Both Class A and
Class B products may be sold for use in a commercial environment. All of the
Company's current desktop, notebook and network server systems are sold under
the more restrictive Class B certification. The Company periodically tests its
products to ensure that the products satisfy applicable FCC regulations.
The Company's business is also subject to regulation by various other
federal and state governmental agencies. Such regulation includes the anti-trust
regulatory activities of the U.S. Federal Trade Commission and Department of
Justice, the import/export regulatory activities of the U.S. Department of
Commerce and the product safety regulatory activities of the U.S. Consumer
Products Safety Commission.
The Company is also required to obtain regulatory approvals in other
countries prior to the sale or shipment of products. In certain jurisdictions,
such requirements are more stringent than in the United States. Many developing
nations are just beginning to establish safety, environmental and other
regulatory requirements, which may vary greatly from U.S. requirements.
BACKLOG
At the end of fiscal 1996, backlog was $102 million, compared with backlog
of $95 million at the end of fiscal 1995. The Company does not believe that
backlog is a meaningful indicator of sales that can be expected for any period,
and there can be no assurance that the backlog at any point in time will
translate into sales in any subsequent period, particularly in light of the
Company's policy of
8
<PAGE> 10
allowing customers to cancel or reschedule orders without penalty prior to
commencement of manufacturing.
FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS
Statements in this Report that relate to future results or events are based
on the Company's current expectations. There are many factors that affect the
Company's business and the results of its operations. The following is a
description of some of the important factors that may cause the actual results
of the Company's operations in future periods to differ materially from those
currently expected or desired.
General Economic Conditions. The Company's business partly depends on
general economic and business conditions. Most of the Company's sales are to
major corporate, government, education and medical customers and small-to-medium
businesses. General economic conditions that cause such customers to reduce or
delay their investments in computer systems could have a negative effect on the
Company's strength and profitability.
Industry Growth and Demand. The strength and profitability of the Company's
business also depends on the overall strength of demand for computers and growth
in the computer industry. A softening of demand may result in decreased revenues
(or at least declining revenue growth rates) for computer manufacturers in
general and the Company in particular. Furthermore, weakening demand may result
in pricing pressures for products that the Company sells, which could have a
negative effect on the Company's revenues and profitability.
Growth of the Direct Channel. The Company's future success party depends on
the continued growth of direct channels for the distribution of computer systems
and related products. While the Company's direct marketing approach has gained
acceptance among a large number of customers who are comfortable purchasing
directly from the manufacturer, the approach may not appeal to buyers who desire
physical access to products prior to purchase. The Company believes that these
buyers consist primarily of certain small-to-medium businesses and individuals,
particularly those making their first computer purchase. The Company has no
current plans or intention to market its products through traditional indirect
distribution channels, and there can be no assurance that it would be able to
establish a significant presence in those channels if it became necessary or
desirable in the future. There can be no assurance that worldwide direct
marketing channels will grow or that the Company's distribution strategy will
continue to be successful.
Competition. The computer industry is highly competitive and may become
more so as the result of, among other things, the introduction of new
competitors (including large multi-national, diversified companies) and possibly
weakening demand. Principle competitive factors include product performance,
quality and reliability, customer service and support, marketing and
distribution capabilities and price. There can be no assurance that the Company
will be able to maintain or improve its current competitive position with
respect to any of these or other competitive factors. Some of the Company's
competitors have stronger brand-recognition, greater financial, marketing,
manufacturing and technological resources, broader product lines and larger
installed customer bases than does the Company. This intense competition could
result in loss of customers or pricing pressures, which would negatively affect
the Company's results of operations.
The Company and other computer manufacturers generally have access to, and
make use of, many of the same components, often from the same group of
suppliers. The general industry practice has been to reduce the prices of
computer systems as component prices decline. The Company may take other pricing
actions as it attempts to maintain a competitive mix of price, performance and
customer support services while managing its liquidity, profitability and
growth. Although the Company attempts to mitigate the effects of price
reductions by improving product mix, further reducing component costs and
lowering operating costs, there can be no assurance that pricing actions will
enhance or improve the Company's competitive position or that cost-reduction
efforts will offset the effects of reduced prices on profitability.
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<PAGE> 11
International Activities. The Company's international operations have
provided a significant part of the Company's growth during recent fiscal years.
The success and profitability of international operations are subject to
numerous risks and uncertainties, such as economic and labor conditions,
political instability, tax laws (including U.S. taxes on foreign subsidiaries)
and changes in the value of the U.S. dollar versus the local currency in which
products are sold. Changes in exchange rates may adversely affect the Company's
consolidated net sales (as expressed in U.S. dollars) and gross margins from
international operations. The Company attempts to mitigate this exposure through
hedging transactions. See "Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Hedging Activities" and Note 4
of Notes to Consolidated Financial Statements included in "Item 8 -- Financial
Statements and Supplementary Data."
Fluctuations in Operating Results. The Company's operating results may
fluctuate from period to period and will depend on numerous factors, including
customer demand and market acceptance of the Company's products, new product
introductions, product obsolescence, component price fluctuations, varying
product mix, foreign currency exchange rates, foreign currency and interest rate
hedging and other factors. The Company's business is sensitive to the spending
patterns of its customers, which in turn are subject to prevailing economic
conditions and other factors beyond the Company's control.
The Company's net sales in a given quarter are largely dependent on
customer orders received in that quarter, and operating expenditures are
primarily based on forecasts of customer demand. If demand does not meet the
Company's expectations in any given period, the sales shortfall may result in an
increased effect on operating results if the Company is unable to adjust
operating expenditures quickly enough to compensate for such shortfall.
Product, Customer and Geographic Mix. The profitability of the Company's
operations for any given period is partially dependent on the mix of products
that the Company sells during that period and the strength of demand for the
Company's products among various types of customers and in various geographic
regions. Many of the factors that affect product, customer and geographic mix
are beyond the Company's control.
In the United States, the Company has experienced increased sales to the
government sector in the third fiscal quarter, which the Company believes
reflects the budgetary spending practices of the U.S. federal government. In
addition, in its third fiscal quarter, the Company has experienced decreased
sales in Europe, which the Company believes is the result of the holiday
schedule in European countries in the late summer months. These seasonal trends
have not been material relative to the Company's level of consolidated net sales
and have partially offset one another. There can be no assurance that the
Company will not experience material seasonal trends in the future.
Technological Changes and Product Transitions. The computer industry is
characterized by continuing improvements in technology, which results in the
frequent introduction of new products, short product life cycles and continual
improvement in product price/performance characteristics. Computer
manufacturers, including the Company, must incorporate these new technologies
into their products in order to remain competitive. Although the Company's
direct marketing model and build-to-order manufacturing process have allowed it
to participate in these technology transitions earlier than some of its
competitors, there can be no assurance that the Company will be able to continue
to effectively manage technology transitions or that there will be technology
improvements in the computer business sufficient to allow the Company to take
advantage of its direct model and build-to-order manufacturing process. A
failure on the part of the Company to effectively manage the periodic transition
of its product lines to new technologies on a timely basis will directly affect
the demand for the Company's products and the profitability of the Company's
operations.
The Company believes that its success is largely dependent upon continued
growth of its notebook product line, its ability to expand its presence in the
network server market and its ability to continue to efficiently manage the
transition to Pentium and Pentium Pro processor-based
10
<PAGE> 12
computers and other technological advancements as they become commercially
available. There can be no assurance that product technologies will be available
to the Company, that the Company will be able to deliver commercial quantities
of computer products in a timely manner or that such products will achieve
market acceptance.
Inventory Levels. Although the Company's build-to-order strategy gives it
the ability to operate with reduced levels of component and finished goods
inventories, shifts in technology and market demand may nevertheless result in
excess inventory, declining inventory values or even obsolescence. Maintaining a
low inventory level is dependent upon the Company's ability to achieve targeted
revenue and product mix, to further minimize complexities in its product line
and to maximize commonality of parts. There can be no assurance that the Company
will be able to maintain low inventory levels in future periods.
Supply Sources. The Company's manufacturing process requires a high volume
of quality components that are procured from third party suppliers. Reliance on
suppliers, as well as industry supply conditions, generally involves several
risks, including the possibility of defective parts, a shortage of components,
increases in component costs and reduced control over delivery schedules, any or
all of which could adversely affect the Company's financial results.
The Company has several single supplier relationships, and the lack of
availability of timely and reliable supply of components from these sources
could adversely affect the Company's business. In some cases, alternative
sources of supply are not available for some of the Company's single-sourced
components. In other cases, the Company may establish a working relationship
with a single source, even when multiple suppliers are available, if the Company
believes it is advantageous to do so due to performance, quality, support,
delivery, capacity or price considerations. Where alternative sources are
available, qualification of the alternative suppliers and establishment of
reliable supplies could result in delays, which could adversely affect the
Company's manufacturing processes and results of operations.
The Company occasionally experiences delays in receiving certain
components, which can cause delays in the shipment of some products to
customers. Also, the Company has occasionally received defective components,
which can affect the reliability and reputation of its products. There can be no
assurance that the Company will be able to continue to obtain additional
supplies of reliable components in a timely or cost-effective manner. See
"Certain Concentrations" in Note 11 of Notes to Consolidated Financial
Statements included in "Item 8 -- Financial Statements and Supplementary Data."
Product Development Activities. The strength of the Company's overall
business is partially dependent on the Company's ability to develop products
based on new or evolving technology and the market's acceptance of those
products. There can be no assurance that the Company's product development
activities will be successful, that new technologies will be available to the
Company, that the Company will be able to deliver commercial quantities of new
products in a timely manner, that those products will adhere to generally
accepted industry standards or that the products will achieve market acceptance.
The Company believes that it is necessary for its products to adhere to
generally accepted industry standards, which are subject to change in ways that
are beyond the control of the Company.
Strength of Infrastructure. The Company has grown, and continues to grow,
at a rapid pace. This growth has required the Company to enhance and expand its
management team, information systems, manufacturing operations and other aspects
of its infrastructure. The Company's success and profitability partly depends on
its ability to continue to improve its infrastructure to keep pace with the
growth in its overall business activities. There can be no assurance that the
Company will be able to effectively manage the expansion of its infrastructure
to support future growth; that needed enhancements to the Company's management
information systems will be completed before the growth of the Company's
business outstrips the abilities of the current systems; or that
11
<PAGE> 13
the Company's results of operations will not be adversely affected by any such
growth, expansion or enhancement.
Government Regulation. Any delays or failures in obtaining necessary
approvals from U.S. federal governmental agencies or from foreign jurisdictions
may adversely affect the Company's ability to successfully market and sell its
products and may impede or preclude the Company's efforts to penetrate new
markets. There can be no assurance that such failures or delays will not occur
in the future.
Patent Rights. As new products are introduced, the Company's continued
business success may be largely dependent on its ability to obtain licenses to
intellectual property developed by others. There can be no assurance that the
Company will be able to obtain those licenses on commercially reasonable terms.
In addition, the Company could be at a disadvantage if its competitors obtain
licenses for protected technologies with more favorable terms than does the
Company. If the Company or its suppliers are unable to license protected
technology used in the Company's products, the Company could be prohibited from
marketing those products or may have to market products without desirable
features. The Company could also incur substantial costs to redesign its
products or to defend any legal action taken against the Company. If the
Company's products should be found to infringe protected technology, the Company
could be enjoined from further infringement and required to pay damages to the
infringed party. Any of these could have a material adverse effect on the
Company's business.
TRADEMARKS AND SERVICEMARKS
Several United States trademarks appear in this Report. Dell, DellWare and
PowerEdge are registered trademarks of the Company. OptiPlex, Dell Dimension and
Latitude are trademarks of the Company. BusinessCare, ReadyWare, SelectCare and
TechFax are service marks of the Company. This Report also contains other
trademarks and tradenames of other entities; the Company disclaims proprietary
interest in the marks and names of others.
ITEM 2 -- PROPERTIES
The Company's principal offices and U.S. manufacturing and warehousing
facilities are located in the Austin, Texas area. At January 28, 1996, the
Company had a total of approximately 1.6 million square feet of office,
manufacturing and warehouse space under lease in several buildings in Austin,
Texas. The expiration dates of such leases range from June 1997 to April 2003.
The Company owns 360 acres of land in Round Rock, Texas (just north of Austin),
on which is located a 224,000-square-foot office building completed in August
1994 and a 228,000-square-foot office building completed in October 1995. The
Company is in the process of constructing a third building (to contain 387,000
square feet of office space) on its Round Rock acreage and expects to occupy
that building in August 1996. The buildings on the Round Rock acreage house the
Company's Austin-based sales, marketing and support staff. The Company also
leases a total of approximately 108,000 square feet of office and warehouse
space in Canada and Mexico.
As of January 28, 1996, the Company's other international facilities
consisted of (a) approximately 290,000 square feet of leased office space in 17
countries (with lease expiration dates ranging from 1996 to 2010), (b) a Company
owned 300,000-square-foot manufacturing and warehousing facility in Limerick,
Ireland and (c) a Company owned 238,000-square-foot combination office and
manufacturing facility in Penang, Malaysia. The land on which the Malaysian
facility is located has been leased for a term of 60 years (commencing November
1993) from the State Authority of Penang.
The Company is evaluating other opportunities to expand facilities in
anticipation of increasing needs. The Company believes that it can readily
obtain appropriate additional space as may be required at competitive rates.
12
<PAGE> 14
ITEM 3 -- LEGAL PROCEEDINGS
Set forth below is a discussion of certain legal proceedings involving the
Company, some of which could have a material adverse effect on the Company if
resolved in a manner unfavorable to the Company. The Company is also party to
other legal proceedings incidental to its business, none of which the Company
believes to be material.
The Company has been named as a defendant in approximately 30 repetitive
stress injury lawsuits, most of which are in New York state courts or United
States District Courts for the New York City area. Several are in state courts
in New Jersey. One is in the Federal District Court for the Eastern District of
Pennsylvania, and one is in Federal District Court in Kansas. Two cases have
been dismissed; the remainder are at various stages of the process leading to
trial. The allegations in all of these lawsuits are similar. Each plaintiff
alleges that he or she suffers from symptoms generally known as "repetitive
stress injury," which allegedly were caused by the design or manufacture of the
keyboard supplied with the computer the plaintiff used. The Company has denied
or is in the process of denying the claims and intends to vigorously defend the
suits. The suits naming the Company are just a few of many lawsuits of this type
that have been filed, often naming Apple, Atex, Compaq, IBM, Keytronic and other
major suppliers of keyboard products. The Company currently is not able to
predict the outcome of these suits. It is possible that the Company may be named
in additional suits. Ultimate resolution of the litigation against the Company
may depend on progress in resolving this type of litigation overall. However,
the Company does not believe that the outcome of these matters will have a
material adverse effect on the Company's financial condition or results of
operations.
On August 11, 1993, the Company received a subpoena from the United States
Department of Commerce, Office of Export Enforcement of the Bureau of Export
Administration, requiring the Company to provide all documents relative to any
and all exports of 486/66 computers or related components to Russia, Ireland,
Iran or Iraq during the period from January 1992 through August 1993 in
connection with an investigation to enforce regulations under the Export
Administration Act of 1979, as amended. The investigation has been closed, with
no findings of wrongdoing by the Company, with respect to the Company's
shipments to Russia, Ireland and Iraq. The Company is awaiting a response from
the Department of Commerce regarding its voluntary self disclosure of certain
shipments to Iran in June 1992. If the Office of Export Enforcement's
investigators determine that the Company has violated applicable regulations,
the government could potentially file civil or criminal charges. The Company has
fully responded to the subpoena and, in accordance with its policy to comply
fully with export laws and regulations, intends to cooperate with the Office of
Export Enforcement. The Company does not believe that this investigation or its
outcome will have a material adverse effect on the Company's financial condition
or results of operations.
In May 1995, the Company was named, along with two other computer
manufacturers and one computer monitor vendor, in a class action complaint filed
in the California Superior Court for Marin County. Subsequently, several other
similar actions were filed in California Superior Courts for other counties,
naming a total of 48 defendants, including the Company. The complaints in all of
these cases allege that each of the defendants has engaged in false or
misleading advertising with regard to the size of computer monitor screens. The
plaintiffs seek restitution in the form of refunds or product exchange, damages,
punitive damages and attorneys' fees. The California Judicial Council, in
December 1995, ordered all of these similar cases consolidated for proceedings
up to and including trial and, in January 1996, appointed a single trial judge
for the consolidated proceeding. The judge has ordered all proceedings stayed
until March 29, 1996, when a status conference is scheduled. The Company plans
to vigorously contest the allegations of the complaints. This litigation is
currently at a preliminary stage and no discovery has occurred. Thus, it is too
early for the Company to adequately evaluate the likelihood of the plaintiffs'
prevailing on their claims. There can be no assurance that an adverse
determination in this litigation would not have a material adverse effect on the
Company's financial condition or results of operations.
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<PAGE> 15
In June 1995, the Company was served with a class action complaint filed in
State District Court in Travis County, Texas. The complaint alleges that the
Company has included "used parts" in its "new" computer systems and has failed
to adequately inform its customers and prospective customers of that practice.
According to the complaint, these facts constitute fraud, negligent
misrepresentation, breach of contract and breach of warranty. The plaintiffs
seek refund of the purchase price for computer systems purchased from the
Company, damages in an unspecified amount, injunctive relief, interest and
attorneys' fees. The Company plans to vigorously contest the allegations of the
complaint. This litigation is currently at a preliminary stage, and no discovery
has occurred. Thus, it is too early for the Company to adequately evaluate the
likelihood of the plaintiffs' prevailing on their claims. There can be no
assurance that an adverse determination in this litigation would not have a
material adverse effect on the Company's financial condition or results of
operations.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's stockholders, through
the solicitation of proxies or otherwise, during the fourth quarter of fiscal
1996.
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PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Common Stock is traded on The Nasdaq National Market under the symbol
"DELL." The following table sets forth, for the fiscal quarters indicated, the
high and low sales price for the Common Stock as reported in the consolidated
transaction reporting system. Such prices have been restated, where appropriate,
to reflect the two-for-one stock split discussed in "Item 5 -- Market for
Registrant's Common Equity and Related Stockholder Matters -- Dividends" below.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL YEAR 1996
Fourth Quarter
(October 30, 1995, through January 28, 1996)..................... $49 3/8 $23
Third Quarter
(July 31,1995, through October 29, 1995)......................... $47 13/16 $31
Second Quarter
(May 1, 1995, through July 30, 1995)............................. $35 1/16 $24 1/4
First Quarter
(January 30, 1995, through April 30, 1995)....................... $27 7/16 $19 3/4
FISCAL YEAR 1995
Fourth Quarter
(October 31, 1994, through January 29, 1995)..................... $23 7/8 $18 3/8
Third Quarter
(August 1, 1994, through October 30, 1994)....................... $22 $13 3/4
Second Quarter
(May 2, 1994, through July 31, 1994)............................. $15 3/8 $10 3/4
First Quarter
(January 31, 1994, through May 1, 1994).......................... $15 1/16 $9 9/16
</TABLE>
HOLDERS
As of March 22, 1996, there were 3,526 holders of record of the Common
Stock.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock. The Company
intends to retain earnings for use in its business and, therefore, does not
anticipate paying any cash dividends on Common Stock for at least the next
twelve months. In addition, the terms of the Indenture governing the Company's
11% Senior Notes Due August 15, 2000 limit "restricted payments" by the Company,
which include cash dividends.
On October 9, 1995, the Company's Board of Directors declared a two-for-one
split of the Company's Common Stock in the form of a 100% stock dividend to
stockholders of record as of October 20, 1995. The distribution of such dividend
occurred on October 27, 1995.
On November 30, 1995, the Company's Board of Directors, in connection with
the adoption and implementation of a stockholders' rights plan, declared a
dividend of one Preferred Share Purchase Right for each outstanding share of
Common Stock. The distribution of the dividend was made on December 13, 1995 to
the stockholders of record on that date. For further discussion of the terms of
the Preferred Share Purchase Rights, see "Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" below and
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<PAGE> 17
Note 10 of Notes to Consolidated Financial Statements included in "Item
8 -- Financial Statements and Supplementary Data" below.
STOCK REPURCHASE PROGRAM
On February 22, 1996, the Company announced a stock repurchase program
under which the Company may purchase up to 12 million shares of Common Stock in
open market or private transactions. The repurchase program is intended to
provide shares for issuance to employees under the Company's stock-based
employee benefit plans. The total number of shares to be purchased will be based
on several factors, including the level of stock issuances pursuant to employee
awards, the price of the Common Stock and other general market conditions.
Purchases may be made in the open market or in privately negotiated transactions
from time to time at management's discretion. The Company may also utilize
equity options as part of the repurchase program. For information regarding the
status of the program to date, see Note 8 of Notes to Consolidated Financial
Statements included in "Item 8 -- Financial Statements and Supplementary Data"
below.
ITEM 6 -- SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Consolidated Financial Statements, including the related notes, and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The information set forth below is not necessarily indicative of
the results of future operations.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 2,
1996 1995 1994(A) 1993 1992
----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales......................... $ 5,296 $ 3,475 $ 2,873 $ 2,014 $ 890
Gross margin...................... $ 1,067 $ 738 $ 433 $ 449 $ 282
Operating income (loss)........... $ 377 $ 249 $ (39) $ 139 $ 67
Net income (loss)................. $ 272 $ 149 $ (36) $ 102 $ 51
Earnings (loss) per common share
(b):
Primary...................... $ 2.67 $ 1.69 $ (.53) $ 1.30 $ 0.70
Fully diluted................ $ 2.65 $ 1.58 $ -- $ -- $ --
Weighted average shares used to
compute earnings (loss) per
common share (b):
Primary...................... 97.1 83.1 74.7 78.5 72.5
Fully diluted................ 98.7 94.6 -- -- --
Statement of Financial Position Data:
Working capital................... $ 1,018 $ 718 $ 510 $ 359 $ 283
Total assets...................... $ 2,148 $ 1,594 $ 1,140 $ 927 $ 560
Long-term debt.................... $ 113 $ 113 $ 100 $ 48 $ 41
Total stockholders' equity........ $ 973 $ 652 $ 471 $ 369 $ 274
</TABLE>
- ---------------
(a) See Note 12 of Notes to Consolidated Financial Statements for a discussion
of certain charges recorded in fiscal 1994 that contributed to the net
loss.
(b) All share and per share information has been retroactively restated to
reflect the two-for-one split of the Common Stock in October 1995. See Note
8 of Notes to Consolidated Financial Statements.
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<PAGE> 18
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the fiscal years indicated the
percentage of consolidated net sales represented by certain items in the
Company's Consolidated Statement of Operations. All percentage amounts and
ratios were calculated using the underlying data in thousands.
<TABLE>
<CAPTION>
PERCENTAGE OF CONSOLIDATED NET SALES
-------------------------------------------
FISCAL YEAR ENDED
-------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
Americas............................................. 65.6% 69.1% 70.9%
Europe............................................... 27.9 27.4 27.2
Asia Pacific and Japan............................... 6.5 3.5 1.9
----- ----- -----
Consolidated net sales....................... 100.0 100.0 100.0
Cost of sales.......................................... 79.8 78.8 84.9
----- ----- -----
Gross margin................................. 20.2 21.2 15.1
Operating expenses:
Selling, general and administrative.................. 11.3 12.2 14.7
Research, development and engineering................ 1.8 1.9 1.7
----- ----- -----
Total operating expenses..................... 13.1 14.1 16.4
----- ----- -----
Operating income (loss)...................... 7.1 7.1 (1.3)
Financing and other income (expense), net.............. 0.1 (1.0) --
----- ----- -----
Income (loss) before income taxes............ 7.2 6.1 (1.3)
Provision for income taxes (benefit)................... 2.1 1.8 (0.1)
----- ----- -----
Net income (loss)............................ 5.1 4.3 (1.2)
Preferred stock dividends.............................. (0.2) (0.3) (0.1)
----- ----- -----
Net income (loss) available to common stockholders..... 4.9% 4.0% (1.3)%
===== ===== =====
</TABLE>
Net Sales. Consolidated net sales includes sales of computer systems
(including hardware, certain software and accessories); computer peripherals;
other hardware, software and accessories sold separately from computer systems;
and extended service contracts. Sales of computer systems ("system revenue")
amounted to 89%, 88% and 87% of consolidated net sales for fiscal 1996, 1995 and
1994, respectively. Consolidated net sales for fiscal 1996 increased 52% over
fiscal 1995, compared with an increase of 21% in fiscal 1995 from fiscal 1994.
The increase in sales in fiscal 1996 was due primarily to a 48% increase in
units sold over the prior year, reflecting increased demand for the Company's
desktop product offerings and its Latitude family of notebook computers. During
fiscal 1996, sales of notebook computers represented 16% of system revenue, up
from 8% of system revenue in fiscal 1995 and 3% of system revenue in fiscal
1994. The mix of system revenue generated by sales of Pentium-processor based
products increased substantially in fiscal 1996, to 75% of system revenue,
compared with 29% and 1% in fiscal 1995 and fiscal 1994, respectively. The
increase in the mix of system revenue from Pentium-processor based products and
from notebook computers (whether 486-based or Pentium-based) resulted in a 3%
increase in average total revenue per unit in fiscal 1996 over the prior year.
Average total revenue per unit increased 12% and unit volumes increased 8% for
fiscal 1995 over fiscal 1994, primarily because of strong demand for the
Company's Pentium processor-based products and notebook computers (all such
notebook computers were 486-based in fiscal 1995).
The Company experienced growth in consolidated net sales in all geographic
regions in both fiscal 1996 and fiscal 1995, with net sales from Asia Pacific
and Japan continuing to increase as a
17
<PAGE> 19
percentage of consolidated net sales. Consolidated net sales (expressed in
United States dollars) were not significantly affected during any of the last
three fiscal years as a result of fluctuations in foreign currency exchange
rates from the comparable periods of the prior year. The Company believes that a
significant opportunity exists for continued growth in international operations.
In November 1995, the Company began production in a 238,000-square-foot
combination office and manufacturing facility on a nine-acre site in Penang,
Malaysia, to meet the needs of its expanding Asia Pacific business. The land on
which the Malaysian facility is located has been leased for a 60-year term,
beginning November 1993, from the State Authority of Penang. The Company intends
to continue to expand its international activities by increasing its market
presence in existing markets, improving its infrastructure, pursuing additional
distribution opportunities and entering new markets.
The mix of the Company's business between sales to major accounts
(consisting of sales to major corporate, government, medical and education
accounts and value-added resellers) and sales to small-to-medium businesses and
individuals shifted in fiscal 1996, with sales to small-to-medium businesses and
individuals comprising 37% of consolidated net sales in fiscal 1996 compared
with 33% in the prior year. In fiscal 1994, sales to small-to-medium businesses
and individuals represented 36% of consolidated net sales.
Gross Margin. Gross margin increased $329 million in fiscal 1996 over
fiscal 1995 and increased $305 million in fiscal 1995 over the prior year. The
Company's gross margin as a percentage of consolidated net sales decreased to
20.2% in fiscal 1996 from 21.2% in the prior year, mainly due to the shift in
the sales mix from major accounts to small-to-medium businesses and individuals,
which generally carry lower margins, and to the Company's more aggressive
pricing strategy in comparison to the prior year. Additionally, in the fourth
quarter of fiscal 1996, a problematic product transition involving certain of
the Company's OptiPlex desktop products had an adverse effect on gross margin.
These negative effects on gross margin were partially offset by lower warranty
and inventory obsolescence costs as a percentage of consolidated net sales and
certain economies of scale. The Company's gross margin percentage increased to
21.2% in fiscal 1995 from 15.1% in fiscal 1994. The gross margin percentage for
fiscal 1994 was adversely affected by $70 million of inventory write-downs and
related costs incurred during the first half of fiscal 1994 and, excluding these
charges, would have been 17.5%. The increase in gross margin percentage to 21.2%
in fiscal 1995 from 17.5% (as adjusted) in fiscal 1994 was due to improvements
in manufacturing logistics and efficiencies, reductions in component costs and
improvements in quality due to the Company's vendor certification and vendor
consolidation programs, and lower charges for inventory obsolescence
attributable to improved inventory management. Gross margins in fiscal 1995
compared with fiscal 1994 also benefited from higher average revenue per unit
resulting from a more moderate pricing environment in the last half of fiscal
1995, a higher margin sales mix driven by notebook computers and Pentium
processor-based systems, and changes in the Company's sales incentive programs.
Operating Expenses. The Company's goal is to manage operating expenses,
over time, in relation to gross margin. During fiscal 1996, the Company
strengthened its management team and increased staffing worldwide to meet the
demands of its growth and to expand its international presence, resulting in
increased compensation-related expenses. The Company also expended resources on
its key global information systems project, which it began in late fiscal 1995
and expects to complete in fiscal 1999, and on improving current information
systems until the multi-year project is completed. These infrastructure
expenditures, plus increased spending for advertising and promotion, resulted in
an increase in selling, general and administrative expenses of 41% in fiscal
1996 over the prior year. However, selling, general and administrative expenses
as a percentage of consolidated net sales decreased to 11.3% in fiscal 1996 from
12.2% in fiscal 1995. Selling, general and administrative expenses for fiscal
1994 included $21 million of charges for consolidating operations, write-offs of
certain assets and employee severance payments. The actions were taken to reduce
costs and included the closing of a subsidiary in Europe and consolidation of
its former operations into another central European location. European service
and
18
<PAGE> 20
support operations were combined to reduce redundant costs. Additionally,
certain headcount reductions were made due to the efficiencies created from the
consolidations. Selling, general and administrative expenses as a percentage of
consolidated net sales in fiscal 1994 were 14.7% but, excluding the $21 million
of charges, would have been 14.0%. As a result of the cost reduction actions
taken in fiscal 1994, selling, general and administrative expenses as a
percentage of consolidated net sales decreased from 14.0% (as adjusted) in
fiscal 1994 to 12.2% in fiscal 1995, further aided by reduced advertising and
promotion expenses partially offset by increased compensation expense as the
Company began to strengthen its management team.
To support increased product development activities and improved quality
and time-to-market of its products, the Company increased headcount during
fiscal 1996, resulting in increased compensation-related expenses. Furthermore,
the Company incurred additional development costs in conjunction with the
development of new notebook computer products. These activities resulted in an
increase in research, development and engineering expenses of 45% in fiscal 1996
over the prior year. Research, development and engineering expenses as a
percentage of consolidated net sales, however, decreased slightly in fiscal
1996. Research, development and engineering expenses increased 34% in absolute
dollar terms (and increased as a percentage of consolidated net sales) when
comparing fiscal years 1995 and 1994 primarily due to higher compensation
expense in fiscal 1995 relating to an increase in headcount and higher
development costs related to notebook computers and other product development
efforts.
The Company believes that its ability to manage operating costs is an
important factor in its ability to remain price competitive. However, the
Company will continue to invest in information systems and infrastructure to
manage and support its growth. As previously discussed, the Company is currently
investing in a key global information systems project, which it expects to
complete in fiscal 1999.
Financing and Other Income (Expense), Net. The table below sets forth, for
each of the past three fiscal years, the components of financing and other
income (expense), net:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Financing and other income (expense), net:
Investment income (loss), net:
Marketable securities..................... $ 25 $ (7) $ 9
Investment derivatives.................... -- (24) 5
Interest expense............................. (15) (12) (9)
Foreign currency transactions................ (1) 3 1
International year-end transition............ -- 6 --
Other........................................ (3) (2) (6)
---- ---- ---
$ 6 $ (36) $ --
==== ==== ===
</TABLE>
Investment income (loss) on marketable securities increased to $25 million
in fiscal 1996 from ($7) million in fiscal 1995. The $7 million investment loss
in fiscal 1995 was due to realized losses of $24 million on certain of the
Company's marketable securities, partially offset by investment income of
approximately $17 million. The investment losses were primarily a result of
interest rate increases in the United States, Canadian, Japanese and European
interest rate markets. Excluding the impact of the realized losses in fiscal
1995, the increases in investment income from fiscal 1995 to fiscal 1996 and
from fiscal 1994 to fiscal 1995 were primarily due to higher average investment
balances and higher effective yields. The Company accounts for highly liquid
investments with maturities of three months or less at date of acquisition as
marketable securities and reflects the related cash
19
<PAGE> 21
flows as investing cash flows. As a result, a significant portion of its gross
marketable securities purchases and maturities disclosed as investing cash flows
is related to highly liquid investments.
The Company has historically employed a variety of interest rate derivative
instruments to manage its principal, market and credit risks and to enhance its
investment yield. Derivative instruments utilized include interest rate swaps,
written and purchased interest rate options and swaptions (options to enter into
interest rate swaps). Prior to June 1994, the Company structured derivative
instruments in interest rate markets where it had foreign operations. Interest
rate derivatives generally involve exchanges of interest payments based upon
fixed and floating interest rates without exchanges of underlying notional
amounts. For the first and second quarters of fiscal 1995, the average fair
value of these investment derivative financial instruments totaled ($12) million
and ($8) million, respectively. The Company closed all remaining investment
derivatives during the second quarter of fiscal 1995, and at the end of fiscal
1995 and throughout fiscal 1996, the Company had no investment derivatives
outstanding. Realized and unrealized net gains (losses) on investment
derivatives recognized in income for fiscal 1995 were ($24) million compared
with $5 million for fiscal 1994.
All of the Company's foreign exchange and interest rate derivative
instruments involve elements of market and credit risk in excess of the amounts
recognized in the financial statements. The counterparties to financial
instruments consist of a number of major financial institutions. In addition to
limiting the amount of agreements and contracts it enters into with any one
party, the Company regularly monitors the credit quality of its counterparties.
The Company does not anticipate nonperformance by any of the counterparties.
The increase in interest expense in fiscal years 1996 and 1995 was
primarily due to higher average debt balances outstanding and higher net
interest costs associated with the Company's 11% Senior Notes due August 15,
2000 (the "Senior Notes") issued in the third quarter of fiscal 1994.
Concurrently with the issuance of the Senior Notes, the Company entered into
interest rate swap agreements to reduce its related interest costs and, in the
third quarter of fiscal 1995, entered into offsetting swap agreements to change
its interest rate exposure. For further discussion of the interest rate swaps,
see Note 6 of Notes to Consolidated Financial Statements. The weighted average
interest rate, adjusted by the swaps, was 13.8%, 12.1% and 9.5% for fiscal years
1996, 1995 and 1994, respectively. At January 28, 1996, the Company was paying a
net interest cost of 13.8% on the Senior Notes.
Prior to fiscal 1995, the Company consolidated its international operating
results on a one-month delay to facilitate consolidated financial reporting. In
the fourth quarter of fiscal 1995, the Company eliminated this one-month delay
and, consequently, included one additional month of international operations in
its income before income taxes for fiscal 1995. Net earnings before taxes of $6
million for this additional month were included in financing and other income
(expense), net, resulting in an additional $4 million of net income or $0.05 of
primary earnings per common share.
The reduction in other expense in fiscal 1995 was primarily due to higher
financing-related expenses incurred in fiscal 1994 in connection with the
refinancing of debt and credit facilities.
Income Tax. The Company's effective tax rate was 29.0% for fiscal 1996,
compared with 30.0% and 7.6% for fiscal 1995 and fiscal 1994, respectively. The
changes in the effective tax rate resulted from changes in the geographical
distribution of income and losses and from significant second quarter fiscal
1994 losses.
HEDGING ACTIVITIES
The results of the Company's international operations are affected by
changes in exchange rates between certain foreign currencies and the United
States dollar. Beginning in fiscal 1996, the majority of the Company's
international sales are made by international subsidiaries which have the U.S.
dollar as their functional currency. Principal international subsidiaries which
have the U.S. dollar
20
<PAGE> 22
as the functional currency are the Company's Irish subsidiaries, including the
European manufacturing facility, and its Malaysian manufacturing, sales and
support subsidiary. As the value of the U.S. dollar strengthens against other
currencies, sales made in those currencies translate into lower sales in U.S.
dollars; as the value of the U.S. dollar weakens against other currencies, sales
made in those currencies translate into higher sales in U.S. dollars. The
financial statements for the Company's other international subsidiaries are
generally measured using the local currency as the functional currency. For many
of these international subsidiaries, an increase in the value of the U.S. dollar
increases costs incurred because many of the component purchases are denominated
in the U.S. dollar. Therefore, changes in exchange rates may negatively affect
the Company's consolidated net sales (as expressed in United States dollars) and
gross margins from international operations.
The Company conducts a foreign currency hedging program to reduce its
exposure to the risk that the dollar-value equivalent of anticipated cash flows
will be adversely affected by changes in foreign currency exchange rates. The
Company uses foreign currency purchased option contracts and forward contracts
in an effort to reduce its exposure to currency fluctuations involving
anticipated, but not firmly committed, transactions and transactions with firm
foreign currency commitments. For further information regarding hedging
activities and their effect on the Company's financial statements, see Note 1
and Note 4 of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows from operating activities were $175 million in
fiscal 1996 and represented the Company's primary source of cash. At January 28,
1996, and January 29, 1995, the Company's working capital totaled $1,018 million
and $718 million, respectively. Days in accounts receivable at the end of fiscal
1996 decreased to 42 days from 47 days at the end of fiscal 1995. Days in
accounts payable decreased to 33 days at the end of fiscal 1996 from 44 days at
the end of fiscal 1995. Inventory levels decreased slightly to 31 days of supply
at the end of fiscal 1996 from 32 days of supply at the end of fiscal 1995.
The Company utilized $101 million in cash during fiscal 1996 primarily to
construct facilities and to acquire information systems (principally hardware
and third-party software licenses) and personal computer office equipment.
Capital expenditures for fiscal 1997 are expected to be approximately $100
million, primarily related to the construction of facilities, the acquisition of
information systems and the acquisition of computer equipment for internal use.
The Company believes that its cash and marketable securities and cash flows from
operating activities will be adequate to fund its planned fiscal 1997 capital
expenditures.
During fiscal 1996, the Company entered into a series of line of credit
facilities, each of which bears interest at a defined Base Rate or Eurocurrency
Rate and has a covenant based on quarterly maintenance of net worth. Maximum
aggregate amounts available under these credit facilities are limited to $200
million less the aggregate of outstanding letters of credit under these
facilities. During the commitment period, the Company is obligated to pay a fee
on the unused portion of the credit facilities. No borrowings or letters of
credit were outstanding under these credit facilities as of January 28, 1996,
and the maximum available totaled $200 million.
In November 1995, several of the Company's subsidiaries entered into a
transaction pursuant to which Dell Receivables L.P. ("Dell Receivables"), a
newly formed wholly owned subsidiary of the Company, purchases certain accounts
receivable and related assets from other Company subsidiaries and in turn
transfers such accounts receivable and related assets to the Dell Trade
Receivable Master Trust (the "Master Trust"). The Master Trust will issue
certificates evidencing fractional undivided interests therein, which
certificates may be sold to investors. This arrangement gives Dell Receivables
the ability to raise up to $150 million through the sale of certificates of
interest in the Master Trust and replaced the Company's receivables
securitization arrangement that was scheduled to expire in June 1996. Dell
Receivables is obligated to pay a commitment fee on the unused
21
<PAGE> 23
portion of the facility. At January 28, 1996, this facility was unused. During
fiscal 1994, the Company sold $85 million of receivables pursuant to the terms
of its previous receivables securitization arrangement. The discount on sale of
receivables was included in financing and other income (expense), net. All such
receivables sold were collected during fiscal 1994. The previous facility was
unused in fiscal 1995 and 1996.
In August 1993, the Company issued $100 million of 11% Senior Notes Due
August 15, 2000. Interest on the Senior Notes is payable semiannually, on
February 15 and August 15 of each year. The Senior Notes are redeemable, in
whole or in part, at the option of the Company at any time on or after August
15, 1998, at redemption prices decreasing from 103.50% to 101.75% of principal,
depending upon the redemption date, plus accrued interest to the date of
redemption.
In December 1994, the Company obtained a $14 million loan secured by a
224,000-square-foot office building in Round Rock, Texas (with a net book value
of $23 million at January 28, 1996). The loan is for 15 years at an interest
rate of 10.28%; monthly payments of principal and interest, payable in arrears,
began in February 1995. The long-term portion of the loan was $13 million at
January 28, 1996.
In August 1993, the Company sold 1,250,000 shares of Series A Convertible
Preferred Stock (the "Convertible Preferred Stock"), generating net proceeds of
$120 million after deducting related issuance costs. In February 1995, the
Company offered to pay a cash premium of $8.25 for each outstanding share of
Convertible Preferred Stock that was converted to Common Stock. For a discussion
of the terms of the Convertible Preferred Stock and the terms of the conversion
offer, see Note 7 of Notes to Consolidated Financial Statements. Holders of
1,190,000 shares of Convertible Preferred Stock elected to convert and, as a
result, received an aggregate of approximately 10 million shares of Common Stock
and $10 million in cash during the first quarter of fiscal 1996. The $10 million
conversion premium and $1 million of expenses of the conversion offer were
treated as an additional dividend on the Convertible Preferred Stock for
financial reporting purposes. In addition, the weighted average shares
outstanding used to compute primary earnings per common share for fiscal 1996
includes the shares of Common Stock issued upon conversion from the closing of
the conversion period until the end of fiscal 1996.
In July 1995, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the number of shares of
Common Stock that the Company is authorized to issue from 100 million to 300
million. On October 9, 1995, the Company's Board of Directors declared a
two-for-one Common Stock split, payable in the form of a 100% stock dividend to
stockholders of record as of October 20, 1995. The distribution of such dividend
occurred on October 27, 1995. All share and per share information has been
retroactively restated in the Consolidated Financial Statements to reflect the
stock split.
In November 1995, the Company's Board of Directors declared a dividend of
one Preferred Share Purchase Right (a "Right") for each outstanding share of
Common Stock. The distribution of the Rights was made on December 13, 1995, to
the stockholders of record on that date. Each Right entitles the holder to
purchase one one-thousandth of a share of a new series of preferred stock, the
Series A Junior Participating Preferred Stock, at an exercise price of $225. For
a discussion of the terms of such preferred stock, see Note 7 of Notes to
Consolidated Financial Statements. The Rights will be exercisable only if a
person or group acquires 15% or more of the Common Stock or announces a tender
offer, the consummation of which would result in such person or group owning 15%
or more of the Common Stock. For further discussion of the terms of the Rights,
see Note 10 of Notes to Consolidated Financial Statements.
On February 22, 1996, the Company announced a stock repurchase program
under which the Company may purchase up to 12 million shares of Common Stock in
open market or private transactions. The repurchase program is intended to
provide shares for issuance to employees under the Company's stock-based
employee benefit plans. The total number of shares to be purchased will be based
on several factors, including the level of stock issuances pursuant to
22
<PAGE> 24
employee awards, the price of the Common Stock and other general market
conditions. Purchases may be made in the open market or in privately negotiated
transactions from time to time at management's discretion. The Company may also
utilize equity options as part of the repurchase program. For information
regarding the status of the program to date, see Note 8 of Notes to Consolidated
Financial Statements.
The Company's long-term commitments to use cash consist of the repayment of
the $100 million in Senior Notes, the repayment of the outstanding balance of
the $14 million secured loan and the payment of operating lease commitments.
Management believes that sufficient resources will be available to meet the
Company's cash requirements through at least the next twelve months. Cash
requirements for periods beyond the next twelve months depend on the Company's
profitability, its ability to manage working capital requirements and its rate
of growth.
FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS
Numerous factors may affect the Company's business and the success of its
operations. These factors include general economic and business conditions; the
level of demand for personal computers; the level and intensity of competition
in the personal computer industry and the pricing pressures that may result; the
ability of the Company to timely and effectively manage periodic product
transitions and component availability; the ability of the Company to develop
new products based on new or evolving technology and the market's acceptance of
those products; the ability of the Company to manage its inventory levels to
minimize excess inventory, declining inventory values and obsolescence; the
product, customer and geographic sales mix of any particular period; and the
Company's ability to continue to improve its infrastructure (including personnel
and systems) to keep pace with the growth in its overall business activities.
For a discussion of these and other factors affecting the Company's business and
prospects, see "Item 1 -- Business -- Factors Affecting the Company's Business
and Prospects" above.
23
<PAGE> 25
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Report of Independent Accountants................................................... 25
Consolidated Statement of Financial Position at January 28, 1996 and
January 29, 1995................................................................. 26
Consolidated Statement of Operations for the three fiscal years ended
January 28, 1996................................................................. 27
Consolidated Statement of Cash Flows for the three fiscal years ended
January 28, 1996................................................................. 28
Consolidated Statement of Stockholders' Equity for the three fiscal years ended
January 28, 1996................................................................. 29
Notes to Consolidated Financial Statements.......................................... 30
Financial Statement Schedule:
For the three fiscal years ended January 28, 1996
Schedule II -- Valuation and Qualifying Accounts................................. 56
</TABLE>
All other schedules are omitted because they are not applicable.
24
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Dell Computer Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Dell Computer Corporation and its subsidiaries at January 28, 1996
and January 29, 1995, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended January 28, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Austin, Texas
February 19, 1996
25
<PAGE> 27
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
JANUARY 28, JANUARY 29,
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash.............................................................. $ 55 $ 43
Marketable securities............................................. 591 484
Accounts receivable, net.......................................... 726 538
Inventories....................................................... 429 293
Other current assets.............................................. 156 112
------ ------
Total current assets...................................... 1,957 1,470
Property, plant and equipment, net.................................. 179 117
Other assets........................................................ 12 7
------ ------
$2,148 $1,594
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 466 $ 403
Accrued and other liabilities..................................... 473 349
------ ------
Total current liabilities................................. 939 752
------ ------
Long-term debt...................................................... 113 113
------ ------
Deferred profit on warranty contracts............................... 116 68
------ ------
Other liabilities................................................... 7 9
------ ------
Commitments and contingencies....................................... -- --
Stockholders' equity:
Preferred stock and capital in excess of $.01 par value; shares
authorized: 5,000,000; shares issued and outstanding: 60,000
and 1,250,000, respectively.................................... 6 120
Common Stock and capital in excess of $.01 par value; shares
authorized: 300,000,000 and 100,000,000, respectively; shares
issued and outstanding: 93,446,607 and 79,359,276,
respectively................................................... 430 242
Retained earnings................................................. 570 311
Other............................................................. (33) (21)
------ ------
Total stockholders' equity................................ 973 652
------ ------
$2,148 $1,594
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 28
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.............................................. $5,296 $3,475 $2,873
Cost of sales.......................................... 4,229 2,737 2,440
------ ------ ------
Gross margin................................. 1,067 738 433
Operating expenses:
Selling, general and administrative.................. 595 424 423
Research, development and engineering................ 95 65 49
------ ------ ------
Total operating expenses..................... 690 489 472
------ ------ ------
Operating income (loss)...................... 377 249 (39)
Financing and other income (expense), net.............. 6 (36) --
------ ------ ------
Income (loss) before income taxes............ 383 213 (39)
Provision for income taxes (benefit)................... 111 64 (3)
------ ------ ------
Net income (loss)............................ 272 149 (36)
Preferred stock dividends.............................. (12) (9) (4)
------ ------ ------
Net income (loss) available to common stockholders..... $ 260 $ 140 $ (40)
====== ====== ======
Earnings (loss) per common share:
Primary.............................................. $ 2.67 $ 1.69 $ (.53)
====== ====== ======
Fully diluted........................................ $ 2.65 $ 1.58 $ --
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 29
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 272 $ 149 $ (36)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 38 33 31
Net loss on marketable securities............... -- 21 --
Compensation expense recognized under employee
stock plans.................................. 10 4 3
Other........................................... -- -- 1
Changes in:
Operating working capital......................... (183) (3) 97
Non-current assets and liabilities................ 38 39 17
------- ------- -------
Net cash provided by operating activities.... 175 243 113
------- ------- -------
Cash flows from investing activities:
Marketable securities:
Purchases......................................... (4,545) (4,644) (2,588)
Maturities and other redemptions.................. 4,386 4,340 2,288
Sales............................................. 56 124 47
Capital expenditures................................. (101) (64) (48)
------- ------- -------
Net cash used in investing activities........ (204) (244) (301)
------- ------- -------
Cash flows from financing activities:
Net payments for short-term borrowings............... -- -- (9)
Proceeds from long-term debt......................... -- 14 97
Repayments of borrowings............................. (1) (1) (50)
Net proceeds from issuance of preferred stock........ -- -- 120
Preferred stock dividends paid....................... (13) (9) (2)
Issuance of Common Stock under employee plans........ 48 35 22
------- ------- -------
Net cash provided by financing activities.... 34 39 178
------- ------- -------
Effect of exchange rate changes on cash................ 7 2 (2)
------- ------- -------
Net increase (decrease) in cash........................ 12 40 (12)
Cash at beginning of period............................ 43 3 15
------- ------- -------
Cash at end of period.................................. $ 55 $ 43 $ 3
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 30
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
-------------------------------------------------------------
PREFERRED STOCK COMMON STOCK
AND CAPITAL AND CAPITAL
IN EXCESS IN EXCESS RETAINED
OF PAR VALUE OF PAR VALUE EARNINGS OTHER TOTAL
--------------- ------------ -------- ----- -----
<S> <C> <C> <C> <C> <C>
Balances at January 31, 1993............ $ -- $178 $209 $(18) $369
Net loss.............................. -- -- (36) -- (36)
Issuance of 1,250,000 shares of
preferred stock.................... 120 -- -- -- 120
Issuance of 2,142,166 shares of Common
Stock under employee plans,
including tax benefits............. -- 22 -- -- 22
Preferred stock dividends paid........ -- -- (2) -- (2)
Unrealized gain on marketable
securities......................... -- -- -- 3 3
Foreign currency translation
adjustment......................... -- -- -- (5) (5)
----- ---- ---- ---- ----
Balances at January 30, 1994............ 120 200 171 (20) 471
Net income............................ -- -- 149 -- 149
Issuance of 3,501,214 shares of Common
Stock under employee plans,
including tax benefits............. -- 42 -- (4) 38
Preferred stock dividends paid........ -- -- (9) -- (9)
Unrealized loss on marketable
securities......................... -- -- -- (6) (6)
Foreign currency translation
adjustment......................... -- -- -- 9 9
----- ---- ---- ---- ----
Balances at January 29, 1995............ 120 242 311 (21) 652
Net income............................ -- -- 272 -- 272
Issuance of 4,066,363 shares of Common
Stock under employee plans,
including tax benefits............. -- 74 -- (17) 57
Issuance of 10,020,968 shares of
Common Stock due to preferred stock
conversion......................... (114) 114 -- -- --
Amortization of unearned
compensation....................... -- -- -- 2 2
Preferred stock dividends paid........ -- -- (13) -- (13)
Unrealized gain on marketable
securities......................... -- -- -- 3 3
----- ---- ---- ---- ----
Balances at January 28, 1996............ $ 6 $430 $570 $(33) $973
===== ==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 31
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business -- The Company designs, develops, manufactures,
markets, services and supports a wide range of computer systems, including
desktops, notebooks and network servers, and also markets software, peripherals
and service and support programs. The Company markets its computer products and
services under the Dell(R) brand name directly to its customers. These customers
include major corporate, government, medical and education accounts, as well as
small-to-medium businesses and individuals. The Company supplements its direct
marketing strategy by marketing through value-added resellers. Based in Austin,
Texas, the Company conducts operations worldwide through wholly owned
subsidiaries; such operations are primarily concentrated in the United States
and Europe.
Fiscal Year -- The fiscal year of the Company ends on the Sunday nearest
January 31.
Principles of Consolidation -- The consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
include the accounts of Dell Computer Corporation and its wholly owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated. Certain prior period amounts have been reclassified to conform with
the current year presentation.
Prior to fiscal 1995, the Company consolidated its international operating
results on a one-month delay to facilitate consolidated financial reporting. In
the fourth quarter of fiscal 1995, the Company eliminated this one-month delay
and, consequently, included one additional month of international operations in
its income before income taxes for fiscal 1995. Net earnings before taxes of $6
million for this additional month were included in financing and other income
(expense), net and the related cash flows were included in cash flows from
operating activities.
Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at fiscal year
end and the reported amounts of revenues and expenses during the fiscal year.
Actual results could differ from those estimates. Management believes that the
estimates are reasonable.
Marketable Securities -- The Company's marketable securities are classified
as available-for-sale and, accordingly, are reported at fair value. Fair values
are based on quoted broker prices or dealer quotes. Unrealized gains and losses
are reported, net of taxes, as a component of stockholders' equity. Unrealized
losses are charged against income when a decline in fair value is determined to
be other than temporary. The specific identification method is used to determine
the cost of securities sold. The Company accounts for highly liquid investments
with maturities of three months or less at date of acquisition as marketable
securities and reflects the related cash flows as investing cash flows. As a
result, a significant portion of its gross marketable securities purchases and
maturities disclosed as investing cash flows is related to highly liquid
investments.
Inventories -- Inventories are stated at the lower of cost or market, with
cost being determined on a first-in, first-out basis. On a quarterly basis, the
Company compares the amount of the inventory on hand and under commitment on a
part-by-part basis with its latest forecasted requirements to determine whether
write-downs for excess or obsolete inventory are required.
Property, Plant and Equipment -- Property, plant and equipment is carried
at cost. Depreciation is provided using the straight-line method over the
economic lives of the assets, which range from seven to 30 years for buildings
and two to five years for all other assets. Leasehold improvements are amortized
over the shorter of five years or the lease term.
30
<PAGE> 32
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Translation -- The majority of the Company's international
sales are made by international subsidiaries which have the U.S. dollar as their
functional currency. Principal international subsidiaries which have the U.S.
dollar as the functional currency are the Company's Irish subsidiaries,
including the European manufacturing facility, and its Malaysian manufacturing,
sales and support subsidiary. Financial statements for international
subsidiaries which have the U.S. dollar as the functional currency are
remeasured into U.S. dollars using current rates of exchange for monetary assets
and liabilities and historical rates of exchange for nonmonetary assets. Income
and expense items for these subsidiaries are remeasured using monthly average
exchange rates with resultant gains and losses included in the results of
operations. The financial statements for the Company's other international
subsidiaries are generally measured using the local currency as the functional
currency. Accordingly, assets and liabilities of these subsidiaries are
translated at current rates of exchange at the balance sheet date. The resultant
gains and losses from translation are included as a component of stockholders'
equity. Income and expense items for these subsidiaries are translated using
monthly average exchange rates. Gains or losses resulting from remeasuring
monetary asset and liability accounts that are denominated in currencies other
than a subsidiary's functional currency are included as a component of financing
and other income (expense), net.
Foreign Currency Hedging Instruments -- The Company enters into foreign
currency purchased option contracts and forward contracts to hedge its probable
anticipated, but not firmly committed, transactions and transactions with firm
foreign currency commitments. Realized and unrealized gains or losses and
premiums on foreign currency purchased option contracts that are designated and
effective as hedges of probable anticipated, but not firmly committed, foreign
currency transactions are deferred and recognized in income as a component of
revenue, cost of sales and/or operating expenses in the same period as the
hedged transaction. Forward contracts designated as hedges of probable
anticipated transactions are accounted for on a mark-to-market basis and are
included in revenue, cost of sales and/or operating expenses. Foreign currency
exposures related to transactions with firm foreign currency commitments are
generally hedged using forward contracts, which are accounted for on a
mark-to-market basis, with realized and unrealized gains and losses included in
financing and other income (expense), net as an offset to the underlying hedged
transaction.
Interest Rate Management -- Interest rate differentials to be paid or
received on interest rate swaps that are designated to specific borrowings are
accrued and recognized as an adjustment to interest expense. Realized gains or
losses on terminated interest rate swap positions designated to specific
borrowings are recognized as an adjustment to interest expense over the original
life of the interest rate swaps.
Investment Derivatives -- Derivative financial instruments that are not
designated to a specific asset or liability are considered investment
derivatives and are accounted for on a mark-to-market basis, with realized and
unrealized gains or losses recognized as incurred and included as a component of
financing and other income (expense), net. The Company discontinued its
investment derivative program in the second quarter of fiscal 1995.
Option Contracts Indexed to the Company's Common Stock -- Put and call
options utilized in connection with the Company's stock repurchase program give
the Company the choice of net cash settlement or settlement in additional shares
of Common Stock. Proceeds received upon the sale of options and amounts paid
upon the purchase of options are recorded as a component of stockholders'
equity. Subsequent changes in the fair value of the option contracts are not
recognized. If the option contracts are ultimately settled in cash, the amount
of cash paid or received is recorded as a component of stockholders' equity.
31
<PAGE> 33
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition -- Sales revenue is recognized at the date of shipment
to customers. Provision is made currently for estimated product returns. Revenue
from separately priced extended warranty programs is deferred and recognized
over the extended warranty period, and the related extended warranty costs are
recognized as incurred.
Warranty and Other Post-sales Support Programs -- The Company provides
currently for the estimated costs that may be incurred under its warranty and
other post-sales support programs.
Advertising Costs -- Advertising costs, excluding the costs associated with
direct-response advertising, are charged to expense the first time the
advertising takes place. The costs of direct-response advertising are charged to
expense upon mailing. There were no direct-response advertising costs reported
as assets at January 28, 1996, and January 29, 1995. Advertising expenses for
fiscal years 1996, 1995 and 1994 were $83 million, $63 million and $77 million,
respectively.
Income Taxes -- The provision for income taxes is based on earnings
reported in the financial statements under an asset and liability approach,
which requires the recognition of deferred tax assets and liabilities and their
reported amounts for financial statement purposes.
Earnings (Loss) Per Common Share -- Primary earnings (loss) per common
share are computed by dividing net income (loss) available to common
stockholders by the weighted average number of common shares and common stock
equivalents (if dilutive) outstanding during each period. Common stock
equivalents include stock options. The Convertible Preferred Stock is not a
common stock equivalent for purposes of computing earnings (loss) per common
share. The number of common stock equivalents outstanding is computed using the
treasury stock method. The weighted average shares outstanding used to compute
primary earnings per common share for fiscal 1996 includes the shares of Common
Stock issued upon conversion of Convertible Preferred Stock from the closing of
the conversion period until the end of the fiscal year. Shares used in the
calculation of fully diluted earnings (loss) per common share have been adjusted
for the assumed conversion of all of the Company's outstanding Convertible
Preferred Stock for all periods presented. See Note 7 -- Preferred Stock.
Recently Issued Accounting Standards -- In March 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"). The Company has not elected
early adoption of SFAS 121; consequently, it will become effective beginning
with the Company's first quarter of fiscal 1997. Adoption of SFAS 121 will not
have a material effect on the Company's financial position or results of
operations.
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation." The Company has not elected early adoption of SFAS 123;
consequently, it will become effective beginning with the Company's first
quarter of fiscal 1997. As permitted under SFAS 123, upon adoption, the Company
will continue to measure compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
will provide pro forma disclosures of net income and earnings per share as if
the fair value-based method prescribed by SFAS 123 had been applied in measuring
compensation expense. Adoption of SFAS 123 will not have a material effect on
the Company's financial position or results of operations.
32
<PAGE> 34
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- MARKETABLE SECURITIES
The following table describes the Company's holdings of marketable
securities at January 28, 1996, and January 29, 1995. Contractual maturities of
debt securities, classified as available-for-sale and carried at fair value, are
included as of January 28, 1996.
<TABLE>
<CAPTION>
JANUARY 28, 1996
------------------------------------------------------------
UNREALIZED UNREALIZED PERCENT
COST GAINS LOSSES FAIR VALUE FAIR VALUE
---- ---------- ---------- ---------- ----------
(IN MILLIONS, EXCEPT PERCENT DATA)
<S> <C> <C> <C> <C> <C>
Preferred stock........................... $ 57 $-- $-- $ 57 10%
Mutual funds.............................. 75 -- -- 75 13
State and municipal securities:
Maturities less than 60 days............ 118 -- -- 118 20
Maturities 60 days to one year.......... 68 -- -- 68 11
Maturities one to three years........... 12 -- -- 12 2
U.S. corporate and bank debt:
Maturities less than 60 days............ 138 -- -- 138 23
Maturities 60 days to one year.......... 58 -- -- 58 10
Maturities one to three years........... 17 -- -- 17 3
International corporate and bank debt:
Maturities less than 60 days............ 44 -- -- 44 7
Maturities 60 days to one year.......... 4 -- -- 4 1
Maturities one to three years........... -- -- -- -- --
-- --
---- ---- ---
Total marketable securities..... $591 $-- $-- $591 100%
==== == == ==== ===
</TABLE>
<TABLE>
<CAPTION>
JANUARY 29, 1995
------------------------------------------------------------
UNREALIZED UNREALIZED PERCENT
COST GAINS LOSSES FAIR VALUE FAIR VALUE
---- ---------- ---------- ---------- ----------
(IN MILLIONS, EXCEPT PERCENT DATA)
<S> <C> <C> <C> <C> <C>
Preferred stock........................... $ 70 $-- $-- $ 70 14%
Mutual funds.............................. 55 -- -- 55 11
State and municipal securities............ 188 1 1 188 39
U.S. corporate and bank debt.............. 138 -- 4 134 28
International corporate and bank debt..... 37 -- -- 37 8
-- --
---- ---- ---
Total marketable securities..... $488 $1 $5 $484 100%
==== == == ==== ===
</TABLE>
The Company's gross realized gains on the sale of marketable securities
were $0.3 million for fiscal 1996, $3 million for fiscal 1995 and $1 million for
fiscal 1994. Gross realized losses were $0.01 million, $24 million and $1
million for fiscal years 1996, 1995 and 1994, respectively.
33
<PAGE> 35
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at January 28, 1996, and January 29,
1995:
<TABLE>
<CAPTION>
JANUARY 28, 1996 JANUARY 29, 1995
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- ----- --------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Nonderivative financial instruments:
Assets:
Marketable securities..................... $ 591 $ 591 $ 484 $ 484
Liabilities:
Long-term debt............................ 113 123 113 118
Receive fixed/pay floating interest rate
swaps................................... -- (6) -- (9)
Receive floating/pay fixed interest rate
swaps................................... -- (2) -- (1)
Derivative financial instruments:
Foreign currency option contracts:
Assets.................................... 38 33 15 15
Forward contracts for firm foreign currency
commitments:
Assets.................................. 25 25 5 5
Liabilities............................. 14 14 -- --
</TABLE>
Cash, accounts receivable, accounts payable and accrued and other
liabilities are reflected in the financial statements at fair value because of
the short-term maturity of these instruments.
The fair value of marketable securities, long-term debt and interest rate
derivative instruments has been estimated by the Company based upon market
quotes from brokers. The fair value of foreign currency forward contracts has
been estimated using market quoted rates of foreign currencies at the applicable
balance sheet date. The estimated fair value of foreign currency purchased
option contracts is based on market quoted rates at the applicable balance sheet
date and the Black-Scholes options pricing model. Considerable judgment is
necessary in interpreting market data to develop estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company could realize in a current market exchange. Changes
in assumptions could significantly affect the estimates.
NOTE 4 -- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
FOREIGN CURRENCY RISK MANAGEMENT
Foreign Currency Hedging Instruments -- The results of the Company's
international operations are affected by changes in exchange rates between
certain foreign currencies and the United States dollar. Beginning in fiscal
1996, the majority of the Company's international sales are made by
international subsidiaries which have the U.S. dollar as their functional
currency. The Company uses foreign currency purchased option contracts and
forward contracts in an effort to reduce its exposure to currency fluctuations
involving probable anticipated, but not firmly committed, transactions and
transactions with firm foreign currency commitments. The risk of loss associated
with purchased options is limited to premium amounts paid for the option
contracts, which could be significant. The risk of loss associated with forward
contracts is equal to the exchange rate differential from the time the contract
is made until the time it is settled.
34
<PAGE> 36
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Hedging of Probable Anticipated Transactions and Firm Foreign Currency
Commitments -- The Company enters into foreign currency purchased options and,
to a lesser extent, forward contracts to hedge a portion of its probable
anticipated, but not firmly committed, transactions. These transactions include
international sales by U.S. dollar functional currency entities, foreign
currency denominated purchases of certain components and intercompany shipments
to certain international subsidiaries. Foreign currency purchased options
generally expire in twelve months or less, and forward contracts generally
mature in three months or less. The principal currencies hedged are the German
mark, the British pound and the Japanese yen.
Transactions with firm foreign currency commitments are generally hedged
using foreign currency forward contracts for periods not exceeding three months.
At January 28, 1996, and January 29, 1995, the Company held purchased
option contracts that were designated and effective as hedges of probable
anticipated sales by international subsidiaries and intercompany shipments with
a total notional amount of $714 million and $434 million, respectively, and a
combined net realized and unrealized deferred loss of $5 million and $2 million,
respectively. At January 29, 1995, the Company held option contracts that were
designated and effective as hedges of probable anticipated foreign currency
denominated purchases with a total notional amount of $65 million and a combined
net realized and unrealized deferred gain of $2 million. During the fourth
quarter of fiscal 1996, the Company closed all option contracts that were
designated and effective as hedges of probable anticipated foreign currency
denominated purchases. At January 28, 1996, the net realized deferred loss
relating to these contracts was $7 million. Forward contracts designated to
hedge foreign currency transaction exposures of $365 million and $29 million
were outstanding at January 28, 1996, and January 29, 1995, respectively.
INTEREST RATE RISK MANAGEMENT
The Company has also entered into certain interest rate derivative
instruments as a means of managing its interest rate risk and the interest costs
associated with its 11% Senior Notes Due August 15, 2000. See Note
6 -- Long-term Debt and Financing Arrangements.
INVESTMENT DERIVATIVES
The Company has historically employed a variety of interest rate derivative
instruments to manage its principal, market and credit risks and enhance its
investment yield. Derivative instruments utilized included interest rate swaps,
written and purchased interest rate options and swaptions (options to enter into
interest rate swaps). Prior to June 1994, the Company structured derivative
instruments in interest rate markets where it had foreign operations. Interest
rate derivatives generally involve exchanges of interest payments based upon
fixed and floating interest rates without exchanges of underlying notional
amounts. For the first and second quarters of fiscal 1995, the average fair
value of these investment derivative financial instruments totaled ($12) million
and ($8) million, respectively. The Company closed all remaining investment
derivatives during the second quarter of fiscal 1995, and at the end of fiscal
1995 and throughout fiscal 1996, the Company had no investment derivatives
outstanding. Realized and unrealized net gains (losses) on investment
derivatives recognized in income for fiscal 1995 were ($24) million compared
with $5 million for fiscal 1994.
35
<PAGE> 37
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Current:
Domestic..................................... $102 $52 $ 29
Foreign...................................... 25 16 8
Prepaid........................................ (16) (4) (40)
---- --- ----
Provision for income taxes (benefit)........... $111 $64 $ (3)
==== === ====
</TABLE>
Income (loss) before income taxes included approximately $176 million, $126
million and ($32) million related to foreign operations in the fiscal years
ended January 28, 1996, January 29, 1995 and January 30, 1994, respectively.
The Company has not recorded a deferred income tax liability of
approximately $70 million for additional U.S. federal income taxes that would
result from the distribution of earnings of its foreign subsidiaries, if they
were repatriated. The Company currently intends to reinvest indefinitely the
undistributed earnings of its foreign subsidiaries.
The deferred tax asset is comprised of the following principal temporary
differences:
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Depreciation................................... $ 5 $(5) $--
Provisions for doubtful accounts and returns... 25 23 20
Inventory and warranty provisions.............. 18 26 28
Deferred service contract revenue.............. 53 25 9
Import promotion reserve....................... (5) -- --
Other.......................................... (29) 9 7
---- --- ---
Deferred tax asset............................. $ 67 $78 $64
==== === ===
</TABLE>
The difference between the income tax provisions in the Consolidated
Financial Statements and the tax expense computed at the U.S. federal statutory
rate of 35% for each of the last three fiscal years is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Tax provision (benefit) at the U.S. federal
statutory rate............................... $ 134 $ 75 $(14)
Research and development credit................ (1) (1) (1)
Foreign income taxed at different rate......... (23) (16) 10
Net operating loss carryovers.................. 1 2 4
Other.......................................... -- 4 (2)
----- ----- ----
Provision (benefit) for income taxes........... $ 111 $ 64 $ (3)
===== ===== ====
Effective tax rates............................ 29.0% 30.0% 7.6%
===== ===== ====
</TABLE>
36
<PAGE> 38
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- LONG-TERM DEBT AND FINANCING ARRANGEMENTS
The following table sets forth the components of the Company's long-term
debt as of the end of each of the last two fiscal years:
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 29,
1996 1995
----------- -----------
(IN MILLIONS)
<S> <C> <C>
11% Senior Notes Due August 15, 2000........................ $100 $100
Facility loan............................................... 14 14
---- ----
114 114
Less -- current portion..................................... 1 1
---- ----
$113 $113
==== ====
</TABLE>
On August 26, 1993, the Company issued $100 million of 11% Senior Notes Due
August 15, 2000 (the "Senior Notes"). Interest on the Senior Notes is payable
semiannually, on February 15 and August 15 of each year. The Senior Notes are
redeemable, in whole or in part, at the option of the Company at any time on or
after August 15, 1998, at redemption prices decreasing from 103.50% to 101.75%
of principal, depending upon the redemption date, plus accrued interest to the
date of redemption. The Indenture governing the Senior Notes contains certain
covenants, including limitations on the amount of future indebtedness and
restrictions on the payment of cash dividends on Common Stock under certain
circumstances. However, the covenants limiting future indebtedness may be
inapplicable from time to time if the Senior Notes are assigned an investment
grade rating by both of the major rating services.
Concurrently with the issuance of the Senior Notes, the Company entered
into interest rate swap agreements to reduce its related interest costs. The
swap agreements effectively changed the Company's interest rate exposure from a
fixed-rate to a floating-rate basis. However, in response to increasing interest
rates, in August 1994, the Company entered into offsetting swap agreements to
effectively change its interest rate exposure from a floating-rate basis to a
fixed-rate basis. The interest rate swap agreements mature on August 15, 1998,
the first available redemption date of the Senior Notes. At both January 28,
1996, and January 29, 1995, the Company had outstanding receive fixed/pay
floating interest rate swaps with an aggregate notional amount of $100 million
offset by receive floating/pay fixed interest rate swaps with an aggregate
notional amount of $100 million. The weighted average interest rate, adjusted by
the swaps, was 13.8%, 12.1% and 9.5% for fiscal years 1996, 1995 and 1994,
respectively. At January 28, 1996, the Company was paying a net interest cost of
13.8% on the Senior Notes.
In December 1994, the Company obtained a $14 million loan secured by a
224,000-square-foot office building in Round Rock, Texas (with a net book value
of $23 million at January 28, 1996). The loan is for 15 years at an interest
rate of 10.28%; monthly payments of principal and interest, payable in arrears,
began in February 1995. The amount of principal payments due under the loan over
the next five fiscal years is as follows: 1997, $.5 million; 1998, $.5 million;
1999, $.6 million; 2000, $.6 million; and 2001, $.7 million.
During fiscal 1996, the Company entered into a series of line of credit
facilities, each of which bears interest at a defined Base Rate or Eurocurrency
Rate and has a covenant based on quarterly maintenance of net worth. Maximum
aggregate amounts available under these credit facilities are limited to $200
million less the aggregate of outstanding letters of credit under these
facilities. During the commitment period, the Company is obligated to pay a fee
on the unused portion of the credit facilities. No borrowings or letters of
credit were outstanding under these credit facilities as of January 28, 1996,
and the maximum available totaled $200 million.
37
<PAGE> 39
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 30, 1995, several of the Company's subsidiaries entered into a
transaction pursuant to which Dell Receivables L.P. ("Dell Receivables"), a
newly formed wholly owned subsidiary of the Company, purchases certain accounts
receivable and related assets from other Company subsidiaries and in turn
transfers such accounts receivable and related assets to the Dell Trade
Receivable Master Trust (the "Master Trust"). The Master Trust will issue
certificates evidencing fractional undivided interests therein, which
certificates may be sold to investors. This arrangement gives Dell Receivables
the ability to raise up to $150 million through the sale of certificates of
interest in the Master Trust and replaced the Company's receivables
securitization arrangement that was scheduled to expire on June 22, 1996. Dell
Receivables is obligated to pay a commitment fee on the unused portion of the
facility. At January 28, 1996, this facility was unused. During fiscal 1994, the
Company sold $85 million of receivables pursuant to the terms of its previous
receivables securitization arrangement. The discount on sale of receivables was
included in financing and other income (expense), net. All such receivables sold
were collected during fiscal 1994. The previous facility was unused in fiscal
1995 and 1996.
In fiscal 1994, the Company repaid its borrowings under Section 84 of
Ireland's Corporation Tax Act of 1976 and retired its commercial paper program.
NOTE 7 -- PREFERRED STOCK
The Company has the authority to issue 5,000,000 shares of preferred stock,
par value $.01 per share. The rights and preferences of shares of authorized but
unissued preferred stock will be established by the Company's Board of Directors
at the time of issuance.
Series A Convertible Preferred Stock -- On August 26, 1993, the Company
sold 1,250,000 shares of Series A Convertible Preferred Stock (the "Convertible
Preferred Stock"), generating net proceeds of $120 million after deducting
related issuance costs. Each outstanding share of Convertible Preferred Stock
entitles its holder to receive annual cumulative cash dividends of $7 and may be
converted into 8.421 shares of Common Stock (equivalent to a conversion price of
$11.875 per share of Common Stock), subject to adjustment to prevent dilution in
certain circumstances. In the event of voluntary or involuntary liquidation,
each outstanding share of Convertible Preferred Stock entitles its holder to
receive up to $100 per share plus any accrued but unpaid dividends (a total of
$6 million at January 28, 1996). The Convertible Preferred Stock is not
redeemable before August 25, 1996. Beginning August 25, 1996, the Convertible
Preferred Stock may be redeemed by the Company, at its option, in whole or in
part at any time at a redemption price per share decreasing from $104.67 to
$100, depending on the redemption date, together with any accrued but unpaid
dividends. Dividends on the Convertible Preferred Stock are cumulative, have
priority over dividends on Common Stock and must be paid in the event of
liquidation and before any distribution to holders of Common Stock.
So long as any Convertible Preferred Stock is outstanding, the Company may
not, without the affirmative vote or consent of the holders of at least 66 2/3%
(unless a higher percentage is required by applicable law) of all outstanding
shares of Convertible Preferred Stock, enter into certain transactions that may
adversely affect the relative rights, preferences, qualifications, limitations
or restrictions of the Convertible Preferred Stock.
The holders of the Convertible Preferred Stock have no voting rights unless
dividends on the Convertible Preferred Stock have not been paid for six
consecutive quarters. Under those circumstances, the number of members of the
Company's Board of Directors will be increased by two, and the holders of the
Convertible Preferred Stock will be entitled to elect such two additional
directors at any meeting of stockholders at which directors are to be elected
held during the period such dividends remain in arrears.
38
<PAGE> 40
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 21, 1995, the Company offered to pay a cash premium of $8.25
for each outstanding share of Convertible Preferred Stock that was converted to
Common Stock. The offer of premium upon conversion was available to holders of
the Convertible Preferred Stock through the closing of the special conversion
period on March 22, 1995. Holders of 1,190,000 shares of Convertible Preferred
Stock elected to convert and, as a result, received an aggregate of
approximately 10 million shares of Common Stock and $10 million in cash during
the first quarter of fiscal 1996. The $10 million conversion premium and $1
million of expenses of the conversion offer were treated as an additional
dividend on the Convertible Preferred Stock for financial reporting purposes.
Accordingly, $12 million, comprised of the conversion premium, conversion offer
expenses and dividends, were deducted from net income for fiscal 1996 to
determine the net income available to common stockholders. In addition, the
weighted average shares outstanding used to compute primary earnings per common
share for fiscal 1996 includes the shares of Common Stock issued upon conversion
from the closing of the conversion period until the end of fiscal 1996.
Series A Junior Participating Preferred Stock -- In conjunction with the
distribution of Preferred Share Purchase Rights (see Note 10 -- Preferred Share
Purchase Rights), the Company's Board of Directors designated 200,000 shares of
preferred stock as Series A Junior Participating Preferred Stock ("Junior
Preferred Stock") and reserved such shares for issuance upon exercise of the
Preferred Share Purchase Rights. Each share of Junior Preferred Stock will be
entitled to an aggregate dividend equal to the greater of $1.00 per share or
1,000 times the dividend declared on the Common Stock. Upon liquidation, each
share of Junior Preferred Stock will be entitled to an aggregate liquidation
payment equal to the greater of $1,000 or 1,000 times the payment made per share
of Common Stock. Each share of Junior Preferred Stock will have 1,000 votes,
voting together with the Common Stock. In the event of any merger, consolidation
or other transaction in which Common Stock is exchanged, each share of Junior
Preferred Stock will be entitled to receive 1,000 times the amount received per
share of Common Stock. Shares of Junior Preferred Stock will be nonredeemable.
At January 28, 1996, no shares of Junior Preferred Stock were issued or
outstanding.
NOTE 8 -- COMMON STOCK
On July 21, 1995, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the number of shares of
Common Stock that the Company is authorized to issue from 100 million to 300
million. The amendment became effective on August 3, 1995.
On October 9, 1995, the Company's Board of Directors declared a two-for-one
Common Stock split, payable in the form of a 100% stock dividend to stockholders
of record as of October 20, 1995. The distribution of such dividend occurred on
October 27, 1995. All share and per share information has been retroactively
restated in the Consolidated Financial Statements to reflect the stock split.
Stock Repurchase Program - Subsequent Event (unaudited) -- On February 22,
1996, the Company announced a stock repurchase program under which the Company
may purchase up to 12 million shares of Common Stock in open market or private
transactions. The repurchase program is intended to provide shares for issuance
to employees under the Company's stock-based employee benefit plans. The total
number of shares to be purchased will be based on several factors, including the
level of stock issuances pursuant to employee awards, the price of the Common
Stock and other general market conditions. Purchases may be made in the open
market or in privately negotiated transactions from time to time at management's
discretion. The Company may also utilize equity options as part of the
repurchase program.
39
<PAGE> 41
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of March 22, 1996, the Company had repurchased a total of 3.3 million
shares of Common Stock under the repurchase program, for an aggregate purchase
price of $100 million (average cost of $30.50 per share). All such shares were
purchased in open market transactions.
In addition, as of March 22, 1996, the Company had entered into equity
"collar" arrangements with respect to an aggregate of 2.8 million additional
shares of Common Stock by selling put options (which entitle the holder of the
option to sell shares of Common Stock to the Company at a specified price) and
purchasing call options (which entitle the Company to purchase shares of Common
Stock from the holder of the option at a specified price). The put prices range
from $29.36 to $34.62 per share, while the call prices range from $32.30 to
$38.09 per share. In some of the arrangements, the call price may be increased
if the per-share market price of the Common Stock at the time of exercise
exceeds a specified price. Each option is exercisable only at expiration, and
the expiration dates range from September 3, 1996, to September 20, 1996. The
potential cost of repurchasing the shares subject to these option arrangements
ranges from $90.7 million (average cost of $32.35 per share) to $99.9 million
(average cost of $35.63 per share), not taking into account any increase in the
call prices described above. For a description of the accounting treatment of
these options, see "Option Contracts Indexed to the Company's Common Stock" in
Note 1 -- Description of Business and Summary of Significant Accounting
Policies.
NOTE 9 -- EMPLOYEE BENEFIT PLANS
Employee Stock Purchase Plan -- The Company has an employee stock purchase
plan that qualifies under Section 423 of the Internal Revenue Code and permits
substantially all employees to purchase shares of Common Stock. Participating
employees may purchase Common Stock at the end of each participation period at a
purchase price equal to 85% of the lower of the fair market value of the Common
Stock at the beginning or the end of the participation period. Participation
periods are semi-annual and begin on January 1 and July 1 of each year.
Employees may designate up to 10% of their base compensation for the purchase of
Common Stock under the plan. Common Stock reserved for future employee purchases
under the plan aggregated 2,331,251 shares at January 28, 1996, and 2,741,184
shares at January 29, 1995. Shares issued under this plan were 409,933 shares in
fiscal 1996, 568,888 shares in fiscal 1995 and 477,078 shares in fiscal 1994.
There have been no charges to income in connection with the issuance of these
shares.
401(k) Plan -- The Company has a defined contribution retirement plan that
complies with Section 401(k) of the Internal Revenue Code. Substantially all
employees in the U.S. are eligible to participate in the plan. Currently,
eligibility for participation commences upon hire. Under the terms of the plan,
the Company currently matches 100% of each employee participant's voluntary
contributions, subject to a maximum Company contribution of 3% of the employee's
compensation. Prior to January 1, 1995, the Company matched 50% of the
participant's voluntary contributions, again subject to a maximum Company
contribution of 3% of the employee's compensation. The Company's matching
contributions are made in the form of Common Stock. During fiscal 1996, the
Company made a one-time contribution for every eligible employee, regardless of
whether the employee was a plan participant, equal to 2% of the employee's
actual earnings during calendar year 1995. The Company accrues for its estimated
matching contributions each period. Shares are issued to the plan based on the
fair market value of the Common Stock at the time of issuance. The amounts
expensed for the Company's matching and other contributions during fiscal years
1996, 1995 and 1994 were $8 million, $4 million and $3 million, respectively.
Stock Option and Incentive Plans -- On June 22, 1994, the Company's
stockholders approved the Dell Computer Corporation Incentive Plan (the
"Incentive Plan"), which effectively replaced the 1993 Stock Option Plan (the
"1993 Plan") and the 1989 Stock Option Plan (the "1989 Plan"). At the time the
Incentive Plan was approved, 9,001,846 shares of Common Stock were authorized
for issuance under the Incentive Plan; that amount equaled the remaining shares
authorized for
40
<PAGE> 42
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issuance under the 1993 Plan and the 1989 Plan. On July 21,1995, the Company's
stockholders approved an amendment to the Incentive Plan to increase the number
of shares of Common Stock authorized for issuance under the Incentive Plan by 8
million shares. The Incentive Plan, which is administered by the Compensation
Committee of the Board of Directors, provides for the granting of incentive
awards in the form of stock options, stock appreciation rights ("SARs"), stock
and cash to directors, executive officers and key employees of the Company and
its subsidiaries, and certain other persons who provide consulting or advisory
services to the Company. Awards under the Incentive Plan must be granted within
ten years of the plan adoption date. Options granted may be either incentive
stock options within the meaning of Section 422 of the Internal Revenue Code or
nonqualified options. The right to purchase shares under the existing stock
option agreements typically vest over a five-year period beginning on the
option's date of grant. Stock options must be exercised within ten years from
date of grant. Stock options are generally issued at fair market value. For
stock options that have been issued at discounted prices, the Company accrues
compensation expense over the vesting period for the difference between the
exercise price and the fair market value on the measurement date. In accordance
with the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, no compensation expense has been recognized for options granted
with an exercise price equal to market value at the date of grant. Options
vesting over a ten-year period with an exercise price of $.005 per share were
granted to certain key employees in fiscal 1995 and fiscal 1994 at fair market
values ranging from $12.44 to $13.97 and $9.25 to $18.25 in fiscal 1995 and
fiscal 1994, respectively.
During fiscal 1996, the Company implemented a discounted stock option
program under the Incentive Plan. Under this program, certain members of
management may elect, on an annual basis, to receive discounted stock options in
lieu of all or a portion of the annual bonus that they would otherwise receive.
The exercise price of the options is 80% of the fair market value of the Common
Stock on the date of issuance. The number of shares subject to any such option
is dependent on the amount of bonus a participant designates for the program and
is calculated by dividing the designated bonus amount by 20% of the fair market
value of the Common Stock on the date of issuance. The options are fully vested
at the time of issuance but are not exercisable for a period of one year. All
decisions regarding participation in the program and the amount of bonus to
designate must be made several months in advance of the anticipated bonus
payment date. The program will first be effective for bonuses paid in March 1996
with respect to fiscal 1996.
During fiscal 1996 and fiscal 1995, the Company granted 688,884 shares and
280,000 shares, respectively, of restricted stock. For substantially all
restricted stock grants, at the date of grant, the recipient has all rights of a
stockholder, subject to certain restrictions on transferability and a risk of
forfeiture. Restricted shares typically vest over a seven-year period beginning
on the date of grant; restrictions may not extend more than ten years from date
of grant. The Company records unearned compensation equal to the market value of
the restricted shares on the date of grant and charges the unearned compensation
to expense over the restricted shares' vesting period. Prior to the second
quarter of fiscal 1996, the unearned compensation was combined with additional
paid-in capital. The unearned compensation associated with restricted stock at
January 28, 1996, has been included in stockholders' equity in the Consolidated
Statement of Financial Position; the prior period amount has been reclassified
to conform with the current year presentation.
Under the Incentive Plan, each nonemployee director of the Company
automatically receives nonqualified stock options on the day after the first
Board of Directors meeting he or she attends as a nonemployee director. In
addition, each nonemployee director who is a member of the Board of Directors as
of both the day before and the day after the Company's annual meeting of
stockholders each year automatically receives nonqualified stock options on the
date of the first Board of Directors meeting following the annual meeting of
stockholders.
41
<PAGE> 43
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity under the plans for
each of the three fiscal years ended January 28, 1996:
<TABLE>
<CAPTION>
STOCK OPTION PLANS
--------------------------------
NUMBER OF
PRICE RANGE SHARES
---------------- -----------
<S> <C> <C>
Outstanding at January 31, 1993.................... $.005-$18.155 10,087,976
Granted.......................................... $.005-$18.155 5,011,180
Canceled......................................... $.005-$15.345 (2,409,628)
Exercised........................................ $.005-$11.830 (1,452,824)
----------
Outstanding at January 30, 1994.................... $.005-$18.155 11,236,704
Granted.......................................... $.005-$23.315 4,322,498
Canceled......................................... $.005-$15.345 (1,641,102)
Exercised........................................ $.005-$18.155 (2,735,054)
----------
Outstanding at January 29, 1995.................... $.005-$23.315 11,183,046
Granted.......................................... $20.125-$48.500 3,987,082
Canceled......................................... $.005-$44.750 (988,967)
Exercised........................................ $.005-$22.095 (2,480,912)
----------
Outstanding at January 28, 1996.................... $.005-$48.500 11,700,249
==========
</TABLE>
Options on 2,324,451 shares were exercisable under the plans at January 28,
1996. There were 8,480,235, 4,819,228 and 8,558,900 shares of Common Stock
available for future grants under the plans at January 28, 1996, January 29,
1995, and January 30, 1994, respectively. On August 24, 1993, the Company
granted 781,246 nonqualified options to purchase its Common Stock at $9.345 per
share under the 1993 Plan in exchange for cancellation of outstanding options to
purchase its Common Stock for $15.345 that had been previously granted under the
1989 Plan. Pursuant to the exchange agreement, vesting of those options was to
occur on the earlier of August 24, 2002, or the date that the Common Stock had
traded for 30 consecutive days at or above $16.345 per share; such vesting
occurred in fiscal 1995.
NOTE 10 -- PREFERRED SHARE PURCHASE RIGHTS
On November 29, 1995, the Company's Board of Directors declared a dividend
of one Preferred Share Purchase Right (a "Right") for each outstanding share of
Common Stock. The distribution of the Rights was made on December 13, 1995, to
the stockholders of record on that date. Each Right entitles the holder to
purchase one one-thousandth of a share of Junior Preferred Stock at an exercise
price of $225. See Note 7 -- Preferred Stock. The Rights will be exercisable
only if a person or group acquires 15% or more of the Common Stock or announces
a tender offer, the consummation of which would result in such person or group
owning 15% or more of the Common Stock.
If a person or group acquires 15% or more of the outstanding Common Stock,
each Right will entitle the holder (other than such person or any member of such
group) to purchase, at the Right's then current exercise price, the number of
shares of Common Stock having a market value of twice the exercise price of the
Right. In addition, if the Company is involved in a merger or other business
combination transaction at any time after the Rights have become exercisable,
each Right will entitle its holder to purchase, at the Right's then current
exercise price, the number of the acquiring company's common shares having a
market value at that time of twice the exercise price of the Right. Furthermore,
at any time after a person or group acquires 15% or more of the outstanding
42
<PAGE> 44
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock but prior to the acquisition of 50% of such stock, the Board of
Directors may, at its option, exchange part or all of the Rights (other than
Rights held by the acquiring person or group) for shares of Common Stock at an
exchange rate of one share of Common Stock for each Right.
The Company will be entitled to redeem the Rights at $.001 per Right at any
time before a 15% or greater position has been acquired by any person or group.
Additionally, the Company may lower the 15% threshold to not less than the
greater of (a) any percentage greater than the largest percentage of Common
Stock known by the Company to be owned by any person (other than Michael S.
Dell) or (b) 10%. The Rights expire on November 29, 2005.
Neither the ownership nor the further acquisition of Common Stock by
Michael S. Dell will cause the Rights to become exercisable or nonredeemable or
will trigger the other features of the Rights.
NOTE 11 -- COMMITMENTS, CONTINGENCIES AND CERTAIN CONCENTRATIONS
Lease Commitments -- The Company leases property and equipment,
manufacturing facilities and office space under non-cancelable leases. Certain
leases obligate the Company to pay taxes, maintenance and repair costs. Future
minimum payments under these leases at January 28, 1996, are as follows:
<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR LEASES
----------- -------------
(IN MILLIONS)
<S> <C>
1997.................................................................... $21
1998.................................................................... 16
1999.................................................................... 13
2000.................................................................... 9
2001.................................................................... 6
Thereafter.............................................................. 19
---
Total minimum lease payments required......................... $84
===
</TABLE>
Rental expense recorded under all operating leases was $22 million, $20
million and $19 million for the fiscal years ended 1996, 1995 and 1994,
respectively.
Royalty Commitments -- The Company is subject to certain patent royalty
agreements that require fixed cash payments with scheduled increases over
approximately the next three years. The Company is also subject to ongoing
software royalty agreements for periods exceeding twelve months which require
cash payments.
Legal Matters -- Set forth below is a discussion of certain legal
proceedings involving the Company, some of which could have a material adverse
effect on the Company if resolved in a manner unfavorable to the Company. The
Company is also party to other legal proceedings incidental to its business,
none of which the Company believes to be material.
The Company has been named as a defendant in approximately 30 repetitive
stress injury lawsuits, most of which are in New York state courts or United
States District Courts for the New York City area. Several are in state courts
in New Jersey. One is in the Federal District Court for the Eastern District of
Pennsylvania, and one is in Federal District Court in Kansas. Two cases have
been dismissed; the remainder are at various stages of the process leading to
trial. The allegations in all of these lawsuits are similar. Each plaintiff
alleges that he or she suffers from symptoms generally known as "repetitive
stress injury," which allegedly were caused by the design or manufacture of the
keyboard supplied with the computer the plaintiff used. The Company has
43
<PAGE> 45
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
denied or is in the process of denying the claims and intends to vigorously
defend the suits. The suits naming the Company are just a few of many lawsuits
of this type that have been filed, often naming Apple, Atex, Compaq, IBM,
Keytronic and other major suppliers of keyboard products. The Company currently
is not able to predict the outcome of these suits. It is possible that the
Company may be named in additional suits. Ultimate resolution of the litigation
against the Company may depend on progress in resolving this type of litigation
overall. However, the Company does not believe that the outcome of these matters
will have a material adverse effect on the Company's financial condition or
results of operations.
On August 11, 1993, the Company received a subpoena from the United States
Department of Commerce, Office of Export Enforcement of the Bureau of Export
Administration, requiring the Company to provide all documents relative to any
and all exports of 486/66 personal computers or related components to Russia,
Ireland, Iran or Iraq during the period from January 1992 through August 1993 in
connection with an investigation to enforce regulations under the Export
Administration Act of 1979, as amended. The investigation has been closed, with
no findings of wrongdoing by the Company, with respect to the Company's
shipments to Russia, Ireland and Iraq. The Company is awaiting a response from
the Department of Commerce regarding its voluntary self disclosure of certain
shipments to Iran in June 1992. If the Office of Export Enforcement's
investigators determine that the Company has violated applicable regulations,
the government could potentially file civil or criminal charges. The Company has
fully responded to the subpoena and, in accordance with its policy to comply
fully with export laws and regulations, intends to cooperate with the Office of
Export Enforcement. The Company does not believe that this investigation or its
outcome will have a material adverse effect on the Company's financial condition
or results of operations.
In May 1995, the Company was named, along with two other personal computer
manufacturers and one computer monitor vendor, in a class action complaint filed
in the California Superior Court for Marin County. Subsequently, several other
similar actions were filed in California Superior Courts for other counties,
naming a total of 48 defendants, including the Company. The complaints in all of
these cases allege that each of the defendants has engaged in false or
misleading advertising with regard to the size of computer monitor screens. The
plaintiffs seek restitution in the form of refunds or product exchange, damages,
punitive damages and attorneys' fees. The California Judicial Council, in
December 1995, ordered all of these similar cases consolidated for proceedings
up to and including trial and, in January 1996, appointed a single trial judge
for the consolidated proceeding. The judge has ordered all proceedings stayed
until March 29, 1996, when a status conference is scheduled. The Company plans
to vigorously contest the allegations of the complaints. This litigation is
currently at a preliminary stage and no discovery has occurred. Thus, it is too
early for the Company to adequately evaluate the likelihood of the plaintiffs'
prevailing on their claims. There can be no assurance that an adverse
determination in this litigation would not have a material adverse effect on the
Company's financial condition or results of operations.
In June 1995, the Company was served with a class action complaint filed in
State District Court in Travis County, Texas. The complaint alleges that the
Company has included "used parts" in its "new" computer systems and has failed
to adequately inform its customers and prospective customers of that practice.
According to the complaint, these facts constitute fraud, negligent
misrepresentation, breach of contract and breach of warranty. The plaintiffs
seek refund of the purchase price for computer systems purchased from the
Company, damages in an unspecified amount, injunctive relief, interest and
attorneys' fees. The Company plans to vigorously contest the allegations of the
complaint. This litigation is currently at a preliminary stage, and no discovery
has occurred. Thus, it is too early for the Company to adequately evaluate the
likelihood of the plaintiffs' prevailing on their claims. There can be no
assurance that an adverse determination in this litigation
44
<PAGE> 46
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
would not have a material adverse effect on the Company's financial condition or
results of operations.
Certain Concentrations -- All of the Company's foreign exchange and
interest rate derivative instruments involve elements of market and credit risk
in excess of the amounts recognized in the financial statements. The
counterparties to financial instruments consist of a number of major financial
institutions. In addition to limiting the amount of agreements and contracts it
enters into with any one party, the Company monitors its positions with and the
credit quality of the counterparties to these financial instruments. The Company
does not anticipate nonperformance by any of the counterparties.
The Company has business activities with large corporate, government,
medical and education customers, small-to-medium businesses and individuals and
value-added resellers. Its receivables from such parties are well diversified.
The Company places its marketable securities with high quality financial
institutions and other companies and currently invests primarily in equity
securities and debt instruments that have maturities of less than three years.
The Company's receivables, marketable securities and financial instruments
holdings are subject to potential credit risk. However, in management's opinion,
no significant concentration of credit risk exists for the Company. There can be
no assurance that the credit quality of the financial institutions with which
the Company invests or transacts business will be stable or that efforts to
diversify receivables, investments or financial instrument holdings will prevent
the Company from incurring material losses.
The Company purchases a significant number of components from single
sources. In some cases, alternative sources of supply are not available. In
other cases, the Company may establish a working relationship with a single
source, even when multiple suppliers are available, if the Company believes it
is advantageous to do so due to performance, quality, support, delivery,
capacity or price considerations. Key components currently obtained from single
sources include certain of the Company's displays, application specific
integrated circuits and other custom chips, microprocessors, unconfigured base
notebook computers and lithium ion batteries used in certain of the Company's
notebook computers. Additionally, the Company often initially uses custom
components obtained from a single source in its new products until it has
determined whether there is a need for additional suppliers. If the supply of a
critical single-sourced material or component were delayed or curtailed, the
Company's ability to ship the related product in desired quantities and in a
timely manner could be adversely affected. Even where alternative sources of
supply are available, qualification of the alternative suppliers and
establishment of reliable supplies could result in delays and a possible loss of
sales, which could affect operating results adversely.
NOTE 12 -- OTHER CHARGES
During the first half of fiscal 1994, the Company reevaluated and
subsequently canceled its existing notebook product line, recording more than
$39 million of charges due to the notebook inventory write-downs and delayed and
canceled notebook projects. The Company re-entered the notebook computer market
with a phased approach beginning with the introduction, on February 21, 1994, of
the 486-based Dell Latitude family of notebook computers.
During the first half of fiscal 1994, the Company also recorded $29 million
of other costs, consisting of $14 million of inventory write-downs due to excess
components, $12 million of costs incurred for the cancellation of certain
contracts and a $3 million reserve established for litigation in connection with
a stockholder suit. The inventory write-downs and the cancellation charges arose
from the Company's determination that certain products and inventory were excess
or obsolete because the products were scheduled to be replaced with newer
products or because the Company
45
<PAGE> 47
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
otherwise had lowered its estimates of expected demand for materials in
inventory or under outstanding purchase commitments.
During the first half of fiscal 1994, the Company recorded $23 million for
the costs of restructuring certain of its operations. The charge included $10
million for asset write-downs, $8 million related to the consolidation of
operations and $5 million for employee severance payments. Most of these
restructuring charges were associated with consolidating certain common
functions in the European subsidiaries and creating regional business units.
Approximately 60% of these charges were cash provisions, approximately half of
which were incurred in fiscal 1994. During fiscal 1995, the Company completed
certain of the consolidations and closure of a subsidiary. There were no
reserves for restructuring remaining at January 29, 1995.
NOTE 13 -- GEOGRAPHIC AREA INFORMATION
The Company operates in one principal business segment across
geographically diverse markets. The Americas region includes the United States,
Canada and Latin America. Substantially all of Americas operating results and
identifiable assets are in the United States. Transfers between geographic areas
are recorded using internal transfer prices set by the Company. Certain prior
year amounts have been reclassified to separately reflect general corporate
expenses and assets and to allocate the operating results and assets of the
Company's product development group to the geographic regions. In prior years,
the operating results and assets of both the general corporate operations and
the product development group were included in the Americas region.
<TABLE>
<CAPTION>
FISCAL YEAR 1996
------------------------------------------------------------------
ASIA PACIFIC
AMERICAS EUROPE AND JAPAN ELIMINATION CONSOLIDATED
-------- ------- ------------ ----------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers...... $3,474 $1,478 $344 $ -- $5,296
Transfers between geographic areas... 66 192 -- (258) --
------ ------ ---- ----- ------
Total sales................ $3,540 $1,670 $344 $(258) $5,296
====== ====== ==== ===== ======
Operating income (loss).............. $ 285 $ 171 $(21) $ -- $ 435
====== ====== ==== =====
Corporate expenses, net.............. (58)
------
Total operating income..... $ 377
======
Identifiable assets.................. $ 867 $ 409 $123 $ -- $1,399
====== ====== ==== =====
General corporate assets............. 749
------
Total assets............... $2,148
======
</TABLE>
46
<PAGE> 48
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR 1995
------------------------------------------------------------------
ASIA PACIFIC
AMERICAS EUROPE AND JAPAN ELIMINATION CONSOLIDATED
-------- ------- ------------ ----------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers...... $ 2,400 $ 953 $ 122 $ -- $ 3,475
Transfers between geographic areas... 35 129 -- (164) --
------- ------- ------ ------- --------
Total sales................ $ 2,435 $ 1,082 $ 122 $ (164) $ 3,475
======= ======= ====== ======= ========
Operating income (loss).............. $ 174 $ 123 $ (2) $ -- $ 295
======= ======= ====== =======
Corporate expenses, net.............. (46)
--------
Total operating income..... $ 249
========
Identifiable assets.................. $ 638 $ 286 $ 43 $ -- $ 967
======= ======= ====== =======
General corporate assets............. 627
--------
Total assets............... $ 1,594
========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1994
------------------------------------------------------------------
ASIA PACIFIC
AMERICAS EUROPE AND JAPAN ELIMINATION CONSOLIDATED
-------- ------- ------------ ----------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers...... $ 2,037 $ 782 $ 54 $ -- $ 2,873
Transfers between geographic areas... 35 109 -- (144) --
------- ------- ------ ------- --------
Total sales................ $ 2,072 $ 891 $ 54 $ (144) $ 2,873
======= ======= ====== ======= ========
Operating income (loss).............. $ 18 $ (15) $ (5) $ -- $ (2)
======= ======= ====== =======
Corporate expenses, net.............. (37)
--------
Total operating loss....... $ (39)
========
Identifiable assets.................. $ 512 $ 198 $ 14 $ -- $ 724
======= ======= ====== =======
General corporate assets............. 416
--------
Total assets............... $ 1,140
========
</TABLE>
47
<PAGE> 49
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 29,
1996 1995
----------- -----------
(IN MILLIONS)
<S> <C> <C>
SUPPLEMENTAL CONSOLIDATED STATEMENT OF FINANCIAL POSITION
INFORMATION
Accounts receivable:
Gross accounts receivable......................................... $ 755 $ 564
Allowance for doubtful accounts................................... (29) (26)
------- -----
$ 726 $ 538
======= =====
Inventories:
Production materials.............................................. $ 390 $ 262
Work-in-process and finished goods................................ 39 31
------- -----
$ 429 $ 293
======= =====
Other current assets:
Deferred premiums and other foreign exchange contracts............ $ 71 $ 20
Deferred income taxes............................................. 67 78
Other............................................................. 18 14
------- -----
$ 156 $ 112
======= =====
Property, plant and equipment:
Land and buildings................................................ $ 92 $ 42
Computer equipment................................................ 92 73
Office furniture and fixtures..................................... 26 23
Machinery and other equipment..................................... 45 36
Leasehold improvements............................................ 37 34
------- -----
Total property, plant and equipment............................... 292 208
Accumulated depreciation and amortization......................... (113) (91)
------- -----
$ 179 $ 117
======= =====
Accrued and other liabilities:
Royalties and licensing........................................... $ 51 $ 35
Accrued compensation.............................................. 52 35
Accrued warranty costs............................................ 78 66
Taxes other than income taxes..................................... 76 40
Deferred profit on warranty contracts............................. 67 22
Book overdrafts................................................... 59 44
Other............................................................. 90 107
------- -----
$ 473 $ 349
======= =====
</TABLE>
48
<PAGE> 50
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED STATEMENT OF OPERATIONS
INFORMATION
Research, development and engineering expenses:
Research and development expenses.................... $ 51 $ 39 $ 36
Engineering expenses................................. 44 26 13
------- ------- -------
$ 95 $ 65 $ 49
======= ======= =======
Financing and other income (expense), net:
Investment income (loss), net:
Marketable securities............................. $ 25 $ (7) $ 9
Investment derivatives............................ -- (24) 5
Interest expense..................................... (15) (12) (9)
Foreign currency transactions........................ (1) 3 1
International year-end transition.................... -- 6 --
Other................................................ (3) (2) (6)
------- ------- -------
$ 6 $ (36) $ --
======= ======= =======
Weighted average shares used to compute earnings (loss)
per common share:
Primary........................................... 97.1 83.1 74.7
======= ======= =======
Fully diluted..................................... 98.7 94.6 --
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
INFORMATION
Changes in operating working capital accounts:
Accounts receivable, net............................. $ (184) $ (117) $ (45)
Inventories.......................................... (138) (72) 82
Accounts payable..................................... 59 129 (4)
Accrued and other liabilities........................ 126 80 66
Other, net........................................... (46) (23) (2)
------- ------- -------
$ (183) $ (3) $ 97
======= ======= =======
Changes in non-current assets and liabilities:
Other assets......................................... $ (5) $ (2) $ 1
Other liabilities.................................... 43 41 16
------- ------- -------
$ 38 $ 39 $ 17
======= ======= =======
Supplemental cash flow information:
Income taxes paid.................................... $ 117 $ 57 $ 7
Interest paid........................................ $ 17 $ 10 $ 5
</TABLE>
Non-cash investing and financing activities:
During fiscal 1996, 1.19 million shares of Convertible Preferred Stock were
converted into 10 million shares of Common Stock. See Note 7 -- Preferred Stock.
Additionally, the Company issued Common Stock in conjunction with restricted
stock grants and for its matching contributions to the 401(k) plan. See Note
9 -- Employee Benefit Plans.
49
<PAGE> 51
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- QUARTERLY RESULTS (UNAUDITED)
The Company believes that the following information reflects all normal
recurring adjustments necessary for a fair presentation of the information for
the periods presented. The following tables contain selected unaudited
Consolidated Statement of Operations and stock price data for each quarter of
fiscal 1996 and 1995. All share and per share information has been retroactively
restated to reflect the two-for-one split of the Common Stock in October 1995.
See Note 8 -- Common Stock. See "Principles of Consolidation" in Note 1 for a
discussion regarding the Company's transition to a common reporting date in
fiscal 1995 and the impact of such transition on the Company's fourth quarter
results for fiscal 1995. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL YEAR 1996
-------------------------------------------
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales........................................... $ 1,539 $ 1,415 $ 1,206 $ 1,136
Gross margin........................................ $ 278 $ 290 $ 263 $ 236
Operating income.................................... $ 94 $ 104 $ 91 $ 88
Net income.......................................... $ 70 $ 75 $ 65 $ 62
Earnings per common share:
Primary........................................... $ .70 $ .75 $ .66 $ .55
Fully diluted..................................... $ .70 $ .75 $ .66 $ .53
Weighted average shares used to compute earnings per
common share:
Primary........................................ 99.4 100.1 98.2 90.5
Fully diluted.................................. 99.8 101.0 99.2 97.5
Stock sales prices per share:
High.............................................. $49 3/8 $47 13/16 $35 1/16 $27 7/16
Low............................................... $23 $31 $24 1/4 $19 3/4
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1995
-------------------------------------------
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales............................................ $ 1,033 $ 884 $ 791 $ 767
Gross margin......................................... $ 217 $ 181 $ 170 $ 170
Operating income..................................... $ 79 $ 59 $ 51 $ 60
Net income........................................... $ 60 $ 41 $ 29 $ 19
Earnings per common share:
Primary............................................ $ .68 $ .47 $ .32 $ .21
Fully diluted...................................... $ .63 $ .43 $ .31 $ --
Weighted average shares used to compute earnings per
common share:
Primary......................................... 85.7 84.2 81.2 80.6
Fully diluted................................... 96.2 95.7 92.1 --
Stock sales prices per share:
High............................................... $23 7/8 $22 $15 3/8 $15 1/16
Low................................................ $18 3/8 $13 3/4 $10 3/4 $ 9 9/16
</TABLE>
Earnings per common share are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly earnings per common
share may not equal the annual earnings per common share.
50
<PAGE> 52
PART III
The information called for by Part III of Form 10-K (consisting of Item
10 -- Directors and Executive Officers of the Registrant, Item 11 -- Executive
Compensation, Item 12 -- Security Ownership of Certain Beneficial Owners and
Management and Item 13 -- Certain Relationships and Transactions) is
incorporated by reference from the Company's definitive proxy statement relating
to the annual meeting of stockholders to be held in 1996, which definitive proxy
statement will be filed with the Securities and Exchange Commission on or before
May 28, 1996.
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following financial statements are filed as a part of this Report under
"Item 8 -- Financial Statements and Supplementary Data":
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants................................................ 25
Consolidated Statement of Financial Position at January 28, 1996 and
January 29, 1995............................................................... 26
Consolidated Statement of Operations for the three fiscal years ended
January 28, 1996............................................................... 27
Consolidated Statement of Cash Flows for the three fiscal years ended
January 28, 1996............................................................... 28
Consolidated Statement of Stockholders' Equity for the three fiscal years ended
January 28, 1996................................................................ 29
Notes to Consolidated Financial Statements....................................... 30
</TABLE>
FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as a part of this
Report under "Schedule II" immediately preceding the signature page: Schedule
II -- Valuation and Qualifying Accounts for the three fiscal years ended January
28, 1996. All other schedules called for by Form 10-K are omitted because they
are not applicable.
EXHIBITS
The following exhibits are filed as a part of this Report, with each
exhibit that consists of or includes a management contract or compensatory plan
or arrangement being identified with an "*":
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
3.1 -- Certificate of Incorporation, dated October 21, 1987 and filed
October 22, 1987 (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 30, 1995, Commission File No. 0-17017)
3.2 -- Certificate of Amendment to the Certificate of Incorporation, dated
May 6, 1988 and filed May 9, 1988 (incorporated by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 30, 1995, Commission File No. 0-17017)
3.3 -- Certificate of Amendment to the Certificate of Incorporation, dated
June 19, 1991 and filed June 21, 1991 (incorporated by reference to
Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 30, 1995, Commission File No. 0-17017)
</TABLE>
51
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
3.4 -- Certificate of Amendment to the Certificate of Incorporation, dated
June 19, 1992 and filed July 10, 1992 (incorporated by reference to
Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 30, 1995, Commission File No. 0-17017)
3.5 -- Certificate of Designation of Series A Convertible Preferred Stock,
dated August 24, 1993 and filed August 25, 1993 (incorporated by
reference to Exhibit 3.5 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended July 30, 1995, Commission File No.
0-17017)
3.6 -- Certificate of Correction Filed to Correct Certain Errors in the
Certificate of Amendment of Certificate of Incorporation Filed in the
Office of the Secretary of State of Delaware on May 9, 1988, and in
the Certificate of Amendment of Certificate of Incorporation Filed in
the Office of the Secretary of State of Delaware on July 10, 1992,
dated April 27, 1994 and filed May 5, 1994 (incorporated by reference
to Exhibit 3.6 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 30, 1995, Commission File No. 0-17017)
3.7 -- Certificate of Amendment to Certificate of Incorporation, dated July
31, 1995 and filed August 3, 1995 (incorporated by reference to
Exhibit 3.7 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 30, 1995, Commission File No. 0-17017)
3.8 -- Certificate of Designations of Series A Junior Participating
Preferred Stock, dated November 29, 1995 and filed December 4, 1995
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended October 29, 1995,
Commission File No. 0-17017)
3.9 -- Bylaws, dated October 22, 1987 (incorporated by reference to Exhibit
3.8 to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.10 -- Amendments to the Bylaws, adopted June 19, 1991 (incorporated by
reference to Exhibit 3.9 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended July 30, 1995, Commission File No.
0-17071)
3.11 -- Amendments to the Bylaws, adopted May 18, 1995 (incorporated by
reference to Exhibit 3.10 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended July 30, 1995, Commission File No.
0-17017)
3.12 -- Amendments to Bylaws, adopted November 29, 1995 (incorporated by
reference to Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 29, 1995, Commission File
No. 0-17017)
3.13 -- Restated Bylaws, as adopted on November 29, 1995 (incorporated by
reference to Exhibit 3.3 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 29, 1995, Commission File
No. 0-17017)
4.1 -- Rights Agreement, dated as of November 29, 1995 (incorporated by
reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 29, 1995, Commission File No.
0-17017)
4.2 -- Indenture, dated as of August 15, 1993, between the Company and The
First National Bank of Boston regarding the Company's 11% Senior
Notes Due August 15, 2000 (incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-4, Registration No.
33-69680)
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
4.3 -- Exchange and Registration Rights Agreement, dated as of August 15,
1993, between the Company and the purchasers of the Company's 11%
Senior Notes Due August 15, 2000 (incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-4,
Registration No. 33-69680)
10.1* -- Dell Computer Corporation 1986 Incentive Stock Option Plan, as
amended (incorporated by reference to Exhibit 4c to the Company's
Registration Statement on Form S-8, Registration No. 33-24621)
10.2* -- Dell Computer Corporation 1987 Incentive Stock Option Plan, as
amended (incorporated by reference to Exhibit 4d to the Company's
Registration Statement on Form S-8, Registration No. 33-24621)
10.3* -- Dell Computer Corporation 1987 Non-qualified Stock Option Plan, as
amended, including the UK Scheme (incorporated by reference to
Exhibit 4e to the Company's Registration Statement on Form S-8,
Registration No. 33-24621)
10.4* -- Dell Computer Corporation 1989 Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31,
1993, Commission File No. 0-17017)
10.5* -- Dell Computer Corporation 1993 Stock Option Plan, (incorporated by
reference to Exhibit 10.36 to the Company's Registration Statement on
Form S-4, Registration No. 33-69680)
10.6* -- Dell Computer Corporation Incentive Plan (incorporated by reference
to Exhibit 4.6 to the Company's Registration Statement on Form S-8,
Registration No. 33-54577)
10.7* -- First Amendment to Dell Computer Corporation Incentive Plan, dated as
of July 21, 1995 (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 30, 1995, Commission File No. 0-17071)
10.8*+ -- Second Amendment to Dell Computer Corporation Incentive Plan, dated
as of November 29, 1995
10.9* -- Dell Computer Corporation Deferred Compensation Plan (incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the fiscal year ended February 3, 1991, Commission File No.
0-17017)
10.10*+ -- Amendment to Deferred Compensation Plan, adopted on August 25, 1995
10.11*+ -- Executive Incentive Bonus Plan, adopted March 1, 1995
10.12 -- Committed Credit Line Agreement, dated as of June 8, 1995, between
NationsBank of Texas, N.A. and the Company and certain of its
subsidiaries, along with schedule identifying substantially identical
agreements and material differences between such other agreements and
the agreement filed (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal year ended
July 30, 1995, Commission File No. 0-17017)
10.13 -- Supplement to Schedule of Similar Agreements, listing additional
agreements substantially identical to the Committed Credit Line
Agreement filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 30, 1995 (incorporated by
reference to Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 29, 1995, Commission File
No. 0-17017)
</TABLE>
53
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.14* -- Form of Indemnity Agreement between the Company and certain of its
officers, directors and key employees (incorporated by reference to
Exhibit 10.23 to the Company's Registration Statement on Form S-1,
Registration No. 33-21823)
10.15 -- Lease Agreement, dated January 6, 1989, for Building 12 in Braker
Center (incorporated by reference to Exhibit 10s to the Company's
Annual Report on Form 10-K for the fiscal year ended January 27,
1989, Commission File No. 0-17017)
10.16 -- Two Amendments to Lease Agreement for Building 12 in Braker Center
(incorporated by reference to Exhibit 10.27 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1993,
Commission File No. 0-17017)
10.17* -- Agreement, dated May 12, 1988, between the Company and Michael S.
Dell, along with the Employment Agreement, dated May 3, 1984, between
Michael S. Dell and the Company's predecessor (incorporated by
reference to Exhibit 10.25 to the Company's Registration Statement on
Form S-1, Registration No. 33-38991)
10.18+ -- Receivables Purchase Agreement, dated as of November 21, 1995,
between Dell Marketing L.P. (as Seller) and Dell Receivables L.P. (as
Purchaser)
10.19+ -- Receivables Purchase Agreement, dated as of November 21, 1995,
between Dell Direct Sales L.P. (as Seller) and Dell Receivables L.P.
(as Purchaser)
10.20+ -- Subordinated Note, dated as of November 30, 1995, payable to Dell
Marketing L.P. issued by Dell Receivables L.P.
10.21+ -- Subordinated Note, dated as of November 30, 1995, payable to Dell
Direct Sales L.P. issued by Dell Receivables L.P.
10.22+ -- Pooling and Servicing Agreement, dated as of November 21, 1995, among
Dell Receivables L.P. (as Transferor), Dell USA L.P. (as Servicer)
and Norwest Bank Minnesota, National Association (as Trustee)
10.23+ -- Series 1995-1 Supplement, dated as of November 21, 1995, to the
Pooling and Servicing Agreement filed as Exhibit 10.22 to this Report
10.24+ -- Certificate Purchase Agreement, dated as of November 30, 1995, among
Dell Receivables L.P. (as Seller), Corporate Receivables Corporation
(as Purchaser), the financial institutions named from time to time
therein (as Liquidity Providers), Citibank North America, Inc. (as
Program Agent) and Norwest Bank Minnesota, National Association (as
Trustee)
10.25+ -- Parent Undertaking Agreement, dated as of November 21, 1995, executed
by the Company
10.26+ -- Cross-Guarantee Agreement, dated as of November 21, 1995, among Dell
Marketing L.P., Dell Direct Sales L.P. and Dell USA L.P.
10.27* -- Severance Agreement, dated April 28, 1995, between the Company and L.
Scott Flaig (incorporated by reference to Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended April 30,
1995, Commission File No. 0-17017)
10.28* -- Severance Agreement, dated June 15, 1995, between the Company and
Thomas L. Thomas (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 30, 1995, Commission File No. 0-17017)
</TABLE>
54
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
11+ -- Statement re Computation of Per Share Earnings
21+ -- Subsidiaries of the Company
23+ -- Consent of Price Waterhouse LLP
27+ -- Financial Data Schedule
</TABLE>
- ---------------
* Identifies Exhibit that consists of or includes a management contract or
compensatory plan or arrangement.
+ Filed herewith.
REPORTS ON FORM 8-K
On November 30, 1995, the Company filed a Current Report on Form 8-K, dated
November 29, 1995, reporting under Item 5 the adoption by the Board of Directors
of a Preferred Share Purchase Rights Plan. A copy of the Rights Agreement, dated
November 29, 1995, relating to such Preferred Share Purchase Rights Plan is
filed as Exhibit 4.1 to this Report. Such Current Report did not include any
financial statements.
55
<PAGE> 57
SCHEDULE II
DELL COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
BEGINNING BAD DEBT CHARGED TO END OF
FISCAL YEAR DESCRIPTION OF PERIOD EXPENSE ALLOWANCE PERIOD
- --------------- -------------------------------- ---------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
1996......... Allowance for doubtful accounts $ 26 $ 13 $ 10 $ 29
1995......... Allowance for doubtful accounts $ 26 $ 8 $ 8 $ 26
1994......... Allowance for doubtful accounts $ 14 $ 13 $ 1 $ 26
</TABLE>
56
<PAGE> 58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DELL COMPUTER CORPORATION
Date: March 25, 1996 By: MICHAEL S. DELL
--------------------------------
Michael S. Dell,
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
MICHAEL S. DELL Chairman of the Board and March 25, 1996
- ---------------------------------------------- Chief Executive Officer
Michael S. Dell (principal executive
officer)
DONALD J. CARTY Director March 25, 1996
- ----------------------------------------------
Donald J. Carty
PAUL O. HIRSCHBIEL, JR. Director March 25, 1996
- ----------------------------------------------
Paul O. Hirschbiel, Jr.
MICHAEL H. JORDAN Director March 25, 1996
- ----------------------------------------------
Michael H. Jordan
GEORGE KOZMETSKY
- ----------------------------------------------
George Kozmetsky Director March 25, 1996
THOMAS W. LUCE, III Director March 25, 1996
- ----------------------------------------------
Thomas W. Luce, III
KLAUS S. LUFT Director March 25, 1996
- ----------------------------------------------
Klaus S. Luft
CLAUDINE B. MALONE Director March 25, 1996
- ----------------------------------------------
Claudine B. Malone
MICHAEL A. MILES Director March 25, 1996
- ----------------------------------------------
Michael A. Miles
THOMAS J. MEREDITH Senior Vice President -- March 25, 1996
- ---------------------------------------------- Finance and Information
Thomas J. Meredith Systems and Chief
Financial Officer
(principal financial
officer)
CATHERINE P. THOMPSON Vice President, Corporate March 25, 1996
- ---------------------------------------------- Controller (principal
Catherine P. Thompson accounting officer)
</TABLE>
57
<PAGE> 59
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- ------------------------------------------------------------------------
<C> <S>
3.1 -- Certificate of Incorporation, dated October 21, 1987 and filed
October 22, 1987 (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 30, 1995, Commission File No. 0-17017)
3.2 -- Certificate of Amendment to the Certificate of Incorporation, dated
May 6, 1988 and filed May 9, 1988 (incorporated by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 30, 1995, Commission File No. 0-17017)
3.3 -- Certificate of Amendment to the Certificate of Incorporation, dated
June 19, 1991 and filed June 21, 1991 (incorporated by reference to
Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 30, 1995, Commission File No. 0-17017)
3.4 -- Certificate of Amendment to the Certificate of Incorporation, dated
June 19, 1992 and filed July 10, 1992 (incorporated by reference to
Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 30, 1995, Commission File No. 0-17017)
3.5 -- Certificate of Designation of Series A Convertible Preferred Stock,
dated August 24, 1993 and filed August 25, 1993 (incorporated by
reference to Exhibit 3.5 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended July 30, 1995, Commission File No.
0-17017)
3.6 -- Certificate of Correction Filed to Correct Certain Errors in the
Certificate of Amendment of Certificate of Incorporation Filed in the
Office of the Secretary of State of Delaware on May 9, 1988, and in
the Certificate of Amendment of Certificate of Incorporation Filed in
the Office of the Secretary of State of Delaware on July 10, 1992,
dated April 27, 1994 and filed May 5, 1994 (incorporated by reference
to Exhibit 3.6 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 30, 1995, Commission File No. 0-17017)
3.7 -- Certificate of Amendment to Certificate of Incorporation, dated July
31, 1995 and filed August 3, 1995 (incorporated by reference to
Exhibit 3.7 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 30, 1995, Commission File No. 0-17017)
3.8 -- Certificate of Designations of Series A Junior Participating
Preferred Stock, dated November 29, 1995 and filed December 4, 1995
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended October 29, 1995,
Commission File No. 0-17017)
3.9 -- Bylaws, dated October 22, 1987 (incorporated by reference to Exhibit
3.8 to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.10 -- Amendments to the Bylaws, adopted June 19, 1991 (incorporated by
reference to Exhibit 3.9 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended July 30, 1995, Commission File No.
0-17071)
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- ------------------------------------------------------------------------
<C> <S>
3.11 -- Amendments to the Bylaws, adopted May 18, 1995 (incorporated by
reference to Exhibit 3.10 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended July 30, 1995, Commission File No.
0-17017)
3.12 -- Amendments to Bylaws, adopted November 29, 1995 (incorporated by
reference to Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 29, 1995, Commission File
No. 0-17017)
3.13 -- Restated Bylaws, as adopted on November 29, 1995 (incorporated by
reference to Exhibit 3.3 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 29, 1995, Commission File
No. 0-17017)
4.1 -- Rights Agreement, dated as of November 29, 1995 (incorporated by
reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 29, 1995, Commission File No.
0-17017)
4.2 -- Indenture, dated as of August 15, 1993, between the Company and The
First National Bank of Boston regarding the Company's 11% Senior
Notes Due August 15, 2000 (incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-4, Registration No.
33-69680)
4.3 -- Exchange and Registration Rights Agreement, dated as of August 15, 1993,
between the Company and the purchasers of the Company's 11% Senior
Notes Due August 15, 2000 (incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form S-4, Registration No.
33-69680)
10.1* -- Dell Computer Corporation 1986 Incentive Stock Option Plan, as
amended (incorporated by reference to Exhibit 4c to the Company's
Registration Statement on Form S-8, Registration No. 33-24621)
10.2* -- Dell Computer Corporation 1987 Incentive Stock Option Plan, as
amended (incorporated by reference to Exhibit 4d to the Company's
Registration Statement on Form S-8, Registration No. 33-24621)
10.3* -- Dell Computer Corporation 1987 Non-qualified Stock Option Plan, as
amended, including the UK Scheme (incorporated by reference to
Exhibit 4e to the Company's Registration Statement on Form S-8,
Registration No. 33-24621)
10.4* -- Dell Computer Corporation 1989 Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31,
1993, Commission File No. 0-17017)
10.5* -- Dell Computer Corporation 1993 Stock Option Plan, (incorporated by
reference to Exhibit 10.36 to the Company's Registration Statement on
Form S-4, Registration No. 33-69680)
10.6* -- Dell Computer Corporation Incentive Plan (incorporated by reference
to Exhibit 4.6 to the Company's Registration Statement on Form S-8,
Registration No. 33-54577)
10.7* -- First Amendment to Dell Computer Corporation Incentive Plan, dated as
of July 21, 1995 (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 30, 1995, Commission File No. 0-17071)
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- ------------------------------------------------------------------------
<C> <S>
10.8*+ -- Second Amendment to Dell Computer Corporation Incentive Plan, dated
as of November 29, 1995
10.9* -- Dell Computer Corporation Deferred Compensation Plan (incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the fiscal year ended February 3, 1991, Commission File No.
0-17017)
10.10*+ -- Amendment to Deferred Compensation Plan, adopted on August 25, 1995
10.11*+ -- Executive Incentive Bonus Plan, adopted March 1, 1995
10.12 -- Committed Credit Line Agreement, dated as of June 8, 1995, between
NationsBank of Texas, N.A. and the Company and certain of its
subsidiaries, along with schedule identifying substantially identical
agreements and material differences between such other agreements and
the agreement filed (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal year ended
July 30, 1995, Commission File No. 0-17017)
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- ------------------------------------------------------------------------
<C> <S>
10.13 -- Supplement to Schedule of Similar Agreements, listing additional
agreements substantially identical to the Committed Credit Line
Agreement filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 30, 1995 (incorporated by
reference to Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 29, 1995, Commission File
No. 0-17017)
10.14* -- Form of Indemnity Agreement between the Company and certain of its
officers, directors and key employees (incorporated by reference to
Exhibit 10.23 to the Company's Registration Statement on Form S-1,
Registration No. 33-21823)
10.15 -- Lease Agreement, dated January 6, 1989, for Building 12 in Braker
Center (incorporated by reference to Exhibit 10s to the Company's
Annual Report on Form 10-K for the fiscal year ended January 27,
1989, Commission File No. 0-17017)
10.16 -- Two Amendments to Lease Agreement for Building 12 in Braker Center
(incorporated by reference to Exhibit 10.27 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1993,
Commission File No. 0-17017)
10.17* -- Agreement, dated May 12, 1988, between the Company and Michael S.
Dell, along with the Employment Agreement, dated May 3, 1984, between
Michael S. Dell and the Company's predecessor (incorporated by
reference to Exhibit 10.25 to the Company's Registration Statement on
Form S-1, Registration No. 33-38991)
10.18+ -- Receivables Purchase Agreement, dated as of November 21, 1995,
between Dell Marketing L.P. (as Seller) and Dell Receivables L.P. (as
Purchaser)
10.19+ -- Receivables Purchase Agreement, dated as of November 21, 1995,
between Dell Direct Sales L.P. (as Seller) and Dell Receivables L.P.
(as Purchaser)
10.20+ -- Subordinated Note, dated as of November 30, 1995, payable to Dell
Marketing L.P. issued by Dell Receivables L.P.
10.21+ -- Subordinated Note, dated as of November 30, 1995, payable to Dell
Direct Sales L.P. issued by Dell Receivables L.P.
10.22+ -- Pooling and Servicing Agreement, dated as of November 21, 1995, among
Dell Receivables L.P. (as Transferor), Dell USA L.P. (as Servicer)
and Norwest Bank Minnesota, National Association (as Trustee)
10.23+ -- Series 1995-1 Supplement, dated as of November 21, 1995, to the
Pooling and Servicing Agreement filed as Exhibit 10.22 to this Report
10.24+ -- Certificate Purchase Agreement, dated as of November 21, 1995, among
Dell Receivables L.P. (as Seller), Corporate Receivables Corporation
(as Purchaser), the financial institutions named from time to time
therein (as Liquidity Providers), Citibank North America, Inc. (as
Program Agent) and Norwest Bank Minnesota, National Association (as
Trustee)
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- ------------------------------------------------------------------------
<C> <S>
10.25+ -- Parent Undertaking Agreement, dated as of November 30, 1995, executed
by the Company
10.26+ -- Cross-Guarantee Agreement, dated as of November 30, 1995, among Dell
Marketing L.P., Dell Direct Sales L.P. and Dell USA L.P.
10.27* -- Severance Agreement, dated April 28, 1995, between the Company and L.
Scott Flaig (incorporated by reference to Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended April 30,
1995, Commission File No. 0-17017)
10.28* -- Severance Agreement, dated June 15, 1995, between the Company and
Thomas L. Thomas (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 30, 1995, Commission File No. 0-17017)
11+ -- Statement re Computation of Per Share Earnings
21+ -- Subsidiaries of the Company
23+ -- Consent of Price Waterhouse LLP
27+ -- Financial Data Schedule
</TABLE>
- ---------------
* Identifies Exhibit that consists of or includes a management contract or
compensatory plan or arrangement.
+ Filed herewith.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>2
<DESCRIPTION>SECOND AMENDMENT TO DELL COMPUTER INCENTIVE PLAN
<TEXT>
<PAGE> 1
EXHIBIT 10.8
SECOND AMENDMENT
TO
DELL COMPUTER CORPORATION
INCENTIVE PLAN
Dell Computer Corporation (the "Company"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), hereby adopts an amendment to the Dell Computer
Corporation Incentive Plan (the "Incentive Plan"), as specified below.
RECITALS
The Board of Directors of the Company (the "Board"), acting at a meeting
duly called and held on November 29, 1995 in accordance with the applicable
provisions of the DGCL and the Company's Bylaws, did duly adopt resolutions (1)
approving the amendment to the Incentive Plan described herein and (2)
authorizing the officers of the Company to take such actions as they consider
necessary, appropriate or desirable to effectuate the purposes thereof.
Now, therefore, the Incentive Plan is hereby amended as follows:
1. Paragraph 1.6 of the Plan is deleted in its entirety and replaced
with the following:
1.6 "Change in Control" means:
(a) The acquisition by a Person of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (1) the then outstanding shares of Stock or (2) the
combined voting power of the then outstanding Voting Securities of the
Corporation; provided, however, that for purposes of this subparagraph (a),
the following acquisitions shall not constitute a Change in Control: (i)
any acquisition directly from the Corporation, (ii) any acquisition by the
Corporation, (iii) any acquisition by an employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any corporation
controlled by the Corporation, (iv) any acquisition by Mr. Michael S. Dell,
his Affiliates (as defined in Rule 12b-2 promulgated under the Exchange
Act) or Associates (as defined in Rule 12b-2 promulgated under the Exchange
Act), his heirs or any trust or foundation to which he has transferred or
may transfer Stock (collectively, "Michael Dell") or (v) any acquisition by
any corporation pursuant to a transaction which complies with clauses (1),
(2) and (3) of subparagraph (c) of this Paragraph; or
<PAGE> 2
(b) Individuals who constitute the Incumbent Board cease for
any reason to constitute at least a majority of the Board; or
(c) Approval by the stockholders of the Corporation of a
reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Corporation or the acquisition of
assets of another corporation (a "Business Combination"), in each case,
unless, following such Business Combination, (1) all or substantially all
of the Persons who were the beneficial owners, respectively, of the
outstanding Stock and outstanding Voting Securities of the Corporation
immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 60% of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result
of such transaction owns the Corporation or all or substantially all of the
Corporation's assets either directly or through one or more Subsidiaries)
in substantially the same proportions as their ownership, immediately prior
to such Business Combination, of the outstanding Stock and outstanding
Voting Securities, as the case may be, (2) no Person (excluding any
employee benefit Plan (or related trust) of the Corporation, such
corporation resulting from such Business Combination and Michael Dell)
beneficially owns, directly or indirectly, 20% or more of, respectively,
the then outstanding shares of common stock of the corporation resulting
from such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (3) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or of the
action of the Board of Directors, providing for such Business Combination;
or
(d) Approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
2. Paragraph 1.23 of the Plan is deleted and replaced in its entirety
with the following:
1.23 "Incumbent Board" means the individuals who, as of the
Effective Date, constitute the Board of Directors; provided, however, that
any individual becoming a director subsequent to such date whose election,
or nomination for election by the Corporation's stockholders, was approved
by a vote of at least a majority of the directors then comprising
2
<PAGE> 3
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board.
3. Except as described in Paragraphs 1 and 2 above, the terms,
conditions and provisions of the Incentive Plan shall remain in full force and
effect and shall be unaffected by this amendment.
4. This amendment, and the changes to the provisions of the Incentive
Plan effected hereby, shall be effective as of November 29, 1995.
In witness whereof, the Company, acting by and through its duly authorized
officer, has executed this instrument to be effective as of the date specified
in Paragraph 4 above.
DELL COMPUTER CORPORATION
By: THOMAS B. GREEN
------------------------
Thomas B. Green,
General Counsel and Secretary
Attest:
THOMAS H. WELCH, JR.
- -------------------------------
Thomas H. Welch, Jr.,
Assistant Secretary
3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>3
<DESCRIPTION>AMENDMENT TO DEFERRED COMPENSATION PLAN
<TEXT>
<PAGE> 1
EXHIBIT 10.10
DELL COMPUTER CORPORATION
AMENDMENT TO THE DEFERRED COMPENSATION PLAN
RESOLVED, that the Board hereby amends Section 3.2 of the Plan effective
January 1, 1996, to provide for a 100% match of Member's Deferral Account, not
to exceed the maximum matched Employer Salary Reduction Contribution under the
Dell Computer Corporation 401(k) Plan less the maximum limit allowed under the
Internal Revenue Code 402(g)(1).
RESOLVED, that the Board hereby amends the vesting schedule of the Plan
effective January 1, 1996, to mirror the vesting schedule of the Dell Computer
Corporation 401(k) Plan.
RESOLVED, that the Board hereby amends Section 2 of the Plan effective January
1, 1996, to provide for the inclusion of Directors as eligible Members in the
Plan.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>4
<DESCRIPTION>EXECUTIVE INCENTIVE BONUS PLAN
<TEXT>
<PAGE> 1
EXHIBIT 10.11
DELL COMPUTER CORPORATION
EXECUTIVE INCENTIVE BONUS PLAN
SUMMARY DESCRIPTION
On March 1, 1995, the Board of Directors of Dell Computer Corporation
(the "Company") unanimously approved the adoption of the Executive Incentive
Bonus Plan (the "Plan"). The Plan was approved by the Company's stockholders at
the Company's annual meeting of stockholders held on July 21, 1995. Set forth
below is a description of the terms of the plan.
PURPOSE
The purpose of the Plan is to unite strategic objectives and executive
staff performance, provide significant cash rewards for continuing profitable
growth and motivate short-term performance for each of the fiscal years during
the term of the Plan. Key strategic objectives include (a) product leadership,
(b) productivity, cost reduction and quality, (c) attracting, developing and
retaining exceptional people, (d) improving infrastructure and systems and (e)
global expansion.
ADMINISTRATION
The Plan will be administered by the Compensation Committee of the
Board of Directors (the "Committee"), which shall consist of two or more
members of the Board of Directors who are not employees of the Company and who
otherwise qualify as "outside directors" within the meaning of Section 162(m)
of the Internal Revenue Code and the regulations thereunder.
ELIGIBILITY
All corporate vice presidents who are members of the Company's
executive staff are eligible to participate in the Plan. Plan participants are
chosen solely at the discretion of the Committee.
TARGET BONUS
Promptly after the beginning of each fiscal year, the Committee
establishes a target bonus opportunity for each participant based on a
percentage of the participant's base salary and level of responsibility. The
percentage of the target bonus actually paid is based on the extent to which
corporate and key strategic objectives are achieved. Corporate objectives may
include any or all of the following: profit before tax, profit after tax,
return on invested capital, return on equity, return on assets, net income and
revenues. With respect to key strategic objectives, the Committee has
<PAGE> 2
determined that such information is confidential business information,
disclosure of which would adversely affect the Company.
Plan payments are calculated for each participant at the end of the
fiscal year based on the achievement of annual corporate and key strategic
objectives. The amount earned is paid in cash as soon as is practicable
following the end of the Company's fiscal year to which the bonus pertains,
provided that at the discretion of the Committee, a participant may, subject to
such terms and conditions as the Committee may determine, elect to defer
payment of all or any part of any bonus by complying with such procedures as
the Committee may prescribe.
The Committee must certify in writing that the performance criteria
have been met prior to any payments under the Plan. Employees are not entitled
to any bonus award under the Plan, however, if minimum corporate objectives
are not achieved.
The amount to be paid to each participant under the Plan will depend
on the factors set forth above. However, the maximum bonus that any one
individual may receive under the Plan in any one fiscal year is $2 million, and
in no event more than 250% of the individual's target bonus amount. The
committee may reduce (but not increase) a participant's bonus as its sole
discretion. Generally, an executive must be actively employed by the Company or
a subsidiary of the Company and on the payroll on the date the award is paid to
receive the award. Certain pro rata awards may be made if termination of
employment results from retirement, permanent disability or death.
AMENDMENT AND TERMINATION
The Committee may terminate, suspend or amend the Plan, in whole or in
part, from time to time, including to adopt amendments deemed necessary or
desirable to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any award granted under the Plan so long as
stockholder approval required by Section 162(m) of the Internal Revenue Code
has been obtained. No amendment, termination or modification may adversely
affect outstanding awards under the Plan, in any manner, without the consent of
the affected participants. The Committee must determine that an amendment or
modification is in the best interests of all persons to whom awards have
previously been granted and may not adopt an amendment or modification that
would result in an increase in the amount of compensation payable under the
Plan.
2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>5
<DESCRIPTION>RECEIVABLES PURCHASE AGREEMENT
<TEXT>
<PAGE> 1
EXHIBIT 10.18
EXECUTION COPY
RECEIVABLES PURCHASE AGREEMENT
between
DELL MARKETING L.P., as Seller
and
DELL RECEIVABLES L.P., as Purchaser
Dated as of November 21, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions............................................. 2
SECTION 1.02. Other Definitional Provisions........................... 2
SECTION 1.03. Computation of Time Periods............................. 3
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
SECTION 2.01. Purchase and Sale of Receivables........................ 4
SECTION 2.02. Payment of Purchase Price............................... 4
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND PURCHASES
SECTION 3.01. Transfer Date........................................... 5
SECTION 3.02. Conditions Precedent to All Purchases................... 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller............ 8
SECTION 4.02. Representations and Warranties of the Purchaser......... 11
SECTION 4.03. Obligations Unaffected.................................. 12
ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of the Seller..................... 14
SECTION 5.02. Reporting Requirements of the Seller.................... 17
SECTION 5.03. Negative Covenants of the Seller........................ 18
SECTION 5.04. Affirmative Mutual Covenant............................. 19
SECTION 5.05. Grant of Security Interest.............................. 19
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VI
EVENTS OF TERMINATION
SECTION 6.01. Termination............................................. 21
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Indemnification......................................... 23
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Further Assurances...................................... 25
SECTION 8.02. Payments................................................ 25
SECTION 8.03. Costs and Expenses...................................... 25
SECTION 8.04. Binding Effect; Assignability........................... 26
SECTION 8.05. Governing Law, Jurisdiction, Consent to
Service of Process...................................... 27
SECTION 8.06. No Waiver; Cumulative Remedies.......................... 27
SECTION 8.07. Amendments and Waivers.................................. 27
SECTION 8.08. Severability............................................ 28
SECTION 8.09. Notices................................................. 28
SECTION 8.10. Counterparts............................................ 28
SECTION 8.11. Construction of Agreement as Security
Agreement............................................... 28
SECTION 8.12. Termination............................................. 28
SECTION 8.13. Third Party Beneficiary................................. 29
SECTION 8.14. The Seller's Obligations................................ 29
</TABLE>
ii
<PAGE> 4
RECEIVABLES PURCHASE AGREEMENT, dated as of November 21, 1995, by and
between Dell Marketing L.P., a Texas limited partnership (in its capacity as
seller hereunder, the "Seller") and Dell Receivables L.P., a Texas limited
partnership (the "Purchaser").
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to buy from the Seller, on the date hereof and from time to time
hereafter, all of the Seller's right, title and interest in, to and under the
Receivables existing on the date hereof or hereafter created; and
WHEREAS, all of the partnership interests in both the Seller and the
Purchaser are held indirectly by Dell Computer Corporation ("Dell") and all of
the shares of the Purchaser are owned indirectly by Dell; and
WHEREAS, pursuant to that certain Pooling and Servicing Agreement,
dated of even date herewith (the "Pooling and Servicing Agreement"), among the
Purchaser, Dell USA L.P. (the "Servicer") and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"), the Purchaser has agreed to transfer to
the Trust created pursuant to the Pooling and Servicing Agreement, for the
benefit of the Certificateholders referred to therein, all of its right, title
and interest in, to and under the Receivables;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
<PAGE> 5
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Capitalized terms used herein but not
otherwise defined herein shall have the meanings set forth in the Pooling and
Servicing Agreement. In addition, the term "Agreement" shall mean this
Receivables Purchase Agreement, as the same may from time to time be amended,
supplemented or otherwise modified. The following capitalized terms shall have
the following meanings:
"Early Termination" shall have the meaning specified in Section 6.01.
"Effective Period" shall mean the period beginning on the Transfer Date
and terminating on (i) the earliest of (a) the close of business on the Business
Day on which a Termination Event occurs, (b) the close of business on the
Business Day immediately preceding the day on which any Early Amortization Event
occurs and (c) the close of business on the Business Day immediately preceding
the day on which the Amortization Period for the last outstanding Series begins
or (ii) such later date as is agreed to by the Seller and the Purchaser.
"Purchase Date" shall have the meaning specified in Section 2.02.
"Purchase Percentage" shall mean initially 98%; provided, however, that
the Purchase Percentage may change from time to time, on a basis consistent with
that used to establish the initial Purchase Percentage, to reflect historic loss
experience of the Seller's accounts receivable portfolio and prevailing interest
rates, as agreed upon by the Seller and the Purchaser.
"Purchase Price" shall have the meaning specified in Section 2.02.
"Termination Event" shall have the meaning specified in Section 6.01.
"Transfer Date" shall have the meaning specified in Section 3.01.
SECTION 1.02. Other Definitional Provisions. (a) All terms defined in
this Agreement shall have the defined meanings when used in any certificate or
other document made or delivered pursuant hereto unless otherwise defined
therein.
(b) As used herein and in any certificate or other document made or
delivered pursuant hereto, accounting terms not defined in this Agreement, and
accounting terms partly defined in this Agreement to the extent not completely
defined, shall have the respective meanings given to them under generally
accepted
2
<PAGE> 6
accounting principles in effect from time to time. To the extent that the
definitions of accounting terms herein are inconsistent with the meanings of
such terms under generally accepted accounting principles, the definitions
contained herein shall control.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; and Section, Schedule and
Exhibit references contained in this Agreement are references to Sections,
Schedules and Exhibits in or to this Agreement unless otherwise specified; and
the term "including" shall mean "including without limitation".
SECTION 1.03. Computation of Time Periods. Unless otherwise stated in
this Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" shall mean "from and including" and the
words "to" and "until" shall mean "to but excluding".
3
<PAGE> 7
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
SECTION 2.01. Purchase and Sale of Receivables. Subject to the terms
and conditions of this Agreement, the Seller agrees to sell to the Purchaser,
and the Purchaser agrees to purchase from the Seller, during the Effective
Period, all right, title and interest of the Seller in, to and under all
Receivables now existing or hereafter created, including, without limitation,
all monies due and to become due thereunder, and all amounts received with
respect thereto and all proceeds thereof.
SECTION 2.02. Payment of Purchase Price. (a) On the Transfer Date, the
Seller shall sell to the Purchaser, and the Purchaser shall purchase from the
Seller, all of the Seller's right, title and interest in, to and under all
Receivables existing at the close of business on the Business Day preceding the
Transfer Date for a payment consisting of $182,726,553.45 multiplied by the
Purchase Percentage.
(b) On each Business Day during the Effective Period, the Seller shall
determine the Receivables arising over the course of the preceding Business Day,
which Receivables shall be deemed available for purchase by the Purchaser on
such day (each, a "Purchase Date"). To the extent that any sale of Receivables
is not reflected in the Daily Report, such Receivables will nevertheless be
deemed sold to the Purchaser in every respect and all of the Seller's rights,
title and interest in, to and under such Receivables will be deemed to have been
sold to the Purchaser.
(c) The purchase price payable to the Seller for the Receivables to be
purchased on any Purchase Date shall be an amount equal to the product of (i)
the aggregate Outstanding Balance of all Receivables determined pursuant to
paragraph (b) above and (ii) the Purchase Percentage (such amount, the "Purchase
Price").
(d) The Purchase Price shall be paid to the Seller in immediately
available funds to the extent of funds available to the Purchaser. The excess,
if any, of the Purchase Price over the payment therefor set forth in clause (a)
or (c) above, as the case may be, shall be deemed to be a loan by the Seller to
the Purchaser (a "Subordinated Loan"), evidenced by the Subordinated Note of the
Purchaser substantially in the form attached hereto as Exhibit A.
4
<PAGE> 8
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND PURCHASES
SECTION 3.01. Transfer Date. This Agreement is effective on November
21, 1995. No purchase hereunder shall occur until November 30, 1995 or such
other date agreed upon by the parties in writing (the "Transfer Date") on or
before which the following conditions precedent shall have been satisfied:
(a) There shall have been delivered to the Purchaser file-stamped
copies of the financing statements relating to the Receivables, naming the
Seller as seller/debtor, the Purchaser as purchaser/secured party, or other
similar instruments or documents, as may be necessary or, in the opinion of the
Purchaser, desirable under the UCC of any appropriate jurisdiction or other
applicable law to perfect the Purchaser's ownership of and first priority
security interest in the Receivables, that were duly filed on or prior to the
Transfer Date with the Secretary of State of the State of Texas or other
appropriate official.
(b) There shall have been delivered to the Purchaser a copy of the
limited partnership agreement of the Seller, certified by the secretary or an
assistant secretary of the general partner of the Seller as of a recent date.
(c) There shall have been delivered to the Purchaser a certificate of
the Secretary of State of the State of Texas as to the documents relating to the
Seller which are on file in the office of such Secretary of State.
(d) There shall have been delivered to the Purchaser a certificate of
the secretary or an assistant secretary of the general partner of the Seller,
dated the Transfer Date, certifying (i) that attached thereto is a true and
complete copy of resolutions adopted by the board of directors of the general
partner of the Seller authorizing the transactions contemplated by this
Agreement and the execution, delivery and performance of this Agreement, the
Pooling and Servicing Agreement and any other documents required or contemplated
hereunder, (ii) that the limited partnership agreement of the Seller has not
been amended since the date of the certified copy furnished pursuant to clause
(b) above and (iii) the names and true signatures of the officers of the general
partner of the Seller authorized to execute this Agreement, the Pooling and
Servicing Agreement and any other documents contemplated hereunder, and
appropriately evidencing the incumbency of such secretary or assistant
secretary.
(e) There shall have been delivered to the Purchaser certified copies
of Requests for Information or Copies (Form UCC- 11) (or a similar search report
certified by a party acceptable to the Purchaser), dated a date reasonably near
to the date of such Transfer Date, listing all effective financing statements
(including those referred to in Section 3.01(a) which name the
5
<PAGE> 9
Seller (under its present name and any previous name) as debtor and which are
filed in the jurisdictions in which filings were made pursuant to Section
3.01(a), together with copies of such financing statements (none of which
(except those filed pursuant to Section 3.01(a) shall cover any property which
may be Receivables or Collections).
(f) There shall have been delivered to the Purchaser copies of proper
Financing Statements (Form UCC-3), if any, necessary to release all security
interests and other rights of any Person in the Receivables previously granted
by the Seller.
(g) There shall have been delivered to the Purchaser a Dell Collection
Account Letter substantially in the form of Exhibit C to the Pooling and
Servicing Agreement, in respect of each Dell Collection Account maintained by
the Servicer, duly acknowledged by the bank holding such Dell Collection
Account.
(h) There shall have been delivered to the Purchaser favorable opinions
of Baker & Botts, L.L.P., counsel for the Seller, and of Thomas B. Green,
General Counsel of the Seller, each in form and substance reasonably acceptable
to the Purchaser.
(i) There shall have been delivered to the Seller a certificate of the
secretary or assistant secretary of the general partner of the Purchaser, dated
the Transfer Date, certifying (i) that attached thereto is a true and complete
copy of resolutions adopted by the board of directors of the general partner of
the Purchaser authorizing the transactions contemplated by this Agreement and
the execution, delivery and performance of this Agreement and any other
documents required or contemplated hereunder and (ii) the names and true
signatures of the officers of the general partner of the Purchaser authorized to
execute this Agreement and any other documents contemplated hereunder, and
appropriately evidencing the incumbency of such secretary or assistant
secretary.
(j) The Pooling and Servicing Agreement and all documentation to be
delivered in connection therewith shall have been executed and delivered and all
conditions thereto shall have been satisfied.
(k) The Cross-Guarantee Agreement shall have been executed and
delivered and shall be in full force and effect.
(l) All legal matters incident to the execution and delivery of this
Agreement and to the purchases by the Purchaser of the Receivables from the
Seller shall be satisfactory to counsel for the Purchaser.
SECTION 3.02. Conditions Precedent to All Purchases. The obligation of
the Purchaser to pay the Purchase Price with respect to any Receivables on any
Purchase Date is subject to the following conditions precedent:
6
<PAGE> 10
(a) On or prior to such Purchase Date, the Seller shall have delivered
to the Purchaser the accounts receivable trial balance of the Originators (which
if in magnetic tape or diskette format shall be compatible with the Purchaser's,
or, if applicable, the Servicer's, computer equipment);
(b) On or prior to such Purchase Date, the Servicer shall have
delivered to the Purchaser, in form and substance satisfactory to the Purchaser,
a completed Determination Date Certificate, together with a listing by Obligor
of all Receivables subject to such purchase, for the most recently ended
reporting period for which information is required pursuant to Section 3.05(b)
of the Pooling and Servicing Agreement and containing such additional
information as may be reasonably requested by the Purchaser;
(c) On or prior to such Purchase Date, the Seller shall have marked its
master data processing records and, at the request of the Purchaser, each
Contract (other than any invoice sent to the Obligor under such Contract) giving
rise to Receivables and all other relevant records evidencing the Receivables
which are the subject of such purchase with a legend, acceptable to the
Purchaser, stating that such Receivables, and Collections with respect thereto
and other proceeds thereof, have been sold in accordance with this Agreement;
(d) On such Purchase Date, the following statements shall be true (and
the Seller, by accepting the amount of such purchase, shall be deemed to certify
that):
(i) The Seller's representations and warranties contained in Section
4.01 are correct on and as of such day as though made on and as of such
date; and
(ii) No event has occurred and is continuing, or would result from such
purchase, which constitutes a Termination Event or would constitute a
Termination Event but for the requirement that notice be given or time
elapse or both;
(e) On or prior to such Purchase Date, the Purchaser shall have
received such other approvals, opinions or documents as the Purchaser may
reasonably request; and
(f) On such Purchase Date the Seller shall have complied with all of
its covenants hereunder and shall have fulfilled in all material respects all of
its obligations hereunder.
The acceptance by the Seller of any payment for any Receivables shall
be deemed to be a representation and warranty by the Seller as to the matters
set forth in this Section 3.02.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller. The Seller
represents and warrants to the Purchaser as of the Transfer Date and each
Purchase Date that:
(a) Organization. The Seller is a limited partnership duly organized
and validly existing under the laws of the State of Texas and has full power,
authority and legal right to own its properties and conduct its business, as
presently owned or conducted and as is proposed to be conducted under this
Agreement and the Cross-Guarantee Agreement, and to execute, deliver and perform
its obligations under this Agreement and the Cross- Guarantee Agreement.
(b) Due Qualification. The Seller is duly qualified to do business (or
is exempt from such requirement), and has obtained all necessary licenses or
approvals, in each jurisdiction in which failure to so qualify or to obtain such
licenses or approvals would have a material adverse effect on the Seller's
ability to perform its obligations under this Agreement and the Cross-Guarantee
Agreement.
(c) Due Authorization. The execution, delivery and performance of this
Agreement and the Cross-Guarantee Agreement by the Seller, and the consummation
by the Seller of the transactions contemplated by this Agreement and by the
Cross-Guarantee Agreement, have been duly and validly authorized by all
necessary action on the part of the Seller and this Agreement and the Cross-
Guarantee Agreement and the other agreements and instruments executed or to be
executed in connection herewith have been duly executed and delivered on behalf
of the Seller.
(d) No Conflict. The Seller's execution and delivery of this Agreement
and the Cross-Guarantee Agreement, performance of the transactions contemplated
hereby and thereby, and fulfillment of the terms hereof and thereof applicable
to the Seller, do not contravene the Seller's limited partnership agreement,
conflict with or violate any Requirements of Law applicable to the Seller,
violate any provision of, or require any filing, registration, consent or
approval under, any Requirement of Law presently in effect having applicability
to the Seller, except for such filings, registrations, consents or approvals as
have already been obtained or made and are in full force and effect, conflict
with, result in any breach of any of the material terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default under,
any indenture, contract, agreement, mortgage, deed of trust or other instrument
to which the Seller is a party or by which it or its properties or assets are
bound, which conflict, violation or breach would have a material adverse effect
on the Seller's ability to perform its obligations hereunder or under the
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Cross-Guarantee Agreement or on the ownership by the Trust of the Receivables.
(e) No Proceedings Regarding the Seller. There are no proceedings,
injunctions, writs, restraining orders or other orders or investigations pending
or, to the best knowledge of a Responsible Officer of the Seller, threatened
against the Seller before any Governmental Authority (i) asserting the
illegality, invalidity or unenforceability, or seeking any determination or
ruling that would affect the legality, binding effect, validity or
enforceability of this Agreement, the Cross-Guarantee Agreement, the Pooling and
Servicing Agreement or the Certificates, (ii) seeking to prevent the issuance of
the Certificates or the consummation of any of the transactions contemplated by
this Agreement, the Cross-Guarantee Agreement, the Pooling and Servicing
Agreement or the Certificates, (iii) seeking any determination or ruling that is
reasonably likely to materially and adversely affect the financial condition or
results of operations of the Seller or the performance by the Seller of its
obligations under this Agreement or the Cross-Guarantee Agreement or (iv)
seeking to affect adversely the income or franchise tax attributes of the Trust
under the United States federal or State of Texas income or franchise tax
systems.
(f) Consents. No authorization, consent, license, order or approval of
or registration or declaration with any Person or Governmental Authority is
required to be obtained, effected or given by the Seller in connection with the
execution and delivery of this Agreement or the Cross-Guarantee Agreement by the
Seller or the performance of its obligations under this Agreement or the
Cross-Guarantee Agreement or the transactions contemplated hereby, except for
(i) the filing of the financing statements or other documents required to have
been filed on or prior to the Transfer Date pursuant to Section 2.01(a) of the
Pooling and Servicing Agreement, all of which were so filed and are in full
force and effect, and (ii) the filing from time to time of any amendments,
assignments or continuation statements which may become applicable pursuant to
Section 2.01(a) of the Pooling and Servicing Agreement.
(g) Liens. Each Receivable is owned by the Seller free and clear of any
Lien except as provided for herein; and no effective financing statement or
other instrument similar in effect covering any Receivable or Collections with
respect thereto is on file in any recording office except such as may be filed
in favor of the Purchaser and the Trustee and as otherwise provided for in this
Agreement and the Pooling and Servicing Agreement, including Liens that will be
terminated on or before the Transfer Date.
(h) Locations. The chief place of business and chief executive office
of the Seller, and the offices where the Seller keeps the originals of its
books, records and documents regarding the Receivables are located at the
address of the Seller specified in Section 8.09. During the four months prior to
the Transfer Date and prior to any Purchase Date, the chief place of business
and
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chief executive office of the Seller, and the offices where the Seller keeps the
originals of its books, records and documents regarding the Receivables were/are
located at the address of the Seller specified in Section 8.09.
(i) Information. Each certificate, information, exhibit, financial
statement, document, book, record or report furnished by the Seller to the
Purchaser in connection with this Agreement and in connection with each
Receivable is accurate in all material respects as of its date and no such
document contains any material misstatement of fact.
(j) Enforceability. Each of this Agreement and the Cross-Guarantee
Agreement constitute a legal, valid and binding obligation of the Seller
enforceable against the Seller in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting creditors' rights
generally, now or hereafter in effect, and except as such enforceability may be
limited by general principles of equity (whether considered in a suit at law or
in equity).
(k) Valid Transfers. This Agreement constitutes a valid sale, transfer
and assignment to the Purchaser of all right, title and interest of the Seller
in and to the Receivables, whether now existing or hereafter created during the
Effective Period, and the proceeds thereof.
(l) Dell Collection Accounts. Schedule I to the Pooling and Servicing
Agreement is a complete and accurate list of each Dell Collection Account as of
each Purchase Date.
(m) Solvency. The Seller is solvent and will not become insolvent after
giving effect to the transactions contemplated by this Agreement or the
Cross-Guarantee Agreement; the Seller is currently repaying all of its
indebtedness as such indebtedness becomes due; and, after giving effect to the
transactions contemplated by this Agreement and the Cross-Guarantee Agreement,
the Seller will have adequate capital to conduct its business as presently
conducted and as contemplated by this Agreement and the Cross-Guarantee
Agreement.
(n) Compliance. The Seller has complied, and will comply on each
Purchase Date, in all material respects with all Requirements of Law with
respect to it, its business and properties and all Receivables sold hereunder
and the Contracts related thereto. The Seller has maintained and will maintain
all applicable permits, certifications and licenses necessary in any material
respect with respect to its business and properties and all Receivables sold
hereunder and the Contracts related thereto. The Seller has filed or caused to
be filed on a timely basis all tax returns required by any Governmental
Authority.
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(o) No Rescission. Neither any Receivable sold hereunder nor the
related Contract has been satisfied, subordinated or rescinded or, except as
disclosed in writing to the Purchaser, amended in any manner and the amounts
billed under such Receivables have not been compromised, adjusted, extended,
satisfied, subordinated, rescinded or modified, except as permitted under the
Pooling and Servicing Agreement.
(p) No Payment. The Seller has no knowledge of any fact which would
lead it to expect that, when billed, any Receivable sold hereunder would not be
paid in accordance with its terms when due.
(q) No Insolvency Event. No Insolvency Event has occurred with respect
to the Seller.
(r) Fraudulent Conveyance. The Seller is not entering into the
transactions contemplated hereby with the intent of hindering, delaying or
defrauding creditors.
(s) Sale and Transfer. This Agreement creates a valid sale, transfer
and assignment to the Purchaser of, and the Purchaser is the legal and
beneficial owner of, all right, title and interest of the Seller in and to the
Receivables now existing and hereafter created during the term of this Agreement
and in the proceeds thereof.
(t) Eligible Receivables. Each Receivable classified as an "Eligible
Receivable" by the Seller on its records or in any document or report delivered
hereunder satisfied, at the time of such classification, the requirements of
eligibility contained in the definition of Eligible Receivable in the Pooling
and Servicing Agreement; provided, however, that this representation shall not
cover Reconveyed Receivables.
(u) Invoices. The Seller has submitted all necessary documents, if any,
to each Obligor in connection with payments due with respect to such Obligor's
Receivables.
(v) No Proceedings Regarding the Receivables. There are no proceedings,
injunctions, writs, restraining orders or other orders or investigations pending
or, to the best knowledge of a Responsible Officer of the Seller, threatened
with respect to any Receivable or Contract before any Governmental Authority
asserting the illegality, invalidity or unenforceability, or seeking any
determination or ruling that would affect the legality, binding effect, validity
or enforceability of any Receivable or Contract.
(w) Tradenames. The legal name of the Seller is as set forth on the
signature page of this Agreement and the Seller has no tradenames, fictitious
names, assumed names or "doing business as" names.
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(x) ERISA. No Plan (as defined in Section 3(3) of ERISA) maintained by
the Seller or any of its ERISA Affiliates (as defined in Section 414(b), (c),
(m) or (o) of the Internal Revenue Code) has any accumulated funding deficiency
(within the meaning of Section 302 of ERISA or Section 412 of the Internal
Revenue Code), whether or not waived. The Seller and each ERISA Affiliate of the
Seller has timely made all contributions required to be made by it to any Plan
and Multiemployer Plan (as defined in Section 4001(a)(3) of ERISA) to which
contributions are or have been required to be made since January 3, 1991 by the
Seller or such ERISA Affiliate, and no event requiring notice to the PBGC (as
defined in Section 2613.2 of the ERISA Regulations) under Section 302(f) of
ERISA has occurred and is continuing or could reasonably be expected to occur
with respect to any such Plan, in any case, that could reasonably be expected to
result, directly or indirectly, in any Lien being imposed on the property of the
Seller or the payment of any material amount to avoid such Lien. No Plan Event
(as defined in Section 4043 of ERISA) with respect to the Seller or any of its
ERISA Affiliates has occurred or could reasonably be expected to occur that
could reasonably be expected to result, directly or indirectly, in any Lien
being imposed on the property of the Seller or the payment of any material
amount to avoid such Lien.
(y) Accounts. All Receivables constitute "accounts", "general
intangibles" or "proceeds" thereof, as each such term is defined in the UCC.
(z) Sale. For federal income tax, reporting and accounting purposes,
the Seller will treat the sale of each Receivable sold pursuant to this
Agreement as a sale, or absolute assignment, of all its right, title and
ownership interest in and to such Receivable to the Purchaser and the Purchaser
has not and will not account for or treat the transactions contemplated by this
Agreement in any other manner. This representation shall cease to be effective
if the Seller shall have received an Opinion of Counsel that a change in
applicable law occurring after the date hereof renders this representation
unlawful or inadvisable.
SECTION 4.02. Representations and Warranties of the Purchaser. The
Purchaser represents and warrants to the Seller as of the Transfer Date and each
Purchase Date that:
(a) Organization and Good Standing. The Purchaser is a limited
partnership duly organized and validly existing under the laws of the State of
Texas and has full power, authority and legal right to own its properties and
conduct its business as presently owned or conducted and as is proposed to be
conducted under this Agreement.
(b) No Conflict. The Purchaser's execution and delivery of this
Agreement, purchase of the Receivables pursuant to this Agreement and
fulfillment of the terms hereof applicable to the Purchaser, do not contravene
the Purchaser's limited partnership
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agreement, conflict with or violate any Requirements of Law applicable to the
Purchaser, conflict with, result in a breach of any of the material terms or
provisions of, or constitute (with or without notice or lapse of time or both) a
default under, any indenture, contract, agreement, mortgage, deed of trust or
other instrument to which the Purchaser is a party or by which it or its
properties or assets are bound. Neither the execution and delivery of this
Agreement nor the purchase of the Receivables pursuant to this Agreement nor the
fulfillment of the terms hereof applicable to the Purchaser will result in the
creation of an adverse claim against the Purchaser or any assets of the
Purchaser except those created under the Pooling and Servicing Agreement.
(c) Due Authorization. The execution and delivery of this Agreement by
the Purchaser, and the purchase by the Purchaser of the Receivables, have been
duly and validly authorized by all necessary action on the part of the Purchaser
and this Agreement and the other agreements and instruments executed or to be
executed in connection herewith have been duly executed and delivered on behalf
of the Purchaser.
(d) Enforceability. This Agreement constitutes a legal, valid and
binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other similar
laws affecting creditors' rights generally, now or hereafter in effect, and
except as such enforceability may be limited by general principles of equity
(whether considered in a suit at law or in equity).
SECTION 4.03. Obligations Unaffected. The obligations of the Seller to
the Purchaser under this Agreement shall not be affected by reason of any
invalidity, illegality or irregularity of any Receivable or the sale of any
Receivable.
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ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of the Seller. The Seller hereby
covenants that, until the termination of the Effective Period:
(a) Compliance with Law. The Seller will comply in all material
respects with all Requirements of Law applicable to it, its business and
properties and the Receivables.
(b) Preservation of Existence. (i) Except as otherwise permitted by
subsection (ii) of this Section 5.01(b), the Seller will preserve and maintain
its existence, rights, franchises and privileges in the State of Texas, and
qualify and remain qualified in each jurisdiction where the failure to maintain
such qualification would materially and adversely affect (A) the interests of
the Purchaser hereunder or in the Receivables, (B) the collectibility of any
Receivable or (C) the ability of the Seller to perform its obligations hereunder
in any material respects and (ii) the Seller shall not consolidate with or merge
into any other Person or convey or transfer its properties and assets
substantially as an entirety to any Person unless: (1) Dell is the direct or
indirect owner of all of the issued and outstanding shares of the capital stock
or partnership interests or other equity interests of the Person formed by such
consolidation or into which the Seller is merged or the Person which acquires by
conveyance or transfer the properties and assets of the Seller substantially as
an entirety; (2) the Person formed by such consolidation or into which the
Seller is merged or the Person which acquires by conveyance or transfer the
properties and assets of the Seller substantially as an entirety shall be, if
the Seller is not the surviving entity, a corporation, limited partnership or
limited liability company organized and existing under the laws of the United
States of America or any State or the District of Columbia, and such
corporation, limited partnership or limited liability company shall have
expressly assumed, by an agreement supplemental hereto, executed and delivered
to the Purchaser, in form reasonably satisfactory to the Purchaser, the
performance of every covenant and obligation of the Seller hereunder and under
the other Transaction Documents; (3) the Seller shall have delivered to the
Purchaser an Officer's Certificate and an Opinion of Counsel each in form
reasonably satisfactory to the Purchaser and stating that such consolidation,
merger, conveyance or transfer complies with this Section 5.01(b) and (4) the
Rating Agency Condition shall be satisfied.
(c) Audits. At any time and from time to time during the Seller's
regular business hours and at the Seller's expense, on reasonable prior notice
and for a purpose reasonably related to this Agreement, the Seller shall, in
response to any reasonable request of the Purchaser, permit the Purchaser, or
its agents or representatives, (i) to examine and make copies of and abstracts
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from all books, records and documents (including, without limitation, computer
tapes, microfiche and disks) in the possession or under the control of the
Seller relating to the Receivables and the related Contracts and (ii) to visit
the offices and properties of the Seller for the purpose of examining such
materials and to discuss matters relating to the Receivables or the Seller's
performance hereunder with any of the officers or (after consultation with a
Responsible Officer) employees of the Seller having knowledge thereof; provided,
however, that, so long as no Termination Event, Partial Amortization Period or
Cure Period shall have occurred and be continuing, the Purchaser shall use its
best efforts to coordinate the exercise of its rights under this Section 5.01(c)
with the exercise of like rights of the Trustee and the Program Agent, and the
rights of the Purchaser under this Section 5.01(c) shall be at the Seller's
expense only twice in any twelve-month period.
(d) Keeping of Records and Books of Account. The Seller will maintain
and implement administrative and operating procedures (including, without
limitation, the ability to recreate records evidencing the Receivables in the
event of the destruction of the originals thereof), and keep and maintain all
documents, books, records and other information reasonably necessary or
advisable for the collection of the Receivables (including, without limitation,
records adequate to permit the daily identification of each new Receivable and
all Collections of and adjustments to each existing Receivable).
(e) Performance and Compliance with Receivables. The Seller will, at
its expense, timely and fully perform and comply with all provisions, covenants
and other promises required to be observed by it hereunder, except where the
failure to so perform or comply would not have a material adverse effect on the
collectibility of the Receivables or the Seller's ability to perform in all
material respects its obligations hereunder.
(f) Location of Records. The Seller will keep its chief place of
business and chief executive office and the office where it keeps the books,
records and documents regarding the Receivables, at the address of the Seller
specified in Section 8.09.
(g) Credit Policy and Procedures Manual. The Seller will comply in all
material respects with the Credit Policy and Procedures Manual in regard to the
Receivables and the related Contracts.
(h) Collections. The Seller will instruct all Obligors to cause all
Collections of Receivables to be deposited directly to Dell Collection Accounts.
(i) Protection of Purchaser's Interest in Receivables.
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(i) The Seller will not create, permit or suffer to exist, and will
take such actions as are necessary to remove, any Lien, claim or right in,
to or on the Receivables conveyed hereunder, other than the Liens created
hereby and by the Pooling and Servicing Agreement, and will defend the
right, title and interest of the Purchaser and the Trustee in and to the
Receivables conveyed hereunder against any Liens thereon or the claims and
demands of all persons whomsoever based on breaches of representations and
warranties in this Agreement.
(ii) The Seller will advise the Purchaser and the Trustee promptly, in
reasonable detail, (A) of any Lien or claim asserted against any of the
Receivables, other than the Liens created hereby and by the Pooling and
Servicing Agreement, (B) of the occurrence of any breach by the Seller of
any of its representations, warranties and covenants contained herein and
(C) of the occurrence of any other event which in the case of clauses (A)
or (B) would have a material adverse effect on the value of the
Receivables.
(iii) The Seller shall execute and file such continuation statements
and any other documents reasonably requested by the Purchaser or which may
be required by law to fully preserve and protect the interests of the
Purchaser hereunder and of the Trustee under the Pooling and Servicing
Agreement in and to the Receivables conveyed hereby.
(iv) The Seller will not, without providing 45 days' prior written
notice to the Purchaser and the Trustee and without filing such amendments
to any previously filed financing statements as the Purchaser or the
Trustee may reasonably require, (i) change the location of its chief
executive office or the location of the office where the principal records
relating to the Receivables are kept or (ii) change its name, identity or
business structure in any manner which would, could or might make any
financing statement or continuation statement filed by the Seller in
accordance with this Agreement "seriously misleading" with the meaning of
Section 9-402(7) of any applicable enactment of the UCC.
(v) The Seller shall deliver to the Purchaser and the Trustee on or
before April 30 of each year, beginning with April 30, 1996, an Opinion of
Counsel to the Seller (who may be counsel employed by the Seller or an
Affiliate of the Seller), dated as of a date subsequent to the end of the
immediately preceding fiscal year, substantially to the effect that, in the
opinion of such counsel, either (A) such action has been taken with respect
to the recording, registering, filing, re-recording, re-registering and
re-filing of financing statements, continuation statements or other
instructions or documents as is necessary to continue the perfection of the
interests of the Purchaser and the Trustee in and to the Receivables
conveyed hereby (to the same extent as such interest was perfected on the
Transfer Date with
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respect to the Receivables then owned by the Purchaser) and reciting the
details of such action or referring to prior Opinions of Counsel in which
such details are given or (B) no such action is necessary to continue the
perfection of such interests.
(j) Separate Legal Existence. The Seller acknowledges that the
Purchaser, the Trustee and the Certificateholders are entering into the
agreements and consummating the transactions contemplated hereby and by the
Pooling and Servicing Agreement in reliance on the identity of the Purchaser as
a separate legal entity, and the rights and interests of such Persons would be
prejudiced if this reliance were undermined. Accordingly, the Seller will take
such steps as are necessary and within its control to maintain the Purchaser's
separate legal existence and identity and to make it apparent to third parties
that the Purchaser is an entity with assets and liabilities distinct from those
of the Seller or any other subsidiary or Affiliate of the Seller. Such steps
will include the following:
(i) The Seller will conduct its business solely in its own legal name,
and in such a separate manner so as not to mislead others with which it is
dealing.
(ii) The Seller will maintain its own separate business records, will
maintain its own office with its own telephone number and will observe all
legal formalities in formation and management.
(iii) All financial statements of the Seller and Dell will contain
notes clearly indicating that all of the Purchaser's assets are owned by
the Purchaser, which is a separate legal entity.
(iv) The Seller will maintain arm's-length relationships with the
Purchaser. Any transaction between the Purchaser and the Seller or any of
its subsidiaries will, in the reasonable judgement of the Seller, be fair
and equitable to the Purchaser and on terms which are at least as favorable
as could be obtained from a Person which is not an Affiliate.
(v) The Seller will not agree to be, or hold itself out to be,
responsible for the debts of the Purchaser or the decisions or actions with
respect to the daily business and affairs of the Purchaser, except that (A)
pursuant to any Enhancement Agreement, the Seller may indemnify any
Enhancement Provider (and related Persons) against losses caused by actions
or omissions of the Seller and (B) the Seller may guarantee the Purchaser's
obligations to pay any premiums or commitment fees to an Enhancement
Provider.
(vi) The Seller will not cause the Purchaser to be named, directly or
indirectly, as a direct or contingent beneficiary or loss payee on any
insurance policy with respect to any loss
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relating to the property of the Seller or any other subsidiary or Affiliate
of the Seller.
(k) Repurchase Obligation. In the event of any breach of the
representation and warranty set forth in Section 4.01(t), if the Purchaser shall
be obligated to repurchase Reconveyed Receivables pursuant to Section 2.04 of
the Pooling and Servicing Agreement, the Seller shall repurchase from the
Purchaser such Reconveyed Receivables and shall pay to the Purchaser on the
Business Day preceding the day on which such repurchase of Reconveyed
Receivables is to be made an amount equal to the purchase price for the
Reconveyed Receivables paid by the Purchaser pursuant to the Pooling and
Servicing Agreement, such payment, at the option of the Purchaser, to be made
either in cash or through a reduction of the amount due under the Subordinated
Note. The obligation of the Seller to repurchase the Reconveyed Receivables
pursuant to this Section 5.01(k) shall constitute the sole remedy against the
Seller respecting an event of the type specified in the first sentence of this
paragraph available to the Purchaser or the Investor Certificateholders (or the
Trustee on behalf of the Investor Certificateholders) or any other Indemnified
Party. Reconveyed Receivables which are repurchased pursuant to Section 2.04 of
the Pooling and Servicing Agreement, together with any Collections thereon,
shall be promptly removed from the Trust.
SECTION 5.02. Reporting Requirements of the Seller. The Seller hereby
covenants that, until the termination of the Effective Period:
(a) Termination Events. The Seller shall (i) within one Business Day
after a Responsible Officer of the Seller obtains knowledge of the occurrence of
any Termination Event or event which, with the giving of notice or lapse of time
or both, would constitute a Termination Event, notify (either orally or in
writing) the Purchaser of such occurrence; and (ii) as soon as possible and in
any event within three Business Days after a Responsible Officer of the Seller
obtains knowledge of the occurrence of any Termination Event or event which,
with the giving of notice or lapse of time or both, would constitute a
Termination Event, deliver to the Purchaser a statement of a Responsible Officer
of the Seller setting forth details of such Termination Event or such event and
the action that the Seller has taken and proposes to take with respect thereto.
(b) Litigation. As soon as possible and in any event within 10 Business
Days after a Responsible Officer of the Seller obtains knowledge thereof, the
Seller shall notify the Purchaser of any litigation, investigation or proceeding
which could reasonably be expected to impair in any material respect the ability
of the Seller to perform its obligations under this Agreement; and
(c) Other Information. The Seller shall promptly deliver to the
Purchaser such other information, documents, records or reports regarding the
Receivables as the Purchaser may from time
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to time reasonably request in order to protect the Purchaser's interests under
or as contemplated by this Agreement.
SECTION 5.03. Negative Covenants of the Seller. The Seller hereby
covenants that, until the termination of the Effective Period, it will not:
(a) Sales, Liens, Etc. Except as otherwise contemplated herein, or
pursuant to or as contemplated by the Pooling and Servicing Agreement, (i) sell,
assign (by operation of law or otherwise) or otherwise dispose of, or create or
suffer to exist any Lien upon or with respect to, any Receivable or upon or with
respect to any account in the name of the Trustee for the benefit of the
Certificateholders or upon or with respect to any Dell Collection Account to
which any Collections of any Receivables are sent, or (ii) assign any right to
receive income in respect thereof.
(b) Extension or Amendment of Receivables. Except as consistent with
the Credit Policy and Procedures Manual or as otherwise permitted under the
Pooling and Servicing Agreement, (i) extend, amend or otherwise modify the terms
of any Receivable, (ii) amend, modify or waive any payment term or condition of
any invoice related thereto, which extension, amendment, modification or waiver
would impair the collectibility or delay the payment of any Receivable in a
manner inconsistent with the Credit Policy and Procedures Manual, or (iii)
rescind or cancel any Receivable except as ordered by a court of competent
jurisdiction or other Governmental Authority.
(c) Change in Business or Credit Policy and Procedures Manual. Make any
change in the character of its business or in the Credit Policy and Procedures
Manual, which change would, in either case, materially impair the collectibility
of the Receivables, except as permitted under the terms of the Pooling and
Servicing Agreement.
(d) Change in Dell Collection Account Banks. Except as permitted under
the Pooling and Servicing Agreement, add or terminate any bank as a Dell
Collection Account Bank from those listed in Schedule I attached to the Pooling
and Servicing Agreement, or make any change in its instructions to Obligors
regarding payments to be made to any Dell Collection Account Bank, unless the
Purchaser and the Trustee shall have received notice of such addition,
termination or change and executed copies of Dell Collection Account Letters to
each new Dell Collection Account Bank.
(e) Change in Name, Etc. Make any change to its name or structure, or
use any tradenames, fictitious names, assumed names or "doing business as"
names, unless, in the case of such name change or use and prior to the effective
date thereof, the Seller delivers to the Purchaser such financing statements or
amendments to financing statements (Form UCC-1 and UCC-3) executed by the
19
<PAGE> 23
Seller which the Purchaser may request to reflect such name change or use,
together with such other documents and instruments that the Purchaser may
reasonably request in connection therewith.
(f) Deposits to Dell Collection Accounts. Deposit or otherwise credit,
or cause or permit to be so deposited or credited, to any Dell Collection
Account cash or cash proceeds other than Collections of Receivables.
(g) No Actions Against Obligors. Except in accordance with the Credit
Policy and Procedures Manual and the Pooling and Servicing Agreement, commence
or settle any legal action to enforce collection of any Receivable.
(h) No Bankruptcy Filing Against the Purchaser or the Trust. Commence,
institute or cause to be commenced or instituted any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States federal or state bankruptcy or similar law against the
Purchaser or the Trust.
(i) No Claims Against the Receivables. Claim any credit on, or make any
deduction from, the principal or interest payable in respect of the Certificates
by reason of the payment of any taxes levied or assessed upon any part of the
Receivables.
(j) Locations of Subsidiaries. Permit any of the Originators to have or
maintain its jurisdiction of organization or principal place of business in any
of the States of Colorado, Kansas, New Mexico, Oklahoma, Utah or Wyoming.
(k) Subordinated Note. Transfer or pledge the Subordinated Note to any
Person.
SECTION 5.04. Affirmative Mutual Covenant. The Purchaser and Seller
shall record each Purchase as a purchase and sale, respectively, on its books
and records and reflect each Purchase in its financial statements as a purchase
and sale, respectively.
SECTION 5.05. Grant of Security Interest. To secure all obligations of
the Seller arising in connection with this Agreement, and each other agreement
entered into in connection with this Agreement, whether now or hereafter
existing, due or to become due, direct or indirect, or absolute or contingent,
including, without limitation, Indemnified Amounts, payments on account of
Collections received or deemed to be received, fees and any other amounts due
the Purchaser hereunder, the Seller hereby assigns and grants to Purchaser a
first priority security interest in all of the Seller's right, title and
interest now or hereafter existing in, to and under all Receivables and
Collections with regard thereto, and all books, records and computer files
relating thereto.
20
<PAGE> 24
ARTICLE VI
EVENTS OF TERMINATION
SECTION 6.01. Termination. If any of the following events (each, a
"Termination Event") shall have occurred:
(a) any failure by the Seller to make any payment, transfer or deposit
required to be paid, effected or made by it hereunder on or before the date
occurring two Business Days after the date such payment, transfer or deposit is
required to be made hereunder; or
(b) any representation, warranty, certification or written statement
made or deemed made by the Seller under or in connection with this Agreement or
in any statement, record, certificate, financial statement or other document
delivered pursuant hereto or in connection herewith shall prove to have been
incorrect in any material respect on or as of the date made or deemed made which
has a material adverse effect on the Certificateholders and continues unremedied
for 20 days (or, with respect to the representations and warranties made in
Sections 4.01(g) and 4.01(k), continues unremedied for five days) after the
earlier of (i) the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Seller by the Purchaser and
(ii) the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Seller and the Trustee by
Certificateholders of any outstanding Series evidencing not less than 20% of the
Invested Amount for such Series; or
(c) the Seller shall fail to observe or perform in any material respect
any covenant or agreement applicable to it contained herein (other than as
specified in clause (a) or (b) above) which has a material adverse effect on the
Certificate- holders and continues unremedied for 20 days (or with respect to
the covenants contained in Sections 5.03(a) and 5.03(d) shall continue for five
days) after the earlier of (i) the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Seller by the
Purchaser and (ii) the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Seller and the Trustee by
Certificateholders of any outstanding Series evidencing not less than 20% of the
Invested Amount for such Series; or
(d) any Receivables transferred hereunder which constitute more than 1%
of the aggregate amount of Eligible Receivables shall for any reason cease to be
the valid and perfected subject of the security interest created by this
Agreement; or any Receivables transferred hereunder which constitute more than
1% of the aggregate amount of Eligible Receivables shall cease to be free and
clear of any Lien except as provided for herein; or
21
<PAGE> 25
(e) an Insolvency Event shall occur with respect to the Seller or the
Purchaser; provided, however, that for purposes of this Section 6.01, the
definition of "Insolvency Event" shall be construed without giving effect to the
60-day grace period in clause (a) thereof (except with respect to any Controlled
Affiliate that is not a party to any Transaction Document); or
(f) the Internal Revenue Service shall file notice of a lien pursuant
to Section 6323 of the Internal Revenue Code with regard to any of the
Receivables and such lien shall not have been (x) stayed or released within 30
days or, if stayed, such lien shall not have been released within 60 days; or
(y) the Pension Benefit Guaranty Corporation shall file notice of a lien
pursuant to Section 4068 of ERISA with regard to any of the Receivables and such
filing shall not be stayed or rescinded within 15; or
(g) there shall have occurred an Early Amortization Event under the
Pooling and Servicing Agreement;
then, if any of the events set forth in paragraphs (a), (d), (e), (f) or (g)
above shall have occurred, a "Termination Event" shall occur without any notice,
demand, protest or other requirement of any kind immediately upon the occurrence
of such event and, if any of the events set forth in paragraphs (b) or (c) above
shall have occurred, the Purchaser may, by notice to the Seller, declare that a
"Termination Event" shall occur as of the date set forth in such notice. Upon
the occurrence of a Termination Event, the Effective Period shall terminate (any
termination of the Effective Period pursuant to this Section 6.01 is herein
referred to as an "Early Termination"). Upon any Early Termination the Purchaser
shall have, in addition to any rights and remedies under this Agreement, all
other rights and remedies with respect to the Receivables provided after default
under the UCC of the applicable jurisdiction and under other applicable laws,
which rights and remedies shall be cumulative.
A Majority in Interest of each outstanding Series may, on behalf of all
Certificateholders, waive any default by the Seller in the performance of its
obligations hereunder and its consequences, except (1) the failure to make any
distributions or payments required to be made to the Purchaser or to make any
required deposits of any amounts to be so distributed or paid can be waived only
(a) with respect to Indemnified Amounts, with the consent of the relevant
Indemnified Party or (b) with respect to other amounts, with unanimous consent
of all Certificateholders of all outstanding Series and (2) defaults arising
from the events set forth in paragraphs (e), (f) and (g). No such waiver shall
extend to any subsequent or other default or impair any right consequent thereon
except to the extent expressly so waived.
22
<PAGE> 26
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Indemnification. (a) Without limiting any other rights
which the Purchaser may have hereunder or under any applicable law, the Seller
hereby agrees to indemnify the Purchaser and the Trustee and their respective
assignees (which shall not be deemed to include any of the Certificateholders as
such) and their respective partners, officers, directors, employees and
Affiliates (collectively, the "Indemnified Parties") from and against any and
all damages, losses, liabilities and related costs and expenses actually
incurred (excluding consequential damages and lost profits), including
reasonable attorneys' fees and disbursements (all of the foregoing being
collectively referred to as "Indemnified Amounts"), awarded against or incurred
by any of them arising out of or resulting from this Agreement, the activities
of the Seller in connection herewith or in respect of any Receivable (excluding
however (A) Indemnified Amounts resulting from gross negligence or willful
misconduct on the part of the Indemnified Party (other than the Purchaser) to
which such Indemnified Amount would otherwise be due, (B) losses in respect of
Receivables to the extent reimbursement therefor would constitute credit
recourse to the Seller for nonpayment of any Receivable by the related Obligor,
(C) any income or franchise or similar taxes (or any interest or penalties with
respect thereto) incurred by such Indemnified Party arising out of or as a
result of this Agreement or in respect of any Receivable and (D) Indemnified
Amounts resulting from the acts or omissions of the Servicer (unless the
Servicer is an Affiliate of Dell)), to the extent caused by:
(i) reliance on any representation, warranty or covenant made or
statement made or deemed made by the Seller (or any of its Responsible
Officers) under or in connection with this Agreement, which shall have been
incorrect in any material respect when made or deemed made or which the
Seller shall have failed to perform;
(ii) the failure by the Seller to comply with this Agreement or any
Requirement of Law with respect to any Receivable or the related Contract;
or the failure of any Receivable or the related Contract to conform to this
Agreement or any such Requirement of Law;
(iii) the existence of any dispute, claim, offset or defense (other
than discharge in bankruptcy of the Obligor) of the Obligor to the payment
of any Receivable (including, without limitation, a defense based on such
Receivable or the related Contract not being a legal, valid and binding
obligation of such Obligor enforceable against it in accordance with its
terms), or of any other claim resulting from the sale of the products or
services related to such
23
<PAGE> 27
Receivable or from the furnishing or failure to furnish such products or
services;
(iv) the failure to vest in the Purchaser absolute ownership of the
Receivables free and clear of any Lien;
(v) the failure of the Seller to have filed, or any delay in filing,
any financing statements or other similar instruments or documents under
the UCC of any applicable jurisdiction or other applicable laws that are
necessary for perfection or priority of the ownership and security
interests created by this Agreement;
(vi) any commingling by the Seller of Collections with other funds of
the Seller or any Affiliate;
(vii) any investigation, litigation or proceeding related to this
Agreement or the use of proceeds of Purchases or the ownership of or
security interest in Receivables or Collections with respect thereto, or in
respect of any Contract related thereto, other than any investigation,
litigation or proceeding relating to such Indemnified Party's affairs which
includes matters or transactions in addition to those contemplated by the
Transaction Documents;
(viii) any products liability or other claim arising out of or in
connection with products or services which are the subject of any Contract;
(ix) any reduction in the Outstanding Balance of a Receivable (other
than a Reconveyed Receivable) by reason of any defective, rejected,
returned, repossessed or foreclosed merchandise or services or any cash
discount or other adjustment made by the Seller;
(x) any breach by the Seller of any obligation under any Receivable
or any Contract;
(xi) any failure of the Seller to perform its duties or obligations
in accordance with the provisions of this Agreement; or
(xii) any tax (other than any income or franchise or similar tax, or
any interest or penalties with respect thereto) imposed by reason of
ownership of the Receivables by the Purchaser.
(b) Any Indemnified Amounts due hereunder shall be payable within
ten Business Days of submission of a claim by the Indemnified Party.
(c) Each Indemnified Party will use its best efforts to notify the
Seller in advance of making any claim under this Section 7.01.
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<PAGE> 28
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Further Assurances. (a) The Seller agrees to do and
perform, from time to time, any and all acts and to execute and deliver to the
Purchaser or the Trustee any and all further assignments, agreements, powers and
instruments reasonably required or requested by the Purchaser more fully to
effect the purposes of this Agreement and the sales of the Receivables
hereunder, including, without limitation, the execution of any financing
statements or continuation statements relating to the Receivables for filing
under the provisions of the UCC, or any similar law, of any applicable
jurisdiction. The Seller will mark its computer files in a manner reasonably
calculated to indicate that the Receivables have been sold to the Purchaser.
(b) The Purchaser agrees to do such further acts and things and to
execute and deliver to the Seller or the Trustee such additional assignments,
agreements, powers and instruments as are reasonably required by the Seller to
carry into effect the purposes of this Agreement or to better assure and confirm
unto the Seller or the Trustee its rights, powers and remedies hereunder.
SECTION 8.02. Payments. Each payment to be made by either of the
Purchaser or the Seller hereunder shall be made on the required payment date, or
on the next succeeding Business Day if the required payment date is not a
Business Day, in lawful money of the United States and in immediately available
funds at the office of the payee set forth in Section 8.09 below or to such
other office as may be specified by either party in a written notice to the
other party hereto.
SECTION 8.03. Costs, Expenses and Taxes. (a) In addition to the rights
of indemnification granted to the Purchaser pursuant to Article VII hereof, the
Seller agrees to pay on demand all costs and expenses of the Purchaser in
connection with the preparation, execution and delivery of all documents to be
delivered subsequent to the Transfer Date pursuant to this Agreement, including,
without limitation, the reasonable fees and out-of-pocket expenses of counsel
for the Purchaser with respect thereto and with respect to advising the
Purchaser as to its rights and remedies under this Agreement, and the Seller
agrees to pay all costs and expenses of the Purchaser, if any (including
reasonable counsel fees and expenses), in connection with the enforcement of
this Agreement and the other documents to be delivered hereunder excluding,
however, any costs of enforcement or collection of any Receivables.
(b) In addition, the Seller agrees to pay any and all stamp and other
taxes (other than any income or franchise or similar taxes, or any interest or
penalties with respect thereto) and fees payable or determined to be payable in
connection with the execution, delivery, filing and recording of this Agreement
and
25
<PAGE> 29
any documents to be delivered hereunder, and the Seller agrees to indemnify the
Purchaser against any liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes and fees.
SECTION 8.04. Binding Effect; Assignability. (a) This Agreement shall
be binding upon and inure to the benefit of the Seller and the Purchaser and
their respective successors (whether by merger, consolidation or otherwise) and
assigns. Except as otherwise permitted herein, the Seller agrees that it will
not assign or transfer all or any portion of its rights or obligations hereunder
to any Person (other than Dell or any of its Controlled Affiliates) without the
prior written consent of the Purchaser and a Majority in Interest of each
outstanding Series. In connection with any sale or assignment by the Purchaser
of all or a portion of the Receivables, the buyer or assignee, as the case may
be, shall, to the extent of its purchase or assignment, have all rights of the
Purchaser under this Agreement(as if such buyer or assignee, as the case may be,
were the Purchaser hereunder) except to the extent specifically provided in the
agreement between the Purchaser and such buyer or assignee.
(b) The Seller acknowledges that the Purchaser shall assign to the
Trust, as collateral security for the Purchaser's obligations under the Pooling
and Servicing Agreement, all of the Purchaser's rights, remedies, powers and
privileges hereunder (including, without limitation, the right to give any
notice which the Purchaser may provide to the Seller hereunder), provided that
the Purchaser shall not assign or delegate any of its duties or obligations
hereunder to the Trust.
(c) This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms, and shall remain
in full force and effect until such time, after the last Termination Date of any
Series; provided, however, that rights and remedies with respect to any breach
of any representation and warranty made by the Seller pursuant to Article IV and
the provisions of Article VII and Sections 5.03(h), 8.03 and 8.13 shall be
continuing and shall survive any termination of this Agreement.
SECTION 8.05. Governing Law, Jurisdiction, Consent to Service of
Process.
(a) Governing Law. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF
THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF THE
PURCHASER IN THE RECEIVABLES IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK.
(b) Jurisdiction. Each of the parties hereto hereby irrevocably and
unconditionally submits to the nonexclusive
26
<PAGE> 30
jurisdiction of any New York State court or federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement, and
each of the parties hereto hereby irrevocably and unconditionally (i) agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, such
federal court and (ii) waives the defense of an inconvenient forum. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(c) Consent to Service of Process. Each party to this Agreement
irrevocably consents to service of process by personal delivery, certified mail,
postage prepaid or overnight courier. Nothing in this Agreement will affect the
right of any party to this Agreement to serve process in any other manner
permitted by law.
(d) Waiver of Jury Trial. Each party to this Agreement waives any right
to a trial by jury in any action or proceeding to enforce or defend any rights
under or relating to this Agreement, any other Transaction Document, the Fee
Letter or any amendment, instrument, document or agreement delivered or which
may in the future be delivered in connection herewith or therewith or arising
from any course of conduct, course of dealing, statements (whether verbal of
written), actions of any of the parties hereto or any other relationship
existing in connection with this Agreement or any other Transaction Document or
the Fee Letter, and agrees that any such action or proceeding shall be tried
before a court and not before a jury.
SECTION 8.06. No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Purchaser, 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. The rights, remedies, powers and privileges
herein provided are cumulative and not exhaustive of any rights, remedies,
powers and privileges provided by law.
SECTION 8.07. Amendment. (a) This Agreement may be amended from time to
time by the Seller and the Purchaser without the consent of any of the Investor
Certificateholders (i) to cure any ambiguity, (ii) to correct or supplement any
provision herein which may be inconsistent with any other provision herein or
(iii) to add any other provisions with respect to matters or questions arising
under this Agreement which are not inconsistent with the provisions of this
Agreement; provided that any amendment pursuant to this clause (a) shall not, as
evidenced by an Opinion of Counsel, adversely affect in any material respect the
interests of
27
<PAGE> 31
any Investor Certificateholders. Notice of any amendment entered into pursuant
to this clause (a) shall be given to the Rating Agencies.
(b) This Agreement may be amended from time to time by the Seller and
the Purchaser, so long as the Rating Agency Condition is satisfied, with the
consent of a Majority in Interest of each adversely affected Series for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Certificateholders. The Trustee may request an Officer's Certificate and
Opinion of Counsel with respect to an amendment entered into pursuant to this
clause (b) concerning compliance with the requirements of this Agreement. Any
amendment to be effected pursuant to this paragraph shall be deemed to adversely
affect all outstanding Series, other than any Series with respect to which such
action shall not, as evidenced by an Opinion of Counsel (which counsel shall not
be an employee of, or counsel for, Dell, the Seller or the Purchaser), addressed
and delivered to the Trustee, adversely affect the interests of any Investor
Certificateholder of such Series.
SECTION 8.08. Severability. If any provision hereof is deemed void or
unenforceable in any jurisdiction, such voiding or unenforceability shall not
affect the validity or enforceability of such provision in any other
jurisdiction or any other provision hereof in such or any other jurisdiction.
SECTION 8.09. Notices. All notices and other communications provided
for hereunder shall, unless otherwise stated herein, be in writing (including
telex and facsimile communication) and shall be personally delivered or sent by
certified mail, postage prepaid, or overnight courier or facsimile, to the
intended party at the address or facsimile number of such party set forth below
or at such other address or facsimile number as shall be designated by such
party in a written notice to the other parties hereto. All such notices and
communications shall be effective (a) if personally delivered, when received,
(b) if sent by certified mail, four Business Days after having been deposited in
the mail, postage prepaid, (c) if sent by overnight courier, two Business Days
after having been given to such courier, unless sooner received by the addressee
and (d) if transmitted by facsimile, when sent, upon receipt confirmed by
telephone or electronic means. Notices and communications sent hereunder on a
day that is not a Business Day shall be deemed to have been sent on the
following Business Day.
28
<PAGE> 32
(a) If to the Seller,
Dell Marketing L.P.
2214 West Braker Lane, Suite D
Austin, Texas 78758
Tel: (512) 728-3343
Fax: (512) 728-0043
Attn: Treasurer
(b) If to the Purchaser,
Dell Receivables L.P.
2112 Kramer Lane
Austin, Texas 78758
Tel: (512) 728-5829
Fax: (512) 728-5986
Attn: Assistant Treasurer
SECTION 8.10. Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original,
and all of which taken together shall constitute one and the same agreement.
SECTION 8.11. Construction of Agreement as Security Agreement. It is
the intent of the parties that the transactions contemplated herein constitute
sales of the Receivables to the Purchaser. If, however, such transactions are
deemed to be loans, (a) the Seller hereby grants to the Purchaser a first
priority security interest in all of the Seller's right, title and interest in
and to the Receivables now existing and hereafter created, all monies due or to
become due and all amounts and other proceeds received with respect thereto, to
secure all of the Seller's obligations hereunder, and (b) this Agreement shall
constitute a security agreement under applicable law.
SECTION 8.12. Termination. This Agreement will terminate on the last
Termination Date specified in any Series Supplement; provided, however, that the
representations, warranties and remedies offered by or made available against
the Seller, the indemnities of the Seller to the Indemnified Parties set forth
in this Agreement shall survive such termination, and provided, further, that
the Purchaser shall remain entitled to receive any collections on Receivables
sold hereunder which have become Defaulted Receivables after it shall have
completed its collection efforts in respect thereof.
SECTION 8.13. Third-Party Beneficiary. The Indemnified Parties are
third-party beneficiaries of all provisions of this Agreement and are entitled
to enforce the provisions of Section 7.01 of this Agreement to the extent any
Indemnified Amounts are due such parties.
29
<PAGE> 33
SECTION 8.14. The Seller's Obligations. It is expressly agreed that,
anything contained in this Agreement to the contrary notwithstanding, the Seller
shall be obligated to perform all of its obligations under the Receivables to
the same extent as if the Purchaser had no interest therein and the Purchaser
shall have no obligations or liability under Receivables to any Obligor
thereunder by reason of or arising out of this Agreement, nor shall the
Purchaser be required or obligated in any manner to perform or fulfill any of
the obligations of the Seller under or pursuant to any Receivable.
30
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have caused this Receivables
Purchase Agreement to be duly executed by their respective officers thereunto
duly authorized as of the day and year first above written.
DELL DIRECT SALES L.P.,
as Seller
by DELL GEN. P. CORP.,
as its general partner
By: /s/ Thomas J. Meredith
-----------------------------------
Name: Thomas J. Meredith
Title: Chief Financial Officer
DELL RECEIVABLES L.P.,
as Purchaser
by DELL RECEIVABLES GEN. P. CORP,
as its general partner
By: /s/ Thomas J. Meredith
-----------------------------------
Name: Thomas J. Meredith
Title: President
<PAGE> 35
EXHIBITS
The following Exhibit has been omitted from this filing:
Exhibit A -- Subordinated Note
The registrant hereby undertakes to furnish supplementally a copy of such
Exhibit to the Commission upon request. The executed version of this Exhibit
appears as Exhibit 10.20 to this Report.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>6
<DESCRIPTION>RECEIVABLES PURCHASE AGREEMENT
<TEXT>
<PAGE> 1
EXHIBIT 10.19
EXECUTION COPY
RECEIVABLES PURCHASE AGREEMENT
between
DELL DIRECT SALES L.P., as Seller
and
DELL RECEIVABLES L.P., as Purchaser
Dated as of November 21, 1995
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.................................................. 2
SECTION 1.02. Other Definitional Provisions................................ 2
SECTION 1.03. Computation of Time Periods.................................. 3
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
SECTION 2.01. Purchase and Sale of Receivables............................. 4
SECTION 2.02. Payment of Purchase Price.................................... 4
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND PURCHASES
SECTION 3.01. Transfer Date............................................. 5
SECTION 3.02. Conditions Precedent to All Purchases..................... 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller.............. 8
SECTION 4.02. Representations and Warranties of the Purchaser........... 11
SECTION 4.03. Obligations Unaffected.................................... 12
ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of the Seller....................... 14
SECTION 5.02. Reporting Requirements of the Seller...................... 17
SECTION 5.03. Negative Covenants of the Seller.......................... 18
SECTION 5.04. Affirmative Mutual Covenant............................... 19
SECTION 5.05. Grant of Security Interest................................ 19
i
<PAGE> 3
Page
----
ARTICLE VI
EVENTS OF TERMINATION
SECTION 6.01. Termination.................................................. 21
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Indemnification.............................................. 23
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Further Assurances........................................... 25
SECTION 8.02. Payments..................................................... 25
SECTION 8.03. Costs and Expenses........................................... 25
SECTION 8.04. Binding Effect; Assignability................................ 26
SECTION 8.05. Governing Law, Jurisdiction, Consent to
Service of Process........................................... 27
SECTION 8.06. No Waiver; Cumulative Remedies............................... 27
SECTION 8.07. Amendments and Waivers....................................... 27
SECTION 8.08. Severability................................................. 28
SECTION 8.09. Notices...................................................... 28
SECTION 8.10. Counterparts................................................. 28
SECTION 8.11. Construction of Agreement as Security
Agreement.................................................... 28
SECTION 8.12. Termination.................................................. 28
SECTION 8.13. Third Party Beneficiary...................................... 29
SECTION 8.14. The Seller's Obligations..................................... 29
ii
<PAGE> 4
RECEIVABLES PURCHASE AGREEMENT, dated as of November 21, 1995,
by and between Dell Direct Sales L.P., a Texas limited partnership (in its
capacity as seller hereunder, the "Seller") and Dell Receivables L.P., a Texas
limited partnership (the "Purchaser").
WHEREAS, the Seller desires to sell to the Purchaser, and the
Purchaser desires to buy from the Seller, on the date hereof and from time to
time hereafter, all of the Seller's right, title and interest in, to and under
the Receivables existing on the date hereof or hereafter created; and
WHEREAS, all of the partnership interests in both the Seller
and the Purchaser are held indirectly by Dell Computer Corporation ("Dell") and
all of the shares of the Purchaser are owned indirectly by Dell; and
WHEREAS, pursuant to that certain Pooling and Servicing
Agreement, dated of even date herewith (the "Pooling and Servicing Agreement"),
among the Purchaser, Dell USA L.P. (the "Servicer") and Norwest Bank Minnesota,
National Association, as trustee (the "Trustee"), the Purchaser has agreed to
transfer to the Trust created pursuant to the Pooling and Servicing Agreement,
for the benefit of the Certificateholders referred to therein, all of its right,
title and interest in, to and under the Receivables;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as follows:
<PAGE> 5
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Capitalized terms used herein but
not otherwise defined herein shall have the meanings set forth in the Pooling
and Servicing Agreement. In addition, the term "Agreement" shall mean this
Receivables Purchase Agreement, as the same may from time to time be amended,
supplemented or otherwise modified. The following capitalized terms shall have
the following meanings:
"Early Termination" shall have the meaning specified in
Section 6.01.
"Effective Period" shall mean the period beginning on the
Transfer Date and terminating on (i) the earliest of (a) the close of business
on the Business Day on which a Termination Event occurs, (b) the close of
business on the Business Day immediately preceding the day on which any Early
Amortization Event occurs and (c) the close of business on the Business Day
immediately preceding the day on which the Amortization Period for the last
outstanding Series begins or (ii) such later date as is agreed to by the Seller
and the Purchaser.
"Purchase Date" shall have the meaning specified in
Section 2.02.
"Purchase Percentage" shall mean initially 98%; provided,
however, that the Purchase Percentage may change from time to time, on a basis
consistent with that used to establish the initial Purchase Percentage, to
reflect historic loss experience of the Seller's accounts receivable portfolio
and prevailing interest rates, as agreed upon by the Seller and the Purchaser.
"Purchase Price" shall have the meaning specified in
Section 2.02.
"Termination Event" shall have the meaning specified in
Section 6.01.
"Transfer Date" shall have the meaning specified in
Section 3.01.
SECTION 1.02. Other Definitional Provisions. (a) All
terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b) As used herein and in any certificate or other document
made or delivered pursuant hereto, accounting terms not defined in this
Agreement, and accounting terms partly defined in this Agreement to the extent
not completely defined, shall have the respective meanings given to them under
generally accepted
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accounting principles in effect from time to time. To the extent that the
definitions of accounting terms herein are inconsistent with the meanings of
such terms under generally accepted accounting principles, the definitions
contained herein shall control.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; and Section,
Schedule and Exhibit references contained in this Agreement are references to
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation".
SECTION 1.03. Computation of Time Periods. Unless otherwise
stated in this Agreement, in the computation of a period of time from a
specified date to a later specified date, the word "from" shall mean "from and
including" and the words "to" and "until" shall mean "to but excluding".
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ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
SECTION 2.01. Purchase and Sale of Receivables. Subject
to the terms and conditions of this Agreement, the Seller agrees to sell to the
Purchaser, and the Purchaser agrees to purchase from the Seller, during the
Effective Period, all right, title and interest of the Seller in, to and under
all Receivables now existing or hereafter created, including, without
limitation, all monies due and to become due thereunder, and all amounts
received with respect thereto and all proceeds thereof.
SECTION 2.02. Payment of Purchase Price. (a) On the Transfer
Date, the Seller shall sell to the Purchaser, and the Purchaser shall purchase
from the Seller, all of the Seller's right, title and interest in, to and under
all Receivables existing at the close of business on the Business Day preceding
the Transfer Date for a payment consisting of $42,552,700.75 multiplied by the
Purchase Percentage.
(b) On each Business Day during the Effective Period, the
Seller shall determine the Receivables arising over the course of the preceding
Business Day, which Receivables shall be deemed available for purchase by the
Purchaser on such day (each, a "Purchase Date"). To the extent that any sale of
Receivables is not reflected in the Daily Report, such Receivables will
nevertheless be deemed sold to the Purchaser in every respect and all of the
Seller's rights, title and interest in, to and under such Receivables will be
deemed to have been sold to the Purchaser.
(c) The purchase price payable to the Seller for the
Receivables to be purchased on any Purchase Date shall be an amount equal to the
product of (i) the aggregate Outstanding Balance of all Receivables determined
pursuant to paragraph (b) above and (ii) the Purchase Percentage (such amount,
the "Purchase Price").
(d) The Purchase Price shall be paid to the Seller in
immediately available funds to the extent of funds available to the Purchaser.
The excess, if any, of the Purchase Price over the payment therefor set forth in
clause (a) or (c) above, as the case may be, shall be deemed to be a loan by the
Seller to the Purchaser (a "Subordinated Loan"), evidenced by the Subordinated
Note of the Purchaser substantially in the form attached hereto as Exhibit A.
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<PAGE> 8
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND PURCHASES
SECTION 3.01. Transfer Date. This Agreement is effective on
November 21, 1995. No purchase hereunder shall occur until November 30, 1995 or
such other date agreed upon by the parties in writing (the "Transfer Date") on
or before which the following conditions precedent shall have been satisfied:
(a) There shall have been delivered to the Purchaser
file-stamped copies of the financing statements relating to the Receivables,
naming the Seller as seller/debtor, the Purchaser as purchaser/secured party, or
other similar instruments or documents, as may be necessary or, in the opinion
of the Purchaser, desirable under the UCC of any appropriate jurisdiction or
other applicable law to perfect the Purchaser's ownership of and first priority
security interest in the Receivables, that were duly filed on or prior to the
Transfer Date with the Secretary of State of the State of Texas or other
appropriate official.
(b) There shall have been delivered to the Purchaser a copy of
the limited partnership agreement of the Seller, certified by the secretary or
an assistant secretary of the general partner of the Seller as of a recent date.
(c) There shall have been delivered to the Purchaser a
certificate of the Secretary of State of the State of Texas as to the documents
relating to the Seller which are on file in the office of such Secretary of
State.
(d) There shall have been delivered to the Purchaser a
certificate of the secretary or an assistant secretary of the general partner of
the Seller, dated the Transfer Date, certifying (i) that attached thereto is a
true and complete copy of resolutions adopted by the board of directors of the
general partner of the Seller authorizing the transactions contemplated by this
Agreement and the execution, delivery and performance of this Agreement, the
Pooling and Servicing Agreement and any other documents required or contemplated
hereunder, (ii) that the limited partnership agreement of the Seller has not
been amended since the date of the certified copy furnished pursuant to clause
(b) above and (iii) the names and true signatures of the officers of the general
partner of the Seller authorized to execute this Agreement, the Pooling and
Servicing Agreement and any other documents contemplated hereunder, and
appropriately evidencing the incumbency of such secretary or assistant
secretary.
(e) There shall have been delivered to the Purchaser certified
copies of Requests for Information or Copies (Form UCC- 11) (or a similar search
report certified by a party acceptable to the Purchaser), dated a date
reasonably near to the date of such Transfer Date, listing all effective
financing statements (including those referred to in Section 3.01(a) which name
the
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Seller (under its present name and any previous name) as debtor and which are
filed in the jurisdictions in which filings were made pursuant to Section
3.01(a), together with copies of such financing statements (none of which
(except those filed pursuant to Section 3.01(a) shall cover any property which
may be Receivables or Collections).
(f) There shall have been delivered to the Purchaser copies of
proper Financing Statements (Form UCC-3), if any, necessary to release all
security interests and other rights of any Person in the Receivables previously
granted by the Seller.
(g) There shall have been delivered to the Purchaser a Dell
Collection Account Letter substantially in the form of Exhibit C to the Pooling
and Servicing Agreement, in respect of each Dell Collection Account maintained
by the Servicer, duly acknowledged by the bank holding such Dell Collection
Account.
(h) There shall have been delivered to the Purchaser favorable
opinions of Baker & Botts, L.L.P., counsel for the Seller, and of Thomas B.
Green, General Counsel of the Seller, each in form and substance reasonably
acceptable to the Purchaser.
(i) There shall have been delivered to the Seller a
certificate of the secretary or assistant secretary of the general partner of
the Purchaser, dated the Transfer Date, certifying (i) that attached thereto is
a true and complete copy of resolutions adopted by the board of directors of the
general partner of the Purchaser authorizing the transactions contemplated by
this Agreement and the execution, delivery and performance of this Agreement and
any other documents required or contemplated hereunder and (ii) the names and
true signatures of the officers of the general partner of the Purchaser
authorized to execute this Agreement and any other documents contemplated
hereunder, and appropriately evidencing the incumbency of such secretary or
assistant secretary.
(j) The Pooling and Servicing Agreement and all documentation
to be delivered in connection therewith shall have been executed and delivered
and all conditions thereto shall have been satisfied.
(k) The Cross-Guarantee Agreement shall have been
executed and delivered and shall be in full force and effect.
(l) All legal matters incident to the execution and delivery
of this Agreement and to the purchases by the Purchaser of the Receivables from
the Seller shall be satisfactory to counsel for the Purchaser.
SECTION 3.02. Conditions Precedent to All Purchases.
The obligation of the Purchaser to pay the Purchase Price with
respect to any Receivables on any Purchase Date is subject to the
following conditions precedent:
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(a) On or prior to such Purchase Date, the Seller shall have
delivered to the Purchaser the accounts receivable trial balance of the
Originators (which if in magnetic tape or diskette format shall be compatible
with the Purchaser's, or, if applicable, the Servicer's, computer equipment);
(b) On or prior to such Purchase Date, the Servicer shall have
delivered to the Purchaser, in form and substance satisfactory to the Purchaser,
a completed Determination Date Certificate, together with a listing by Obligor
of all Receivables subject to such purchase, for the most recently ended
reporting period for which information is required pursuant to Section 3.05(b)
of the Pooling and Servicing Agreement and containing such additional
information as may be reasonably requested by the Purchaser;
(c) On or prior to such Purchase Date, the Seller shall have
marked its master data processing records and, at the request of the Purchaser,
each Contract (other than any invoice sent to the Obligor under such Contract)
giving rise to Receivables and all other relevant records evidencing the
Receivables which are the subject of such purchase with a legend, acceptable to
the Purchaser, stating that such Receivables, and Collections with respect
thereto and other proceeds thereof, have been sold in accordance with this
Agreement;
(d) On such Purchase Date, the following statements shall be
true (and the Seller, by accepting the amount of such purchase, shall be deemed
to certify that):
(i) The Seller's representations and warranties
contained in Section 4.01 are correct on and as of such day as
though made on and as of such date; and
(ii) No event has occurred and is continuing, or would result from
such purchase, which constitutes a Termination Event or would
constitute a Termination Event but for the requirement that notice be
given or time elapse or both;
(e) On or prior to such Purchase Date, the Purchaser shall
have received such other approvals, opinions or documents as the Purchaser may
reasonably request; and
(f) On such Purchase Date the Seller shall have complied with
all of its covenants hereunder and shall have fulfilled in all material respects
all of its obligations hereunder.
The acceptance by the Seller of any payment for any
Receivables shall be deemed to be a representation and warranty by the Seller as
to the matters set forth in this Section 3.02.
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<PAGE> 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller.
The Seller represents and warrants to the Purchaser as of the Transfer Date and
each Purchase Date that:
(a) Organization. The Seller is a limited partnership duly
organized and validly existing under the laws of the State of Texas and has full
power, authority and legal right to own its properties and conduct its business,
as presently owned or conducted and as is proposed to be conducted under this
Agreement and the Cross-Guarantee Agreement, and to execute, deliver and perform
its obligations under this Agreement and the Cross- Guarantee Agreement.
(b) Due Qualification. The Seller is duly qualified to do
business (or is exempt from such requirement), and has obtained all necessary
licenses or approvals, in each jurisdiction in which failure to so qualify or to
obtain such licenses or approvals would have a material adverse effect on the
Seller's ability to perform its obligations under this Agreement and the
Cross-Guarantee Agreement.
(c) Due Authorization. The execution, delivery and performance
of this Agreement and the Cross-Guarantee Agreement by the Seller, and the
consummation by the Seller of the transactions contemplated by this Agreement
and by the Cross-Guarantee Agreement, have been duly and validly authorized by
all necessary action on the part of the Seller and this Agreement and the Cross-
Guarantee Agreement and the other agreements and instruments executed or to be
executed in connection herewith have been duly executed and delivered on behalf
of the Seller.
(d) No Conflict. The Seller's execution and delivery of this
Agreement and the Cross-Guarantee Agreement, performance of the transactions
contemplated hereby and thereby, and fulfillment of the terms hereof and thereof
applicable to the Seller, do not contravene the Seller's limited partnership
agreement, conflict with or violate any Requirements of Law applicable to the
Seller, violate any provision of, or require any filing, registration, consent
or approval under, any Requirement of Law presently in effect having
applicability to the Seller, except for such filings, registrations, consents or
approvals as have already been obtained or made and are in full force and
effect, conflict with, result in any breach of any of the material terms and
provisions of, or constitute (with or without notice or lapse of time or both) a
default under, any indenture, contract, agreement, mortgage, deed of trust or
other instrument to which the Seller is a party or by which it or its properties
or assets are bound, which conflict, violation or breach would have a material
adverse effect on the Seller's ability to perform its obligations hereunder or
under the
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Cross-Guarantee Agreement or on the ownership by the Trust of the Receivables.
(e) No Proceedings Regarding the Seller. There are no
proceedings, injunctions, writs, restraining orders or other orders or
investigations pending or, to the best knowledge of a Responsible Officer of the
Seller, threatened against the Seller before any Governmental Authority (i)
asserting the illegality, invalidity or unenforceability, or seeking any
determination or ruling that would affect the legality, binding effect, validity
or enforceability of this Agreement, the Cross-Guarantee Agreement, the Pooling
and Servicing Agreement or the Certificates, (ii) seeking to prevent the
issuance of the Certificates or the consummation of any of the transactions
contemplated by this Agreement, the Cross-Guarantee Agreement, the Pooling and
Servicing Agreement or the Certificates, (iii) seeking any determination or
ruling that is reasonably likely to materially and adversely affect the
financial condition or results of operations of the Seller or the performance by
the Seller of its obligations under this Agreement or the Cross-Guarantee
Agreement or (iv) seeking to affect adversely the income or franchise tax
attributes of the Trust under the United States federal or State of Texas income
or franchise tax systems.
(f) Consents. No authorization, consent, license, order or
approval of or registration or declaration with any Person or Governmental
Authority is required to be obtained, effected or given by the Seller in
connection with the execution and delivery of this Agreement or the
Cross-Guarantee Agreement by the Seller or the performance of its obligations
under this Agreement or the Cross-Guarantee Agreement or the transactions
contemplated hereby, except for (i) the filing of the financing statements or
other documents required to have been filed on or prior to the Transfer Date
pursuant to Section 2.01(a) of the Pooling and Servicing Agreement, all of which
were so filed and are in full force and effect, and (ii) the filing from time to
time of any amendments, assignments or continuation statements which may become
applicable pursuant to Section 2.01(a) of the Pooling and Servicing Agreement.
(g) Liens. Each Receivable is owned by the Seller free and
clear of any Lien except as provided for herein; and no effective financing
statement or other instrument similar in effect covering any Receivable or
Collections with respect thereto is on file in any recording office except such
as may be filed in favor of the Purchaser and the Trustee and as otherwise
provided for in this Agreement and the Pooling and Servicing Agreement,
including Liens that will be terminated on or before the Transfer Date.
(h) Locations. The chief place of business and chief executive
office of the Seller, and the offices where the Seller keeps the originals of
its books, records and documents regarding the Receivables are located at the
address of the Seller specified in Section 8.09. During the four months prior to
the Transfer Date and prior to any Purchase Date, the chief place of business
and
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chief executive office of the Seller, and the offices where the Seller keeps the
originals of its books, records and documents regarding the Receivables were/are
located at the address of the Seller specified in Section 8.09.
(i) Information. Each certificate, information, exhibit,
financial statement, document, book, record or report furnished by the Seller to
the Purchaser in connection with this Agreement and in connection with each
Receivable is accurate in all material respects as of its date and no such
document contains any material misstatement of fact.
(j) Enforceability. Each of this Agreement and the
Cross-Guarantee Agreement constitute a legal, valid and binding obligation of
the Seller enforceable against the Seller in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting creditors' rights
generally, now or hereafter in effect, and except as such enforceability may be
limited by general principles of equity (whether considered in a suit at law or
in equity).
(k) Valid Transfers. This Agreement constitutes a valid sale,
transfer and assignment to the Purchaser of all right, title and interest of the
Seller in and to the Receivables, whether now existing or hereafter created
during the Effective Period, and the proceeds thereof.
(l) Dell Collection Accounts. Schedule I to the Pooling
and Servicing Agreement is a complete and accurate list of each Dell Collection
Account as of each Purchase Date.
(m) Solvency. The Seller is solvent and will not become
insolvent after giving effect to the transactions contemplated by this Agreement
or the Cross-Guarantee Agreement; the Seller is currently repaying all of its
indebtedness as such indebtedness becomes due; and, after giving effect to the
transactions contemplated by this Agreement and the Cross-Guarantee Agreement,
the Seller will have adequate capital to conduct its business as presently
conducted and as contemplated by this Agreement and the Cross-Guarantee
Agreement.
(n) Compliance. The Seller has complied, and will comply on
each Purchase Date, in all material respects with all Requirements of Law with
respect to it, its business and properties and all Receivables sold hereunder
and the Contracts related thereto. The Seller has maintained and will maintain
all applicable permits, certifications and licenses necessary in any material
respect with respect to its business and properties and all Receivables sold
hereunder and the Contracts related thereto. The Seller has filed or caused to
be filed on a timely basis all tax returns required by any Governmental
Authority.
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(o) No Rescission. Neither any Receivable sold hereunder
nor the related Contract has been satisfied, subordinated or rescinded or,
except as disclosed in writing to the Purchaser, amended in any manner and the
amounts billed under such Receivables have not been compromised, adjusted,
extended, satisfied, subordinated, rescinded or modified, except as permitted
under the Pooling and Servicing Agreement.
(p) No Payment. The Seller has no knowledge of any fact
which would lead it to expect that, when billed, any Receivable
sold hereunder would not be paid in accordance with its terms when
due.
(q) No Insolvency Event. No Insolvency Event has
occurred with respect to the Seller.
(r) Fraudulent Conveyance. The Seller is not entering
into the transactions contemplated hereby with the intent of hindering, delaying
or defrauding creditors.
(s) Sale and Transfer. This Agreement creates a valid
sale, transfer and assignment to the Purchaser of, and the Purchaser is the
legal and beneficial owner of, all right, title and interest of the Seller in
and to the Receivables now existing and hereafter created during the term of
this Agreement and in the proceeds thereof.
(t) Eligible Receivables. Each Receivable classified as
an "Eligible Receivable" by the Seller on its records or in any document or
report delivered hereunder satisfied, at the time of such classification, the
requirements of eligibility contained in the definition of Eligible Receivable
in the Pooling and Servicing Agreement; provided, however, that this
representation shall not cover Reconveyed Receivables.
(u) Invoices. The Seller has submitted all necessary
documents, if any, to each Obligor in connection with payments due with respect
to such Obligor's Receivables.
(v) No Proceedings Regarding the Receivables. There are
no proceedings, injunctions, writs, restraining orders or other orders or
investigations pending or, to the best knowledge of a Responsible Officer of the
Seller, threatened with respect to any Receivable or Contract before any
Governmental Authority asserting the illegality, invalidity or unenforceability,
or seeking any determination or ruling that would affect the legality, binding
effect, validity or enforceability of any Receivable or Contract.
(w) Tradenames. The legal name of the Seller is as set forth
on the signature page of this Agreement and the Seller has no tradenames,
fictitious names, assumed names or "doing business as" names.
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(x) ERISA. No Plan (as defined in Section 3(3) of ERISA)
maintained by the Seller or any of its ERISA Affiliates (as defined in Section
414(b), (c), (m) or (o) of the Internal Revenue Code) has any accumulated
funding deficiency (within the meaning of Section 302 of ERISA or Section 412 of
the Internal Revenue Code), whether or not waived. The Seller and each ERISA
Affiliate of the Seller has timely made all contributions required to be made by
it to any Plan and Multiemployer Plan (as defined in Section 4001(a)(3) of
ERISA) to which contributions are or have been required to be made since January
3, 1991 by the Seller or such ERISA Affiliate, and no event requiring notice to
the PBGC (as defined in Section 2613.2 of the ERISA Regulations) under Section
302(f) of ERISA has occurred and is continuing or could reasonably be expected
to occur with respect to any such Plan, in any case, that could reasonably be
expected to result, directly or indirectly, in any Lien being imposed on the
property of the Seller or the payment of any material amount to avoid such Lien.
No Plan Event (as defined in Section 4043 of ERISA) with respect to the Seller
or any of its ERISA Affiliates has occurred or could reasonably be expected to
occur that could reasonably be expected to result, directly or indirectly, in
any Lien being imposed on the property of the Seller or the payment of any
material amount to avoid such Lien.
(y) Accounts. All Receivables constitute "accounts",
"general intangibles" or "proceeds" thereof, as each such term is defined in the
UCC.
(z) Sale. For federal income tax, reporting and accounting
purposes, the Seller will treat the sale of each Receivable sold pursuant to
this Agreement as a sale, or absolute assignment, of all its right, title and
ownership interest in and to such Receivable to the Purchaser and the Purchaser
has not and will not account for or treat the transactions contemplated by this
Agreement in any other manner. This representation shall cease to be effective
if the Seller shall have received an Opinion of Counsel that a change in
applicable law occurring after the date hereof renders this representation
unlawful or inadvisable.
SECTION 4.02. Representations and Warranties of the Purchaser.
The Purchaser represents and warrants to the Seller as of the Transfer Date and
each Purchase Date that:
(a) Organization and Good Standing. The Purchaser is a limited
partnership duly organized and validly existing under the laws of the State of
Texas and has full power, authority and legal right to own its properties and
conduct its business as presently owned or conducted and as is proposed to be
conducted under this Agreement.
(b) No Conflict. The Purchaser's execution and delivery
of this Agreement, purchase of the Receivables pursuant to this Agreement and
fulfillment of the terms hereof applicable to the Purchaser, do not contravene
the Purchaser's limited partnership
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agreement, conflict with or violate any Requirements of Law applicable to the
Purchaser, conflict with, result in a breach of any of the material terms or
provisions of, or constitute (with or without notice or lapse of time or both) a
default under, any indenture, contract, agreement, mortgage, deed of trust or
other instrument to which the Purchaser is a party or by which it or its
properties or assets are bound. Neither the execution and delivery of this
Agreement nor the purchase of the Receivables pursuant to this Agreement nor the
fulfillment of the terms hereof applicable to the Purchaser will result in the
creation of an adverse claim against the Purchaser or any assets of the
Purchaser except those created under the Pooling and Servicing Agreement.
(c) Due Authorization. The execution and delivery of this
Agreement by the Purchaser, and the purchase by the Purchaser of the
Receivables, have been duly and validly authorized by all necessary action on
the part of the Purchaser and this Agreement and the other agreements and
instruments executed or to be executed in connection herewith have been duly
executed and delivered on behalf of the Purchaser.
(d) Enforceability. This Agreement constitutes a legal, valid
and binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other similar
laws affecting creditors' rights generally, now or hereafter in effect, and
except as such enforceability may be limited by general principles of equity
(whether considered in a suit at law or in equity).
SECTION 4.03. Obligations Unaffected. The obligations
of the Seller to the Purchaser under this Agreement shall not be
affected by reason of any invalidity, illegality or irregularity of
any Receivable or the sale of any Receivable.
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ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of the Seller. The
Seller hereby covenants that, until the termination of the
Effective Period:
(a) Compliance with Law. The Seller will comply in all
material respects with all Requirements of Law applicable to it, its business
and properties and the Receivables.
(b) Preservation of Existence. (i) Except as otherwise
permitted by subsection (ii) of this Section 5.01(b), the Seller will preserve
and maintain its existence, rights, franchises and privileges in the State of
Texas, and qualify and remain qualified in each jurisdiction where the failure
to maintain such qualification would materially and adversely affect (A) the
interests of the Purchaser hereunder or in the Receivables, (B) the
collectibility of any Receivable or (C) the ability of the Seller to perform its
obligations hereunder in any material respects and (ii) the Seller shall not
consolidate with or merge into any other Person or convey or transfer its
properties and assets substantially as an entirety to any Person unless: (1)
Dell is the direct or indirect owner of all of the issued and outstanding shares
of the capital stock or partnership interests or other equity interests of the
Person formed by such consolidation or into which the Seller is merged or the
Person which acquires by conveyance or transfer the properties and assets of the
Seller substantially as an entirety; (2) the Person formed by such consolidation
or into which the Seller is merged or the Person which acquires by conveyance or
transfer the properties and assets of the Seller substantially as an entirety
shall be, if the Seller is not the surviving entity, a corporation, limited
partnership or limited liability company organized and existing under the laws
of the United States of America or any State or the District of Columbia, and
such corporation, limited partnership or limited liability company shall have
expressly assumed, by an agreement supplemental hereto, executed and delivered
to the Purchaser, in form reasonably satisfactory to the Purchaser, the
performance of every covenant and obligation of the Seller hereunder and under
the other Transaction Documents; (3) the Seller shall have delivered to the
Purchaser an Officer's Certificate and an Opinion of Counsel each in form
reasonably satisfactory to the Purchaser and stating that such consolidation,
merger, conveyance or transfer complies with this Section 5.01(b) and (4) the
Rating Agency Condition shall be satisfied.
(c) Audits. At any time and from time to time during the
Seller's regular business hours and at the Seller's expense, on reasonable prior
notice and for a purpose reasonably related to this Agreement, the Seller shall,
in response to any reasonable request of the Purchaser, permit the Purchaser, or
its agents or representatives, (i) to examine and make copies of and abstracts
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from all books, records and documents (including, without limitation, computer
tapes, microfiche and disks) in the possession or under the control of the
Seller relating to the Receivables and the related Contracts and (ii) to visit
the offices and properties of the Seller for the purpose of examining such
materials and to discuss matters relating to the Receivables or the Seller's
performance hereunder with any of the officers or (after consultation with a
Responsible Officer) employees of the Seller having knowledge thereof; provided,
however, that, so long as no Termination Event, Partial Amortization Period or
Cure Period shall have occurred and be continuing, the Purchaser shall use its
best efforts to coordinate the exercise of its rights under this Section 5.01(c)
with the exercise of like rights of the Trustee and the Program Agent, and the
rights of the Purchaser under this Section 5.01(c) shall be at the Seller's
expense only twice in any twelve-month period.
(d) Keeping of Records and Books of Account. The Seller
will maintain and implement administrative and operating procedures (including,
without limitation, the ability to recreate records evidencing the Receivables
in the event of the destruction of the originals thereof), and keep and maintain
all documents, books, records and other information reasonably necessary or
advisable for the collection of the Receivables (including, without limitation,
records adequate to permit the daily identification of each new Receivable and
all Collections of and adjustments to each existing Receivable).
(e) Performance and Compliance with Receivables. The
Seller will, at its expense, timely and fully perform and comply with all
provisions, covenants and other promises required to be observed by it
hereunder, except where the failure to so perform or comply would not have a
material adverse effect on the collectibility of the Receivables or the Seller's
ability to perform in all material respects its obligations hereunder.
(f) Location of Records. The Seller will keep its chief
place of business and chief executive office and the office where it keeps the
books, records and documents regarding the Receivables, at the address of the
Seller specified in Section 8.09.
(g) Credit Policy and Procedures Manual. The Seller will
comply in all material respects with the Credit Policy and Procedures Manual in
regard to the Receivables and the related Contracts.
(h) Collections. The Seller will instruct all Obligors
to cause all Collections of Receivables to be deposited directly to Dell
Collection Accounts.
(i) Protection of Purchaser's Interest in Receivables.
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(i) The Seller will not create, permit or suffer to exist, and
will take such actions as are necessary to remove, any Lien, claim or
right in, to or on the Receivables conveyed hereunder, other than the
Liens created hereby and by the Pooling and Servicing Agreement, and
will defend the right, title and interest of the Purchaser and the
Trustee in and to the Receivables conveyed hereunder against any Liens
thereon or the claims and demands of all persons whomsoever based on
breaches of representations and warranties in this Agreement.
(ii) The Seller will advise the Purchaser and the Trustee
promptly, in reasonable detail, (A) of any Lien or claim asserted
against any of the Receivables, other than the Liens created hereby and
by the Pooling and Servicing Agreement, (B) of the occurrence of any
breach by the Seller of any of its representations, warranties and
covenants contained herein and (C) of the occurrence of any other event
which in the case of clauses (A) or (B) would have a material adverse
effect on the value of the Receivables.
(iii) The Seller shall execute and file such continuation
statements and any other documents reasonably requested by the
Purchaser or which may be required by law to fully preserve and protect
the interests of the Purchaser hereunder and of the Trustee under the
Pooling and Servicing Agreement in and to the Receivables conveyed
hereby.
(iv) The Seller will not, without providing 45 days' prior
written notice to the Purchaser and the Trustee and without filing such
amendments to any previously filed financing statements as the
Purchaser or the Trustee may reasonably require, (i) change the
location of its chief executive office or the location of the office
where the principal records relating to the Receivables are kept or
(ii) change its name, identity or business structure in any manner
which would, could or might make any financing statement or
continuation statement filed by the Seller in accordance with this
Agreement "seriously misleading" with the meaning of Section 9-402(7)
of any applicable enactment of the UCC.
(v) The Seller shall deliver to the Purchaser and the Trustee
on or before April 30 of each year, beginning with April 30, 1996, an
Opinion of Counsel to the Seller (who may be counsel employed by the
Seller or an Affiliate of the Seller), dated as of a date subsequent to
the end of the immediately preceding fiscal year, substantially to the
effect that, in the opinion of such counsel, either (A) such action has
been taken with respect to the recording, registering, filing,
re-recording, re-registering and re-filing of financing statements,
continuation statements or other instructions or documents as is
necessary to continue the perfection of the interests of the Purchaser
and the Trustee in and to the Receivables conveyed hereby (to the same
extent as such interest was perfected on the Transfer Date with
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respect to the Receivables then owned by the Purchaser) and reciting
the details of such action or referring to prior Opinions of Counsel in
which such details are given or (B) no such action is necessary to
continue the perfection of such interests.
(j) Separate Legal Existence. The Seller acknowledges that the
Purchaser, the Trustee and the Certificateholders are entering into the
agreements and consummating the transactions contemplated hereby and by the
Pooling and Servicing Agreement in reliance on the identity of the Purchaser as
a separate legal entity, and the rights and interests of such Persons would be
prejudiced if this reliance were undermined. Accordingly, the Seller will take
such steps as are necessary and within its control to maintain the Purchaser's
separate legal existence and identity and to make it apparent to third parties
that the Purchaser is an entity with assets and liabilities distinct from those
of the Seller or any other subsidiary or Affiliate of the Seller. Such steps
will include the following:
(i) The Seller will conduct its business solely in its
own legal name, and in such a separate manner so as not to
mislead others with which it is dealing.
(ii) The Seller will maintain its own separate business
records, will maintain its own office with its own telephone number and
will observe all legal formalities in formation and management.
(iii) All financial statements of the Seller and Dell will
contain notes clearly indicating that all of the Purchaser's assets are
owned by the Purchaser, which is a separate legal entity.
(iv) The Seller will maintain arm's-length relationships
with the Purchaser. Any transaction between the Purchaser and the
Seller or any of its subsidiaries will, in the reasonable judgement of
the Seller, be fair and equitable to the Purchaser and on terms which
are at least as favorable as could be obtained from a Person which is
not an Affiliate.
(v) The Seller will not agree to be, or hold itself out
to be, responsible for the debts of the Purchaser or the decisions or
actions with respect to the daily business and affairs of the
Purchaser, except that (A) pursuant to any Enhancement Agreement, the
Seller may indemnify any Enhancement Provider (and related Persons)
against losses caused by actions or omissions of the Seller and (B) the
Seller may guarantee the Purchaser's obligations to pay any premiums or
commitment fees to an Enhancement Provider.
(vi) The Seller will not cause the Purchaser to be named,
directly or indirectly, as a direct or contingent beneficiary or loss
payee on any insurance policy with respect to any loss
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relating to the property of the Seller or any other subsidiary
or Affiliate of the Seller.
(k) Repurchase Obligation. In the event of any breach of the
representation and warranty set forth in Section 4.01(t), if the Purchaser shall
be obligated to repurchase Reconveyed Receivables pursuant to Section 2.04 of
the Pooling and Servicing Agreement, the Seller shall repurchase from the
Purchaser such Reconveyed Receivables and shall pay to the Purchaser on the
Business Day preceding the day on which such repurchase of Reconveyed
Receivables is to be made an amount equal to the purchase price for the
Reconveyed Receivables paid by the Purchaser pursuant to the Pooling and
Servicing Agreement, such payment, at the option of the Purchaser, to be made
either in cash or through a reduction of the amount due under the Subordinated
Note. The obligation of the Seller to repurchase the Reconveyed Receivables
pursuant to this Section 5.01(k) shall constitute the sole remedy against the
Seller respecting an event of the type specified in the first sentence of this
paragraph available to the Purchaser or the Investor Certificateholders (or the
Trustee on behalf of the Investor Certificateholders) or any other Indemnified
Party. Reconveyed Receivables which are repurchased pursuant to Section 2.04 of
the Pooling and Servicing Agreement, together with any Collections thereon,
shall be promptly removed from the Trust.
SECTION 5.02. Reporting Requirements of the Seller. The
Seller hereby covenants that, until the termination of the
Effective Period:
(a) Termination Events. The Seller shall (i) within one
Business Day after a Responsible Officer of the Seller obtains knowledge of the
occurrence of any Termination Event or event which, with the giving of notice or
lapse of time or both, would constitute a Termination Event, notify (either
orally or in writing) the Purchaser of such occurrence; and (ii) as soon as
possible and in any event within three Business Days after a Responsible Officer
of the Seller obtains knowledge of the occurrence of any Termination Event or
event which, with the giving of notice or lapse of time or both, would
constitute a Termination Event, deliver to the Purchaser a statement of a
Responsible Officer of the Seller setting forth details of such Termination
Event or such event and the action that the Seller has taken and proposes to
take with respect thereto.
(b) Litigation. As soon as possible and in any event within 10
Business Days after a Responsible Officer of the Seller obtains knowledge
thereof, the Seller shall notify the Purchaser of any litigation, investigation
or proceeding which could reasonably be expected to impair in any material
respect the ability of the Seller to perform its obligations under this
Agreement; and
(c) Other Information. The Seller shall promptly deliver to
the Purchaser such other information, documents, records or reports regarding
the Receivables as the Purchaser may from time
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to time reasonably request in order to protect the Purchaser's interests under
or as contemplated by this Agreement.
SECTION 5.03. Negative Covenants of the Seller. The
Seller hereby covenants that, until the termination of the
Effective Period, it will not:
(a) Sales, Liens, Etc. Except as otherwise contemplated
herein, or pursuant to or as contemplated by the Pooling and Servicing
Agreement, (i) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or create or suffer to exist any Lien upon or with respect to, any
Receivable or upon or with respect to any account in the name of the Trustee for
the benefit of the Certificateholders or upon or with respect to any Dell
Collection Account to which any Collections of any Receivables are sent, or (ii)
assign any right to receive income in respect thereof.
(b) Extension or Amendment of Receivables. Except as
consistent with the Credit Policy and Procedures Manual or as otherwise
permitted under the Pooling and Servicing Agreement, (i) extend, amend or
otherwise modify the terms of any Receivable, (ii) amend, modify or waive any
payment term or condition of any invoice related thereto, which extension,
amendment, modification or waiver would impair the collectibility or delay the
payment of any Receivable in a manner inconsistent with the Credit Policy and
Procedures Manual, or (iii) rescind or cancel any Receivable except as ordered
by a court of competent jurisdiction or other Governmental Authority.
(c) Change in Business or Credit Policy and Procedures Manual.
Make any change in the character of its business or in the Credit Policy and
Procedures Manual, which change would, in either case, materially impair the
collectibility of the Receivables, except as permitted under the terms of the
Pooling and Servicing Agreement.
(d) Change in Dell Collection Account Banks. Except as
permitted under the Pooling and Servicing Agreement, add or terminate any bank
as a Dell Collection Account Bank from those listed in Schedule I attached to
the Pooling and Servicing Agreement, or make any change in its instructions to
Obligors regarding payments to be made to any Dell Collection Account Bank,
unless the Purchaser and the Trustee shall have received notice of such
addition, termination or change and executed copies of Dell Collection Account
Letters to each new Dell Collection Account Bank.
(e) Change in Name, Etc. Make any change to its name or
structure, or use any tradenames, fictitious names, assumed names or "doing
business as" names, unless, in the case of such name change or use and prior to
the effective date thereof, the Seller delivers to the Purchaser such financing
statements or amendments to financing statements (Form UCC-1 and UCC-3) executed
by the
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Seller which the Purchaser may request to reflect such name change or use,
together with such other documents and instruments that the Purchaser may
reasonably request in connection therewith.
(f) Deposits to Dell Collection Accounts. Deposit or
otherwise credit, or cause or permit to be so deposited or credited, to any Dell
Collection Account cash or cash proceeds other than Collections of Receivables.
(g) No Actions Against Obligors. Except in accordance with
the Credit Policy and Procedures Manual and the Pooling and Servicing Agreement,
commence or settle any legal action to enforce collection of any Receivable.
(h) No Bankruptcy Filing Against the Purchaser or the Trust.
Commence, institute or cause to be commenced or instituted any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state bankruptcy or similar law
against the Purchaser or the Trust.
(i) No Claims Against the Receivables. Claim any credit on,
or make any deduction from, the principal or interest payable in respect of the
Certificates by reason of the payment of any taxes levied or assessed upon any
part of the Receivables.
(j) Locations of Subsidiaries. Permit any of the Originators
to have or maintain its jurisdiction of organization or principal place of
business in any of the States of Colorado, Kansas, New Mexico, Oklahoma, Utah or
Wyoming.
(k) Subordinated Note. Transfer or pledge the Subordinated
Note to any Person.
SECTION 5.04. Affirmative Mutual Covenant. The Purchaser and
Seller shall record each Purchase as a purchase and sale, respectively, on its
books and records and reflect each Purchase in its financial statements as a
purchase and sale, respectively.
SECTION 5.05. Grant of Security Interest. To secure all
obligations of the Seller arising in connection with this Agreement, and each
other agreement entered into in connection with this Agreement, whether now or
hereafter existing, due or to become due, direct or indirect, or absolute or
contingent, including, without limitation, Indemnified Amounts, payments on
account of Collections received or deemed to be received, fees and any other
amounts due the Purchaser hereunder, the Seller hereby assigns and grants to
Purchaser a first priority security interest in all of the Seller's right, title
and interest now or hereafter existing in, to and under all Receivables and
Collections with regard thereto, and all books, records and computer files
relating thereto.
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ARTICLE VI
EVENTS OF TERMINATION
SECTION 6.01. Termination. If any of the following
events (each, a "Termination Event") shall have occurred:
(a) any failure by the Seller to make any payment, transfer or
deposit required to be paid, effected or made by it hereunder on or before the
date occurring two Business Days after the date such payment, transfer or
deposit is required to be made hereunder; or
(b) any representation, warranty, certification or written
statement made or deemed made by the Seller under or in connection with this
Agreement or in any statement, record, certificate, financial statement or other
document delivered pursuant hereto or in connection herewith shall prove to have
been incorrect in any material respect on or as of the date made or deemed made
which has a material adverse effect on the Certificateholders and continues
unremedied for 20 days (or, with respect to the representations and warranties
made in Sections 4.01(g) and 4.01(k), continues unremedied for five days) after
the earlier of (i) the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Seller by the Purchaser
and (ii) the date on which written notice of such failure, requiring the same to
be remedied, shall have been given to the Seller and the Trustee by
Certificateholders of any outstanding Series evidencing not less than 20% of the
Invested Amount for such Series; or
(c) the Seller shall fail to observe or perform in any
material respect any covenant or agreement applicable to it contained herein
(other than as specified in clause (a) or (b) above) which has a material
adverse effect on the Certificate- holders and continues unremedied for 20 days
(or with respect to the covenants contained in Sections 5.03(a) and 5.03(d)
shall continue for five days) after the earlier of (i) the date on which written
notice of such failure, requiring the same to be remedied, shall have been given
to the Seller by the Purchaser and (ii) the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to the Seller
and the Trustee by Certificateholders of any outstanding Series evidencing not
less than 20% of the Invested Amount for such Series; or
(d) any Receivables transferred hereunder which constitute
more than 1% of the aggregate amount of Eligible Receivables shall for any
reason cease to be the valid and perfected subject of the security interest
created by this Agreement; or any Receivables transferred hereunder which
constitute more than 1% of the aggregate amount of Eligible Receivables shall
cease to be free and clear of any Lien except as provided for herein; or
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(e) an Insolvency Event shall occur with respect to the Seller
or the Purchaser; provided, however, that for purposes of this Section 6.01, the
definition of "Insolvency Event" shall be construed without giving effect to the
60-day grace period in clause (a) thereof (except with respect to any Controlled
Affiliate that is not a party to any Transaction Document); or
(f) the Internal Revenue Service shall file notice of a lien
pursuant to Section 6323 of the Internal Revenue Code with regard to any of the
Receivables and such lien shall not have been (x) stayed or released within 30
days or, if stayed, such lien shall not have been released within 60 days; or
(y) the Pension Benefit Guaranty Corporation shall file notice of a lien
pursuant to Section 4068 of ERISA with regard to any of the Receivables and such
filing shall not be stayed or rescinded within 15; or
(g) there shall have occurred an Early Amortization Event
under the Pooling and Servicing Agreement;
then, if any of the events set forth in paragraphs (a), (d), (e), (f) or (g)
above shall have occurred, a "Termination Event" shall occur without any notice,
demand, protest or other requirement of any kind immediately upon the occurrence
of such event and, if any of the events set forth in paragraphs (b) or (c) above
shall have occurred, the Purchaser may, by notice to the Seller, declare that a
"Termination Event" shall occur as of the date set forth in such notice. Upon
the occurrence of a Termination Event, the Effective Period shall terminate (any
termination of the Effective Period pursuant to this Section 6.01 is herein
referred to as an "Early Termination"). Upon any Early Termination the Purchaser
shall have, in addition to any rights and remedies under this Agreement, all
other rights and remedies with respect to the Receivables provided after default
under the UCC of the applicable jurisdiction and under other applicable laws,
which rights and remedies shall be cumulative.
A Majority in Interest of each outstanding Series may, on
behalf of all Certificateholders, waive any default by the Seller in the
performance of its obligations hereunder and its consequences, except (1) the
failure to make any distributions or payments required to be made to the
Purchaser or to make any required deposits of any amounts to be so distributed
or paid can be waived only (a) with respect to Indemnified Amounts, with the
consent of the relevant Indemnified Party or (b) with respect to other amounts,
with unanimous consent of all Certificateholders of all outstanding Series and
(2) defaults arising from the events set forth in paragraphs (e), (f) and (g).
No such waiver shall extend to any subsequent or other default or impair any
right consequent thereon except to the extent expressly so waived.
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ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Indemnification. (a) Without limiting any other
rights which the Purchaser may have hereunder or under any applicable law, the
Seller hereby agrees to indemnify the Purchaser and the Trustee and their
respective assignees (which shall not be deemed to include any of the
Certificateholders as such) and their respective partners, officers, directors,
employees and Affiliates (collectively, the "Indemnified Parties") from and
against any and all damages, losses, liabilities and related costs and expenses
actually incurred (excluding consequential damages and lost profits), including
reasonable attorneys' fees and disbursements (all of the foregoing being
collectively referred to as "Indemnified Amounts"), awarded against or incurred
by any of them arising out of or resulting from this Agreement, the activities
of the Seller in connection herewith or in respect of any Receivable (excluding
however (A) Indemnified Amounts resulting from gross negligence or willful
misconduct on the part of the Indemnified Party (other than the Purchaser) to
which such Indemnified Amount would otherwise be due, (B) losses in respect of
Receivables to the extent reimbursement therefor would constitute credit
recourse to the Seller for nonpayment of any Receivable by the related Obligor,
(C) any income or franchise or similar taxes (or any interest or penalties with
respect thereto) incurred by such Indemnified Party arising out of or as a
result of this Agreement or in respect of any Receivable and (D) Indemnified
Amounts resulting from the acts or omissions of the Servicer (unless the
Servicer is an Affiliate of Dell)), to the extent caused by:
(i) reliance on any representation, warranty or covenant made
or statement made or deemed made by the Seller (or any of its
Responsible Officers) under or in connection with this Agreement, which
shall have been incorrect in any material respect when made or deemed
made or which the Seller shall have failed to perform;
(ii) the failure by the Seller to comply with this Agreement or
any Requirement of Law with respect to any Receivable or the related
Contract; or the failure of any Receivable or the related Contract to
conform to this Agreement or any such Requirement of Law;
(iii) the existence of any dispute, claim, offset or defense
(other than discharge in bankruptcy of the Obligor) of the Obligor to
the payment of any Receivable (including, without limitation, a defense
based on such Receivable or the related Contract not being a legal,
valid and binding obligation of such Obligor enforceable against it in
accordance with its terms), or of any other claim resulting from the
sale of the products or services related to such
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Receivable or from the furnishing or failure to furnish such
products or services;
(iv) the failure to vest in the Purchaser absolute ownership
of the Receivables free and clear of any Lien;
(v) the failure of the Seller to have filed, or any delay
in filing, any financing statements or other similar instruments or
documents under the UCC of any applicable jurisdiction or other
applicable laws that are necessary for perfection or priority of the
ownership and security interests created by this Agreement;
(vi) any commingling by the Seller of Collections with other
funds of the Seller or any Affiliate;
(vii) any investigation, litigation or proceeding related to
this Agreement or the use of proceeds of Purchases or the ownership of
or security interest in Receivables or Collections with respect
thereto, or in respect of any Contract related thereto, other than any
investigation, litigation or proceeding relating to such Indemnified
Party's affairs which includes matters or transactions in addition to
those contemplated by the Transaction Documents;
(viii) any products liability or other claim arising out of or
in connection with products or services which are the subject of any
Contract;
(ix) any reduction in the Outstanding Balance of a
Receivable (other than a Reconveyed Receivable) by reason of any
defective, rejected, returned, repossessed or foreclosed merchandise or
services or any cash discount or other adjustment made by the Seller;
(x) any breach by the Seller of any obligation under any
Receivable or any Contract;
(xi) any failure of the Seller to perform its duties or
obligations in accordance with the provisions of this Agreement; or
(xii) any tax (other than any income or franchise or similar
tax, or any interest or penalties with respect thereto) imposed by
reason of ownership of the Receivables by the Purchaser.
(b) Any Indemnified Amounts due hereunder shall be payable
within ten Business Days of submission of a claim by the Indemnified Party.
(c) Each Indemnified Party will use its best efforts to
notify the Seller in advance of making any claim under this Section 7.01.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Further Assurances. (a) The Seller agrees to do
and perform, from time to time, any and all acts and to execute and deliver to
the Purchaser or the Trustee any and all further assignments, agreements, powers
and instruments reasonably required or requested by the Purchaser more fully to
effect the purposes of this Agreement and the sales of the Receivables
hereunder, including, without limitation, the execution of any financing
statements or continuation statements relating to the Receivables for filing
under the provisions of the UCC, or any similar law, of any applicable
jurisdiction. The Seller will mark its computer files in a manner reasonably
calculated to indicate that the Receivables have been sold to the Purchaser.
(b) The Purchaser agrees to do such further acts and things
and to execute and deliver to the Seller or the Trustee such additional
assignments, agreements, powers and instruments as are reasonably required by
the Seller to carry into effect the purposes of this Agreement or to better
assure and confirm unto the Seller or the Trustee its rights, powers and
remedies hereunder.
SECTION 8.02. Payments. Each payment to be made by either of
the Purchaser or the Seller hereunder shall be made on the required payment
date, or on the next succeeding Business Day if the required payment date is not
a Business Day, in lawful money of the United States and in immediately
available funds at the office of the payee set forth in Section 8.09 below or to
such other office as may be specified by either party in a written notice to the
other party hereto.
SECTION 8.03. Costs, Expenses and Taxes. (a) In addition
to the rights of indemnification granted to the Purchaser pursuant to Article
VII hereof, the Seller agrees to pay on demand all costs and expenses of the
Purchaser in connection with the preparation, execution and delivery of all
documents to be delivered subsequent to the Transfer Date pursuant to this
Agreement, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for the Purchaser with respect thereto and with respect to
advising the Purchaser as to its rights and remedies under this Agreement, and
the Seller agrees to pay all costs and expenses of the Purchaser, if any
(including reasonable counsel fees and expenses), in connection with the
enforcement of this Agreement and the other documents to be delivered hereunder
excluding, however, any costs of enforcement or collection of any Receivables.
(b) In addition, the Seller agrees to pay any and all stamp
and other taxes (other than any income or franchise or similar taxes, or any
interest or penalties with respect thereto) and fees payable or determined to be
payable in connection with the execution, delivery, filing and recording of this
Agreement and
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any documents to be delivered hereunder, and the Seller agrees to indemnify the
Purchaser against any liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes and fees.
SECTION 8.04. Binding Effect; Assignability. (a) This
Agreement shall be binding upon and inure to the benefit of the Seller and the
Purchaser and their respective successors (whether by merger, consolidation or
otherwise) and assigns. Except as otherwise permitted herein, the Seller agrees
that it will not assign or transfer all or any portion of its rights or
obligations hereunder to any Person (other than Dell or any of its Controlled
Affiliates) without the prior written consent of the Purchaser and a Majority in
Interest of each outstanding Series. In connection with any sale or assignment
by the Purchaser of all or a portion of the Receivables, the buyer or assignee,
as the case may be, shall, to the extent of its purchase or assignment, have all
rights of the Purchaser under this Agreement(as if such buyer or assignee, as
the case may be, were the Purchaser hereunder) except to the extent specifically
provided in the agreement between the Purchaser and such buyer or assignee.
(b) The Seller acknowledges that the Purchaser shall assign to
the Trust, as collateral security for the Purchaser's obligations under the
Pooling and Servicing Agreement, all of the Purchaser's rights, remedies, powers
and privileges hereunder (including, without limitation, the right to give any
notice which the Purchaser may provide to the Seller hereunder), provided that
the Purchaser shall not assign or delegate any of its duties or obligations
hereunder to the Trust.
(c) This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms, and shall remain
in full force and effect until such time, after the last Termination Date of any
Series; provided, however, that rights and remedies with respect to any breach
of any representation and warranty made by the Seller pursuant to Article IV and
the provisions of Article VII and Sections 5.03(h), 8.03 and 8.13 shall be
continuing and shall survive any termination of this Agreement.
SECTION 8.05. Governing Law, Jurisdiction, Consent to
Service of Process.
(a) Governing Law. THIS AGREEMENT, INCLUDING THE RIGHTS AND
DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE
INTERESTS OF THE PURCHASER IN THE RECEIVABLES IS GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(b) Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally submits to the nonexclusive
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<PAGE> 30
jurisdiction of any New York State court or federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement, and
each of the parties hereto hereby irrevocably and unconditionally (i) agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, such
federal court and (ii) waives the defense of an inconvenient forum. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(c) Consent to Service of Process. Each party to this
Agreement irrevocably consents to service of process by personal delivery,
certified mail, postage prepaid or overnight courier. Nothing in this Agreement
will affect the right of any party to this Agreement to serve process in any
other manner permitted by law.
(d) Waiver of Jury Trial. Each party to this Agreement waives
any right to a trial by jury in any action or proceeding to enforce or defend
any rights under or relating to this Agreement, any other Transaction Document,
the Fee Letter or any amendment, instrument, document or agreement delivered or
which may in the future be delivered in connection herewith or therewith or
arising from any course of conduct, course of dealing, statements (whether
verbal of written), actions of any of the parties hereto or any other
relationship existing in connection with this Agreement or any other Transaction
Document or the Fee Letter, and agrees that any such action or proceeding shall
be tried before a court and not before a jury.
SECTION 8.06. No Waiver; Cumulative Remedies. No failure
to exercise and no delay in exercising, on the part of the Purchaser, 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. The rights, remedies, powers and
privileges herein provided are cumulative and not exhaustive of any rights,
remedies, powers and privileges provided by law.
SECTION 8.07. Amendment. (a) This Agreement may be amended
from time to time by the Seller and the Purchaser without the consent of any of
the Investor Certificateholders (i) to cure any ambiguity, (ii) to correct or
supplement any provision herein which may be inconsistent with any other
provision herein or (iii) to add any other provisions with respect to matters or
questions arising under this Agreement which are not inconsistent with the
provisions of this Agreement; provided that any amendment pursuant to this
clause (a) shall not, as evidenced by an Opinion of Counsel, adversely affect in
any material respect the interests of
27
<PAGE> 31
any Investor Certificateholders. Notice of any amendment entered into pursuant
to this clause (a) shall be given to the Rating Agencies.
(b) This Agreement may be amended from time to time by the
Seller and the Purchaser, so long as the Rating Agency Condition is satisfied,
with the consent of a Majority in Interest of each adversely affected Series for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or of modifying in any manner the rights
of the Certificateholders. The Trustee may request an Officer's Certificate and
Opinion of Counsel with respect to an amendment entered into pursuant to this
clause (b) concerning compliance with the requirements of this Agreement. Any
amendment to be effected pursuant to this paragraph shall be deemed to adversely
affect all outstanding Series, other than any Series with respect to which such
action shall not, as evidenced by an Opinion of Counsel (which counsel shall not
be an employee of, or counsel for, Dell, the Seller or the Purchaser), addressed
and delivered to the Trustee, adversely affect the interests of any Investor
Certificateholder of such Series.
SECTION 8.08. Severability. If any provision hereof is deemed
void or unenforceable in any jurisdiction, such voiding or unenforceability
shall not affect the validity or enforceability of such provision in any other
jurisdiction or any other provision hereof in such or any other jurisdiction.
SECTION 8.09. Notices. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including telex and facsimile communication) and shall be personally delivered
or sent by certified mail, postage prepaid, or overnight courier or facsimile,
to the intended party at the address or facsimile number of such party set forth
below or at such other address or facsimile number as shall be designated by
such party in a written notice to the other parties hereto. All such notices and
communications shall be effective (a) if personally delivered, when received,
(b) if sent by certified mail, four Business Days after having been deposited in
the mail, postage prepaid, (c) if sent by overnight courier, two Business Days
after having been given to such courier, unless sooner received by the addressee
and (d) if transmitted by facsimile, when sent, upon receipt confirmed by
telephone or electronic means. Notices and communications sent hereunder on a
day that is not a Business Day shall be deemed to have been sent on the
following Business Day.
28
<PAGE> 32
(a) If to the Seller,
Dell Direct Sales L.P.
2214 West Braker Lane, Suite D
Austin, Texas 78758
Tel: (512) 728-3343
Fax: (512) 728-0043
Attn: Treasurer
(b) If to the Purchaser,
Dell Receivables L.P.
2112 Kramer Lane
Austin, Texas 78758
Tel: (512) 728-5829
Fax: (512) 728-5986
Attn: Assistant Treasurer
SECTION 8.10. Counterparts. This Agreement may be executed in
any number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original,
and all of which taken together shall constitute one and the same agreement.
SECTION 8.11. Construction of Agreement as Security Agreement.
It is the intent of the parties that the transactions contemplated herein
constitute sales of the Receivables to the Purchaser. If, however, such
transactions are deemed to be loans, (a) the Seller hereby grants to the
Purchaser a first priority security interest in all of the Seller's right, title
and interest in and to the Receivables now existing and hereafter created, all
monies due or to become due and all amounts and other proceeds received with
respect thereto, to secure all of the Seller's obligations hereunder, and (b)
this Agreement shall constitute a security agreement under applicable law.
SECTION 8.12. Termination. This Agreement will terminate on
the last Termination Date specified in any Series Supplement; provided, however,
that the representations, warranties and remedies offered by or made available
against the Seller, the indemnities of the Seller to the Indemnified Parties set
forth in this Agreement shall survive such termination, and provided, further,
that the Purchaser shall remain entitled to receive any collections on
Receivables sold hereunder which have become Defaulted Receivables after it
shall have completed its collection efforts in respect thereof.
SECTION 8.13. Third-Party Beneficiary. The Indemnified
Parties are third-party beneficiaries of all provisions of this
Agreement and are entitled to enforce the provisions of Section
7.01 of this Agreement to the extent any Indemnified Amounts are
due such parties.
29
<PAGE> 33
SECTION 8.14. The Seller's Obligations. It is expressly agreed
that, anything contained in this Agreement to the contrary notwithstanding, the
Seller shall be obligated to perform all of its obligations under the
Receivables to the same extent as if the Purchaser had no interest therein and
the Purchaser shall have no obligations or liability under Receivables to any
Obligor thereunder by reason of or arising out of this Agreement, nor shall the
Purchaser be required or obligated in any manner to perform or fulfill any of
the obligations of the Seller under or pursuant to any Receivable.
30
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have caused this
Receivables Purchase Agreement to be duly executed by their respective officers
thereunto duly authorized as of the day and year first above written.
DELL DIRECT SALES L.P.,
as Seller
by DELL GEN. P. CORP.,
as its general partner
By: /s/ Thomas J. Meredith
------------------------------
Name: Thomas J. Meredith
Title: Chief Financial Officer
DELL RECEIVABLES L.P.,
as Purchaser
by DELL RECEIVABLES GEN. P. CORP,
as its general partner
By: /s/ Thomas J. Meredith
----------------------
Name: Thomas J. Meredith
Title: President
<PAGE> 35
EXHIBITS
The following Exhibit has been omitted from this filing:
Exhibit A -- Subordinated Note
The registrant hereby undertakes to furnish supplementally a copy of such
Exhibit to the Commission upon request. The executed version of this Exhibit
appears as Exhibit 10.21 to this Report.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>7
<DESCRIPTION>SUBORDINATED NOTE
<TEXT>
<PAGE> 1
EXHIBIT 10.20
DELL RECEIVABLES L.P.
SUBORDINATED NOTE
Due: December 31, 2014 No. 1
DELL RECEIVABLES L.P. (the "Issuer"), for value received, hereby
promises to pay to DELL MARKETING L.P. (the "Holder"), or its registered
assigns, at its address for payments set forth in Section 8.09 of the
Receivables Purchase Agreement hereinafter referred to, all principal sums owing
from time to time under Section 2.02 of the Receivables Purchase Agreement, upon
the earliest to occur of (i) December 31, 2014, (ii) the date upon which the
aggregate Invested Amount for each series is zero (the "Stated Maturity"),
unless earlier prepaid pursuant to the provisions for repayment referred to
herein, and (iii) any date agreed to by the Issuer and the Holder, and to pay
interest (computed on the basis of a 360-day year and the actual number of days
in each calendar year) on the unpaid principal sum from the date such principal
sum is advanced, such interest being payable on (i) November 30, 1995 and the
last day of each month thereafter and (ii) on the earlier of (1) the date of
prepayment and (2) Stated Maturity at a rate per annum equal to the one-month
London Interbank Offered Rate plus 0.75%, as published in The Wall Street
Journal on the last Business Day of the preceding month, until the principal
hereof is paid in full. The Holder shall enter on Schedule A information
reflecting the date and amount of each advance and the amount of any payments
made hereon. Notwithstanding anything contained herein to the contrary, the
principal sum hereof and all accrued interest thereon shall not exceed forty
percent (40%) of the excess of the Net Receivables Balance over the Trust
Invested Amount at any given time.
Payments of the principal of and interest on this Subordinated Note
(this "Note") will be made in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts by check mailed to, or wire transfer in federal funds to the
account of, the Holder as directed by the Holder. If any payment on this Note
shall remain unpaid on the due date thereof, the same shall thereafter be
payable with interest thereon (to the extent permitted by law) at the Class A
Certificate Rate, from such due date to the date of payment thereof.
This Note is issued under the Receivables Purchase Agreement, dated as
of November 21, 1995, between the Issuer and the Holder (the "Receivables
Purchase Agreement"). This Note represents all or a portion of the Purchase
Price for Receivables
<PAGE> 2
purchased by the Issuer pursuant to the terms of the Receivables Purchase
Agreement. Each capitalized term used herein which is defined in the Receivables
Purchase Agreement or the Pooling and Servicing Agreement, dated as of November
21, 1995, among the Issuer, as Transferor, Dell USA L.P., as Servicer and
Norwest Bank Minnesota, National Association, as Trustee (the "Pooling and
Servicing Agreement") shall have the meaning ascribed to it in the Receivables
Purchase Agreement or the Pooling and Servicing Agreement, as the case may be.
This Note may be prepaid in whole or in part at the option of the
Issuer at any time without a premium.
The payment of this Note is hereby expressly subordinated in right of
payment to the payment and performance of the "Senior Debt" of the Issuer, which
is any indebtedness in respect of borrowed money as evidenced by bonds, notes,
debentures or similar instruments or letters of credit and any obligations of
the Issuer under the Pooling and Service Agreement, the Receivables Purchase
Agreement and any Supplement ("Indebtedness") of the Issuer, and all renewals,
extensions, refinancings or refundings thereof, except any such Indebtedness
that expressly provides that it is not senior or superior in right of payment
hereto, to the extent and in the manner set forth in this paragraph:
(a) In the event of any dissolution, winding up, liquidation,
readjustment, reorganization or other similar event relating to the Issuer,
whether voluntary or involuntary, partial or complete, and whether in
bankruptcy, insolvency, receivership or other similar proceedings, or upon
an assignment for the benefit of creditors, or any other marshalling of the
assets and liabilities of the Issuer or any sale of all or substantially
all of the assets of the Issuer except pursuant to the Pooling and
Servicing Agreement (such proceedings being herein collectively called
"Bankruptcy Proceedings" and individually called a "Bankruptcy
Proceeding"), the Senior Debt shall first be paid and performed in full and
in cash before the Holder of this Note shall be entitled to receive and to
retain any payment or distribution in respect of this Note. In order to
implement the foregoing; (x) all payments and distributions of any kind or
character in respect of this Note to which the Holder of this Note would be
entitled except for this clause (a) shall be made directly to the Trustee
(for the benefit of the holder of the Senior Debt); (y) if a Bankruptcy
Proceeding has been commenced, the holder of this Note shall promptly file
a claim or claims, in the form required in any Bankruptcy Proceedings, for
the full outstanding amount of this Note, and shall use reasonable efforts
to cause said claim or claims to be approved and all payments and other
distributions in respect thereof to be made directly to the Trustee (for
the benefit of the Holders of the Senior Debt until the Senior Debt shall
have been paid and performed in full and in cash; and (z) the Holder of
this Note hereby irrevocably agrees that the Trust
2
<PAGE> 3
(or the Trustee acting on the Trust's behalf), in the name of the Holder of
this Note or otherwise, may demand, sue for, collect, receive and receipt
for any and all such payments or distributions, and file, prove and vote or
consent in any such Bankruptcy Proceedings with respect to any and all
claims of the Holder of this Note relating to this Note, in each case until
the Senior Debt shall have been paid and performed in full and in cash.
(b) In the event that the Holder of this Note receives any payment or
other distribution of any kind or character from the Issuer or from any
other source whatsoever in respect of this Note after the commencement of
any Bankruptcy Proceeding, such payment or other distribution shall be
received in trust for the Holders of the Senior Debt and shall be turned
over by the Holder of this Note to the Trustee (for the benefit of the
Holders of the Senior Debt) forthwith, until all Senior Debt shall have
been paid and performed in full and in cash. All payments and distributions
received by the Trustee in respect of this Note, to the extent received in
or converted into cash, may be applied by the Trustee (for the benefit of
the Holders of the Senior Debt) first to the payment of any and all
reasonable expenses (including reasonable attorneys fees and legal
expenses) paid or incurred by the Trustee or the Holders of the Senior Debt
in enforcing these subordination provisions, or in endeavoring to collect
or realize upon this Note, and any balance thereof shall, solely as between
the Holder of this Note and the Holders of the Senior Debt, be applied by
the Trustee toward the payment of the Senior Debt in a manner determined by
the Trustee to be in accordance with the Pooling and Servicing Agreement;
but as between the Issuer and its creditors no such payments or
distributions of any kind or character shall be deemed to be payments or
distributions in respect of the Senior Debt.
(c) Upon the final payment in full and in cash of all Senior Debt, the
Holder of this Note shall be subrogated to the rights of the Holders of the
Senior Debt to receive payments or distributions from the Issuer that are
applicable to the Senior Interests until this Note is paid in full.
(d) These subordination provisions are intended solely for the purpose
of defining the relative rights of the Holder of this Note, on the one
hand, and the Holders of the Senior Debt, on the other hand. Nothing
contained in these subordination provisions or elsewhere in this Note is
intended to or shall impair, as between the Issuer, its creditors (other
than the Holders of the Senior Debt) and the Holder of this Note, the
Issuer's obligation, which is unconditional and absolute, to pay this Note
as and when the same shall become due and payable in accordance with the
terms hereof and of the Receivables Purchase Agreement or to affect the
relative rights of the Holder of this Note and creditors of the Issuer
(other than the Holders of the Senior Debt).
3
<PAGE> 4
(e) The Holder of this Note shall not, until the Senior Debt has been
finally paid and performed in full and in cash, (i) cancel, waive, forgive,
transfer or assign or commence legal proceedings to enforce or collect, or
subordinate to any obligation of the Issuer, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, or now or
hereafter existing, or due or to become due, other than the Senior Debt or
any rights in respect hereof or (ii) convert this Note into an equity
interest in the Issuer unless, in the case of each clauses (i) and (ii)
above, the Holder of this Note shall have received the prior written
consent of the Trustee in each case.
(f) The Holder of this Note shall not, without the advance written
consent of the Trustee, commence, or join with any other Person in
commencing, any Bankruptcy Proceedings with respect to the Issuer until at
least one year and one day shall have passed since the Senior Debt shall
have been finally paid and performed in full and in cash.
(g) If, at any time, any payment (in whole or in part) made with
respect to the Senior Debt is rescinded or must be restored or returned by
a Holder of the Senior Debt (whether in connection with any Bankruptcy
Proceedings or otherwise), these subordination provisions shall continue to
be effective or shall be reinstated, as the case may be, as though such
payment has not been made.
(h) As between the Holder of this Note and the Holders of the Senior
Debt, each of the Holders of the Senior Debt may, from time to time, at its
sole discretion, without notice to the Holder of this Note, and without
waiving any of its rights under these subordination provisions, take any or
all of the following actions: (i) retain or obtain an interest in any
property to secure any of the Senior Debt; (ii) retain or obtain the
primary or secondary obligations of any other obligor or obligors with
respect to any of the Senior Debt; (iii) extend or renew for one or more
periods (whether or not longer than the original period), alter, increase
or exchange any of the Senior Debt, or release or compromise any obligation
of any nature with respect to any of the Senior Debt; (iv) amend,
supplement, amend and restate, or otherwise modify any Transaction
Documents; and (v) release its security interest in, or surrender, release
or permit any substitution or exchange for all or any part of any rights or
property; securing any of the Senior Debt, or extend or renew for one or
more periods (whether or not longer than the original period), or release
compromise, alter or exchange any obligations of any nature of any obligor
with respect to any such rights or property.
(i) By its acceptance hereof, the Holder of this Note hereby waives;
(i) notice of acceptance of these subordination provisions by any of the
Holders of the Senior Debt; (ii)
4
<PAGE> 5
notice of the existence, creation, non-payment or non-performance of all or
any of the Senior Debt; and (iii all diligence in enforcement, collection
or protection of, or realization upon, the Senior Debt, or any thereof, or
any security therefor.
(j) These subordination provisions constitute a continuing offer from
the Issuer to all Persons who become the holders of, or who continue to
hold, Senior Debt and these subordination provisions are made for the
benefit of the Holders of the Senior Debt, and the Trustee may proceed to
enforce such provisions on behalf of each of such Persons.
The Holder of this Note, by its acceptance hereof, hereby covenants and
agrees that it will not at any time institute against the Issuer any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state bankruptcy or similar law.
This Note shall for all purposes be governed by, and construed in
accordance with, the laws of the State of New York.
5
<PAGE> 6
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed manually by its undersigned officer duly authorized thereunto.
Dated: November 30, 1995.
DELL RECEIVABLES L.P.
by DELL RECEIVABLES GEN. P. CORP,
as its general partner
By: /s/ Thomas Meredith
--------------------------------------------
Name: Thomas Meredith
Title: Cheif Executive Officer and President
<PAGE> 7
SCHEDULE A
Principal Interest Principal Interest
Date Advanced Paid Paid Rate
- ---- --------- -------- --------- --------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>8
<DESCRIPTION>SUBORDINATED NOTE
<TEXT>
<PAGE> 1
EXHIBIT 10.21
DELL RECEIVABLES L.P.
SUBORDINATED NOTE
Due: December 31, 2014 No. 1
DELL RECEIVABLES L.P. (the "Issuer"), for value received, hereby
promises to pay to DELL DIRECT SALES L.P. (the "Holder"), or its registered
assigns, at its address for payments set forth in Section 8.09 of the
Receivables Purchase Agreement hereinafter referred to, all principal sums owing
from time to time under Section 2.02 of the Receivables Purchase Agreement, upon
the earliest to occur of (i) December 31, 2014, (ii) the date upon which the
aggregate Invested Amount for each series is zero (the "Stated Maturity"),
unless earlier prepaid pursuant to the provisions for repayment referred to
herein, and (iii) any date agreed to by the Issuer and the Holder, and to pay
interest (computed on the basis of a 360-day year and the actual number of days
in each calendar year) on the unpaid principal sum from the date such principal
sum is advanced, such interest being payable on (i) November 30, 1995 and the
last day of each month thereafter and (ii) on the earlier of (1) the date of
prepayment and (2) Stated Maturity at a rate per annum equal to the one-month
London Interbank Offered Rate plus 0.75%, as published in The Wall Street
Journal on the last Business Day of the preceding month, until the principal
hereof is paid in full. The Holder shall enter on Schedule A information
reflecting the date and amount of each advance and the amount of any payments
made hereon. Notwithstanding anything contained herein to the contrary, the
principal sum hereof and all accrued interest thereon shall not exceed forty
percent (40%) of the excess of the Net Receivables Balance over the Trust
Invested Amount at any given time.
Payments of the principal of and interest on this Subordinated Note
(this "Note") will be made in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts by check mailed to, or wire transfer in federal funds to the
account of, the Holder as directed by the Holder. If any payment on this Note
shall remain unpaid on the due date thereof, the same shall thereafter be
payable with interest thereon (to the extent permitted by law) at the Class A
Certificate Rate, from such due date to the date of payment thereof.
This Note is issued under the Receivables Purchase Agreement, dated as
of November 21, 1995, between the Issuer and the Holder (the "Receivables
Purchase Agreement"). This Note represents all or a portion of the Purchase
Price for Receivables
<PAGE> 2
purchased by the Issuer pursuant to the terms of the Receivables Purchase
Agreement. Each capitalized term used herein which is defined in the Receivables
Purchase Agreement or the Pooling and Servicing Agreement, dated as of November
21, 1995, among the Issuer, as Transferor, Dell USA L.P., as Servicer and
Norwest Bank Minnesota, National Association, as Trustee (the "Pooling and
Servicing Agreement") shall have the meaning ascribed to it in the Receivables
Purchase Agreement or the Pooling and Servicing Agreement, as the case may be.
This Note may be prepaid in whole or in part at the option of the
Issuer at any time without a premium.
The payment of this Note is hereby expressly subordinated in right of
payment to the payment and performance of the "Senior Debt" of the Issuer, which
is any indebtedness in respect of borrowed money as evidenced by bonds, notes,
debentures or similar instruments or letters of credit and any obligations of
the Issuer under the Pooling and Service Agreement, the Receivables Purchase
Agreement and any Supplement ("Indebtedness") of the Issuer, and all renewals,
extensions, refinancings or refundings thereof, except any such Indebtedness
that expressly provides that it is not senior or superior in right of payment
hereto, to the extent and in the manner set forth in this paragraph:
(a) In the event of any dissolution, winding up, liquidation,
readjustment, reorganization or other similar event relating to the Issuer,
whether voluntary or involuntary, partial or complete, and whether in
bankruptcy, insolvency, receivership or other similar proceedings, or upon
an assignment for the benefit of creditors, or any other marshalling of the
assets and liabilities of the Issuer or any sale of all or substantially
all of the assets of the Issuer except pursuant to the Pooling and
Servicing Agreement (such proceedings being herein collectively called
"Bankruptcy Proceedings" and individually called a "Bankruptcy
Proceeding"), the Senior Debt shall first be paid and performed in full and
in cash before the Holder of this Note shall be entitled to receive and to
retain any payment or distribution in respect of this Note. In order to
implement the foregoing; (x) all payments and distributions of any kind or
character in respect of this Note to which the Holder of this Note would be
entitled except for this clause (a) shall be made directly to the Trustee
(for the benefit of the holder of the Senior Debt); (y) if a Bankruptcy
Proceeding has been commenced, the holder of this Note shall promptly file
a claim or claims, in the form required in any Bankruptcy Proceedings, for
the full outstanding amount of this Note, and shall use reasonable efforts
to cause said claim or claims to be approved and all payments and other
distributions in respect thereof to be made directly to the Trustee (for
the benefit of the Holders of the Senior Debt until the Senior Debt shall
have been paid and performed in full and in cash; and (z) the Holder of
this Note hereby irrevocably agrees that the Trust
2
<PAGE> 3
(or the Trustee acting on the Trust's behalf), in the name of the Holder of
this Note or otherwise, may demand, sue for, collect, receive and receipt
for any and all such payments or distributions, and file, prove and vote or
consent in any such Bankruptcy Proceedings with respect to any and all
claims of the Holder of this Note relating to this Note, in each case until
the Senior Debt shall have been paid and performed in full and in cash.
(b) In the event that the Holder of this Note receives any payment or
other distribution of any kind or character from the Issuer or from any
other source whatsoever in respect of this Note after the commencement of
any Bankruptcy Proceeding, such payment or other distribution shall be
received in trust for the Holders of the Senior Debt and shall be turned
over by the Holder of this Note to the Trustee (for the benefit of the
Holders of the Senior Debt) forthwith, until all Senior Debt shall have
been paid and performed in full and in cash. All payments and distributions
received by the Trustee in respect of this Note, to the extent received in
or converted into cash, may be applied by the Trustee (for the benefit of
the Holders of the Senior Debt) first to the payment of any and all
reasonable expenses (including reasonable attorneys fees and legal
expenses) paid or incurred by the Trustee or the Holders of the Senior Debt
in enforcing these subordination provisions, or in endeavoring to collect
or realize upon this Note, and any balance thereof shall, solely as between
the Holder of this Note and the Holders of the Senior Debt, be applied by
the Trustee toward the payment of the Senior Debt in a manner determined by
the Trustee to be in accordance with the Pooling and Servicing Agreement;
but as between the Issuer and its creditors no such payments or
distributions of any kind or character shall be deemed to be payments or
distributions in respect of the Senior Debt.
(c) Upon the final payment in full and in cash of all Senior Debt, the
Holder of this Note shall be subrogated to the rights of the Holders of the
Senior Debt to receive payments or distributions from the Issuer that are
applicable to the Senior Interests until this Note is paid in full.
(d) These subordination provisions are intended solely for the purpose
of defining the relative rights of the Holder of this Note, on the one
hand, and the Holders of the Senior Debt, on the other hand. Nothing
contained in these subordination provisions or elsewhere in this Note is
intended to or shall impair, as between the Issuer, its creditors (other
than the Holders of the Senior Debt) and the Holder of this Note, the
Issuer's obligation, which is unconditional and absolute, to pay this Note
as and when the same shall become due and payable in accordance with the
terms hereof and of the Receivables Purchase Agreement or to affect the
relative rights of the Holder of this Note and creditors of the Issuer
(other than the Holders of the Senior Debt).
3
<PAGE> 4
(e) The Holder of this Note shall not, until the Senior Debt has been
finally paid and performed in full and in cash, (i) cancel, waive, forgive,
transfer or assign or commence legal proceedings to enforce or collect, or
subordinate to any obligation of the Issuer, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, or now or
hereafter existing, or due or to become due, other than the Senior Debt or
any rights in respect hereof or (ii) convert this Note into an equity
interest in the Issuer unless, in the case of each clauses (i) and (ii)
above, the Holder of this Note shall have received the prior written
consent of the Trustee in each case.
(f) The Holder of this Note shall not, without the advance written
consent of the Trustee, commence, or join with any other Person in
commencing, any Bankruptcy Proceedings with respect to the Issuer until at
least one year and one day shall have passed since the Senior Debt shall
have been finally paid and performed in full and in cash.
(g) If, at any time, any payment (in whole or in part) made with
respect to the Senior Debt is rescinded or must be restored or returned by
a Holder of the Senior Debt (whether in connection with any Bankruptcy
Proceedings or otherwise), these subordination provisions shall continue to
be effective or shall be reinstated, as the case may be, as though such
payment has not been made.
(h) As between the Holder of this Note and the Holders of the Senior
Debt, each of the Holders of the Senior Debt may, from time to time, at its
sole discretion, without notice to the Holder of this Note, and without
waiving any of its rights under these subordination provisions, take any or
all of the following actions: (i) retain or obtain an interest in any
property to secure any of the Senior Debt; (ii) retain or obtain the
primary or secondary obligations of any other obligor or obligors with
respect to any of the Senior Debt; (iii) extend or renew for one or more
periods (whether or not longer than the original period), alter, increase
or exchange any of the Senior Debt, or release or compromise any obligation
of any nature with respect to any of the Senior Debt; (iv) amend,
supplement, amend and restate, or otherwise modify any Transaction
Documents; and (v) release its security interest in, or surrender, release
or permit any substitution or exchange for all or any part of any rights or
property; securing any of the Senior Debt, or extend or renew for one or
more periods (whether or not longer than the original period), or release
compromise, alter or exchange any obligations of any nature of any obligor
with respect to any such rights or property.
(i) By its acceptance hereof, the Holder of this Note hereby waives;
(i) notice of acceptance of these subordination provisions by any of the
Holders of the Senior Debt; (ii)
4
<PAGE> 5
notice of the existence, creation, non-payment or non-performance of all or
any of the Senior Debt; and (iii all diligence in enforcement, collection
or protection of, or realization upon, the Senior Debt, or any thereof, or
any security therefor.
(j) These subordination provisions constitute a continuing offer from
the Issuer to all Persons who become the holders of, or who continue to
hold, Senior Debt and these subordination provisions are made for the
benefit of the Holders of the Senior Debt, and the Trustee may proceed to
enforce such provisions on behalf of each of such Persons.
The Holder of this Note, by its acceptance hereof, hereby covenants and
agrees that it will not at any time institute against the Issuer any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state bankruptcy or similar law.
This Note shall for all purposes be governed by, and construed in
accordance with, the laws of the State of New York.
5
<PAGE> 6
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed manually by its undersigned officer duly authorized thereunto.
Dated: November 30, 1995.
DELL RECEIVABLES L.P.
by DELL RECEIVABLES GEN. P. CORP,
as its general partner
By: /s/ Thomas Meredith
--------------------------------------------
Name: Thomas Meredith
Title: Cheif Executive Officer and President
<PAGE> 7
SCHEDULE A
Principal Interest Principal Interest
Date Advanced Paid Paid Rate
- ---- --------- -------- --------- --------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.22
<SEQUENCE>9
<DESCRIPTION>POOLING & SERVICING AGREEMENT
<TEXT>
<PAGE> 1
EXHIBIT 10.22
EXECUTION COPY
DELL RECEIVABLES L.P., Transferor
DELL USA L.P., Servicer and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, Trustee
DELL TRADE RECEIVABLES MASTER TRUST
POOLING AND SERVICING AGREEMENT
Dated as of November 21, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions............................................... 1
SECTION 1.02. Other Definitional Provisions............................. 20
ARTICLE II
TRANSFER OF RECEIVABLES
SECTION 2.01. Transfer of Receivables................................... 21
SECTION 2.02. Acceptance by Trustee..................................... 21
SECTION 2.03. Representations and Warranties of the
Transferor Relating to the Transferor................... 22
SECTION 2.04. Representations and Warranties of the
Transferor Relating to the Trust Assets................. 26
SECTION 2.05. Affirmative Covenants of the Transferor................... 30
SECTION 2.06. Negative Covenants of the Transferor...................... 33
SECTION 2.07. Addition and Removal of Originators....................... 37
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 3.01. Acceptance of Appointment and Other
Matters Relating to the Servicer........................ 39
SECTION 3.02. Servicing Compensation; Servicer's
Expenses................................................ 40
SECTION 3.03. Representations and Warranties of the
Servicer................................................ 41
SECTION 3.04. Covenants of the Servicer................................. 44
SECTION 3.05. Reports and Records for the Trustee....................... 48
SECTION 3.06. Annual Certificate of Servicer............................ 48
SECTION 3.07. Semi-Annual Servicing Report of Independent
Public Accountants...................................... 49
SECTION 3.08. Tax Treatment............................................. 49
SECTION 3.09. Notices to Dell USA L.P................................... 50
SECTION 3.10. Adjustments............................................... 50
SECTION 3.11. Securities and Exchange Commission
Filings................................................. 50
</TABLE>
i
<PAGE> 3
<TABLE>
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ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.01. Rights of Certificateholders.............................. 51
SECTION 4.02. Establishment of Concentration Account
and Dell Collection Accounts ........................... 52
SECTION 4.03. Allocation of Collections................................. 54
ARTICLE V
DISTRIBUTIONS AND REPORTS TO CERTIFICATEHOLDERS
SECTION 5.01. Distributions and Reports to Certificate-
holders................................................. 56
ARTICLE VI
THE CERTIFICATES
SECTION 6.01. The Certificates.......................................... 57
SECTION 6.02. Authentication of Certificates............................ 57
SECTION 6.03. Registration of Transfer and Exchange of
Certificates............................................ 58
SECTION 6.04. Mutilated, Destroyed, Lost or Stolen
Certificates............................................ 60
SECTION 6.05. Persons Deemed Owners..................................... 60
SECTION 6.06. Access to List of Certificateholders'
Names and Addresses..................................... 61
SECTION 6.07. Authenticating Agent...................................... 61
SECTION 6.08. New Issuances............................................. 62
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR
SECTION 7.01. Obligations not Assignable................................ 66
SECTION 7.02. Limitations on Liability.................................. 66
SECTION 7.03. Indemnification of the Trustee, the Trust
and the Investor Certificateholders..................... 66
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER
SECTION 8.01. Liability of the Servicer................................. 69
SECTION 8.02. Merger or Consolidation of, or Assumption
of the Obligations of, the Servicer.................... 69
SECTION 8.03. Limitations on Liability.................................. 69
SECTION 8.04. Servicer Indemnification.................................. 70
SECTION 8.05. The Servicer Not to Resign................................ 71
SECTION 8.06. Examination of Records.................................... 71
SECTION 8.07. Confidentiality........................................... 72
ARTICLE IX
TRUST EARLY AMORTIZATION EVENTS
SECTION 9.01. Trust Early Amortization Events........................... 73
SECTION 9.02. Additional Rights Upon the Occurrence
of any Trust Early Amortization Event.................. 75
ARTICLE X
SERVICER DEFAULTS
SECTION 10.01. Servicer Defaults........................................ 77
SECTION 10.02. Trustee to Act; Appointment of Successor
Servicer............................................... 79
SECTION 10.03. Notification to Certificateholders....................... 81
ARTICLE XI
THE TRUSTEE
SECTION 11.01. Duties of the Trustee.................................... 82
SECTION 11.02. Certain Matters Affecting the Trustee.................... 84
SECTION 11.03. Trustee Not Liable for Recitals in
Certificates........................................... 85
SECTION 11.04. Trustee May Own Certificates............................. 85
SECTION 11.05. Compensation; Trustee's Expenses......................... 85
SECTION 11.06. Eligibility Requirements for Trustee..................... 86
SECTION 11.07. Resignation or Removal of Trustee........................ 86
SECTION 11.08. Successor Trustee........................................ 87
SECTION 11.09. Merger or Consolidation of Trustee....................... 88
SECTION 11.10. Appointment of Co-Trustee or Separate
Trustee................................................ 88
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
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<S> <C> <C>
SECTION 11.11. Tax Returns.............................................. 89
SECTION 11.12. Trustee May Enforce Claims Without
Possession of Certificates............................. 90
SECTION 11.13. Suits for Enforcement.................................... 90
SECTION 11.14. Rights of Certificateholders to Direct
Trustee................................................ 90
SECTION 11.15. Representations and Warranties of Trustee................ 91
SECTION 11.16. Maintenance of Office or Agency.......................... 91
ARTICLE XII
TERMINATION
SECTION 12.01. Termination of Trust..................................... 92
SECTION 12.02. Final Distribution....................................... 92
SECTION 12.03. Transferor's Termination Rights.......................... 93
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. Amendment................................................ 94
SECTION 13.02. Protection of Right, Title and Interest
to Trust............................................... 95
SECTION 13.03. Limitation on Rights of Certificate-
holders................................................ 96
SECTION 13.04. Governing Law; Jurisdiction; Consent to
Service of Process..................................... 97
SECTION 13.05. Notices; Payments........................................ 98
SECTION 13.06. Rule 144A Information.................................... 99
SECTION 13.07. Severability of Provisions............................... 99
SECTION 13.08. Assignment............................................... 99
SECTION 13.09. Certificates Nonassessable and Fully Paid................ 99
SECTION 13.10. Further Assurances....................................... 100
SECTION 13.11. Nonpetition Covenant..................................... 100
SECTION 13.12. No Waiver; Cumulative Remedies........................... 100
SECTION 13.13. Counterparts............................................. 100
SECTION 13.14. Third-Party Beneficiaries................................ 100
SECTION 13.15. Actions by Certificateholders............................ 101
SECTION 13.16. Merger and Integration................................... 101
SECTION 13.17. Headings................................................. 101
SECTION 13.18. Construction of Agreement................................ 101
</TABLE>
iv
<PAGE> 6
EXHIBITS
Exhibit A Form of Transferor Certificate
Exhibit B Form of Annual Servicer's Certificate
Exhibit C Form of Dell Collection Account Letter
Exhibit D Form of Rule 144A and Non-Rule 144A Letters
Exhibit E Form of Daily Report
Exhibit F Credit Policy and Procedures Manual
Exhibit G Form of Agreed Upon Procedures
Exhibit H Form of Monthly Trustee Certificate
SCHEDULES
Schedule I Dell Post-Office Boxes and Dell Collection Accounts
Schedule II Originators
v
<PAGE> 7
POOLING AND SERVICING AGREEMENT, dated as of November 21, 1995, among
DELL RECEIVABLES L.P., a Texas limited partnership, as Transferor (the
"Transferor"), DELL USA L.P., a Texas limited partnership, as Servicer (the
"Servicer"), and Norwest Bank Minnesota, National Association, as Trustee (the
"Trustee").
In consideration of the mutual agreements herein contained, each party
agrees as follows for the benefit of the other parties and the
Certificateholders to the extent provided herein:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Whenever used in this Agreement, the
following words and phrases shall have the following meanings, and the
definitions of such terms are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such terms. All capitalized terms used herein but not defined shall
have the meanings ascribed to them in the related Supplement.
"Act" shall mean the Securities Act of 1933, as amended from time to
time.
"Additional Originator" shall have the meaning specified in Section
2.07(a).
"Affiliate" shall mean, with respect to any specified Person, any other
Person that, directly or indirectly, is in control of, is controlled by or is
under common control with, such specified Person within the meaning of "control"
as such term is used in Section 15 of the Securities Act of 1933, as amended.
"Aggregate Certificateholders' Interest" shall mean the aggregate of
the Certificateholders' Interests for each Series as defined in Section 4.01(a).
"Agreement" shall mean this Pooling and Servicing Agreement, as the
same may from time to time be amended, modified or otherwise supplemented,
including, with respect to any Series or Class, the related Supplement.
"Amortization Date" with respect to any Series, shall have the meaning
specified in the related Supplement.
"Amortization Period" shall mean, with respect to any Series, unless
otherwise specified in the related Supplement, the period beginning on the
related Amortization Date and ending upon the payment in full to the Investor
Certificateholders of such Series of the Invested Amount with respect to such
Series, all
<PAGE> 8
accrued and unpaid interest thereon and all other amounts owed to the Investor
Certificateholders hereunder.
"Beneficiary" shall mean, as of any date of determination, any of the
then holders of the Investor Certificates and any Enhancement Provider.
"Business Day" shall mean any day other than a Saturday or Sunday or
any other day on which national banking associations or state banking
institutions in New York, New York, Austin, Texas or the city in which the
Corporate Trust Office is located are authorized or obligated by law, executive
order or governmental decree to be closed and, with respect to non-financial
reporting requirements of the Servicer or the Transferor, any day on which the
Servicer or the Transferor is closed.
"Certificate" shall mean any one of the Investor Certificates or the
Transferor Certificate.
"Certificate Rate" shall mean, with respect to any Series or Class, the
certificate rate specified therefor in the related Supplement.
"Certificate Register" shall have the meaning specified in Section
6.03(a).
"Certificateholder" or "Holder" shall mean an Investor
Certificateholder or the Person in whose name the Transferor Certificate is
registered in the Certificate Register.
"Certificateholders' Interest" shall have the meaning specified in
Section 4.01(a).
"Class" shall mean, with respect to any Series, any one of the classes
of Investor Certificates of that Series.
"Collection Period" shall mean, with respect to any Distribution Date,
the calendar month immediately preceding the calendar month in which such
Distribution Date occurs.
"Collections" shall mean (a) all cash payments by or on behalf of the
Obligors deposited to any Dell Collection Account or the Concentration Account,
or received by the Servicer, in respect of Receivables in the form of cash,
checks, wire transfers, electronic transfers or any other form of cash payment,
and (b) all interest and other investment earnings (net of losses and investment
expenses) on Collections (including without limitation funds on deposit in the
Cure Accounts) as a result of the investment thereof pursuant to Section
4.02(a).
"Concentration Account" shall have the meaning specified in Section
4.02(a).
2
<PAGE> 9
"Concentration Account Bank" shall initially be Norwest Bank Minnesota,
National Association, and shall have the meaning specified in Section 4.02(a).
"Concentration Amount" shall mean as of any date, with respect to each
Concentration Limit, the product of (a) such Concentration Limit and (b) the
aggregate amount of Eligible Receivables owned by the Trust.
"Concentration Limit" with respect to any Series, shall have the
meaning specified in the related Supplement.
"Confidential Information" shall mean any written information delivered
or made available by or on behalf of Dell (or its Affiliates or subsidiaries),
the Servicer, the Transferor, Dell Marketing L.P. or Dell Direct Sales L.P. to
any Person in connection with or pursuant to this Agreement or the transactions
contemplated hereby which is proprietary in nature and clearly marked or
identified in writing as being confidential information, other than information
(i) which was publicly known, or otherwise known to such Person, at the time of
disclosure (except pursuant to disclosure in connection with any Transaction
Document) or (ii) which subsequently becomes publicly known through no act or
omission by such Person.
"Contract" shall mean an agreement between an Originator and an
Obligor, containing terms pursuant to or under which such Obligor shall be
obligated to pay from time to time for merchandise delivered or to be delivered
or services performed or to be performed.
"Controlled Affiliate" shall mean any specified Person controlled by or
under common control with Dell, the Servicer or the Transferor and as to which
Dell, the Servicer or the Transferor beneficially owns or holds 50% or more of
any class of voting securities of such Person or 50% or more of the equity
interest in such Person. For the purposes of this definition, "control" when
used with respect to any specified Person shall mean the power to direct the
management and policies of such specified Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Corporate Trust Office" shall have the meaning specified in Section
11.16.
"Credit Policy and Procedures Manual" shall mean those credit and
collection policies and practices of the Servicer described in the credit policy
and procedures manual in effect on the date hereof relating to Receivables, as
the same may be amended or modified from time to time in compliance with Section
3.04(j), substantially in the form of Exhibit F hereto.
3
<PAGE> 10
"Cross-Guarantee Agreement" shall mean the agreement among the
Originators, the Servicer and the Trustee, dated as of November 21, 1995,
governing the terms and conditions upon which the Originators and the Servicer
shall cause the performance of certain obligations of the other parties thereto.
"Cure Account" with respect to each Series, shall have the meaning
specified in the related Supplement and "Cure Accounts" shall refer to all the
Cure Accounts established for outstanding Series in accordance with the terms of
the related Supplements.
"Cure Funds" shall mean Collections which, from time to time, are
deposited by the Transferor pro rata to the Cure Account of each Series.
"Cure Period" shall mean, if the Transferor has elected to begin
depositing Cure Funds to the Cure Account of each Series, the period beginning
on a Pool Non-compliance Date and continuing until the earlier of (a) the date
on which the Net Receivables Balance equals or exceeds the Required Net
Receivables Balance and (b) the fifth consecutive day following such Pool
Non-compliance Date.
"Daily Report" shall mean an Officer's Certificate of the Servicer
substantially in the form of Exhibit E hereto.
"Default Ratio" shall mean, as of any date, the average of the ratios
for each of the three most recently ended months (each expressed as a
percentage) of (i) aggregate Receivables that were 121-150 days past due at the
end of each such month plus Receivables which were charged off as uncollectible
during the current month which were less than 121 days past due when charged off
to (ii) aggregate Receivables that were generated by the Originators during the
sixth months preceding such date.
"Defaulted Receivable" shall mean a Receivable (i) as to which the
Obligor thereof has taken any action, or suffered any event to occur, of the
type constituting an Insolvency Event, (ii) as to which any payment, or part
thereof, remains unpaid by the Obligor thereof for 121 days or more from the
original due date for such payment specified in the relevant invoice, or (iii)
which, consistent with the Credit Policy and Procedures Manual, would be written
off as uncollectible.
"Dell" shall mean Dell Computer Corporation, a Delaware corporation.
"Dell Collection Account" shall have the meaning specified in Section
4.02(b).
"Dell Collection Account Bank" shall have the meaning specified in
Section 4.02(b).
4
<PAGE> 11
"Dell Collection Account Letter" shall have the meaning specified in
Section 4.02(b).
"Dell Post-Office Box" shall have the meaning specified in Section
4.02(b).
"Deposit Date" shall mean each Business Day on which any Collections
are deposited in the Concentration Account.
"Determination Date" shall mean, with respect to any Distribution Date,
the second Business Day preceding such Distribution Date.
"Determination Date Certificate" shall mean, with respect to any
Determination Date and any Series, a report prepared by a Servicing Officer for
such Determination Date as of the end of the immediately preceding month in
substantially the form set forth in the related Supplement.
"Diluted Receivable" shall mean that portion of any Eligible Receivable
which is either (a) reduced or cancelled as a result of (i) any failure by any
Originator to deliver any merchandise or provide any services or otherwise to
perform under the underlying Contract or invoice, (ii) any change in the terms
of, or cancellation of, a Contract or invoice or any other adjustment by the
Servicer which reduces the amount payable by the Obligor on the related
Receivable or (iii) any setoff by an Obligor in respect of any claim by an
Obligor as to amounts owed by it on the related Receivable or (b) subject to any
specific dispute, offset, counterclaim or defense whatsoever asserted (except
the discharge in bankruptcy of the Obligor thereof); provided that Diluted
Receivables are calculated assuming that all disputes are resolved in the
Obligor's favor and do not include contractual adjustments to the amount payable
by an Obligor that are eliminated from the Receivables balance sold to the Trust
through a reduction in the Purchase Price for the related Receivable.
"Dilution Ratio" shall mean, as of any date, the sum of (A)(i) the
aggregate Receivables that were Diluted Receivables as of the most recently
ended month divided by the sum of (1) 50% of the Originators' aggregate sales
during the month immediately preceding the most recently ended month and (2) 50%
of sales during the second month immediately preceding the most recently ended
month, multiplied by (ii) 66.7% and (B)(i) the aggregate Receivables that were
Diluted Receivables as of the month immediately preceding the most recently
ended month divided by the sum of (1) 50% of sales during the second month
immediately preceding the most recently ended month and (2) 50% of sales during
the third month immediately preceding the most recently ended month, multiplied
by (ii) 33.3%.
5
<PAGE> 12
"Dilution Volatility Factor" shall mean, as of any date, a percentage
equal to the product of (a) the amount by which (i) the highest Dilution Ratio
during the most recently ended twelve-month period exceeds (ii) the average of
the Dilution Ratios during such twelve-month period and (b)(i) the highest
Dilution Ratio during such twelve-month period divided by (ii) the average of
the Dilution Ratios during such twelve-month period.
"Discount Amount" shall mean, with respect to any Series, the amount
set forth in the related Supplement.
"Distribution Date" shall mean, with respect to any Collection Period,
the fifteenth day of the calendar month immediately following such Collection
Period, or, if such day is not a Business Day, the next succeeding Business Day
or such other day as set forth in the Supplement for any Series.
"DCR" shall mean Duff & Phelps Credit Rating Co. or its successor.
"Early Amortization Period" shall mean, with respect to any Series,
unless otherwise specified in the related Supplement, the period beginning at
the close of business on the Business Day immediately preceding the day on which
a Trust Early Amortization Event is deemed to have occurred, and ending upon the
earlier to occur of (a) the payment in full to the Investor Certificateholders
of such Series of the Invested Amount with respect to such Series and (b) the
Termination Date with respect to such Series.
"Eligible Institution" shall mean a depository institution organized
under the laws of the United States of America or any State thereof, including
the District of Columbia (or any domestic branch of a foreign bank), (a) whose
long-term unsecured debt obligations are rated at least (i) if DCR is a Rating
Agency, A- or better, (ii) if S&P is a Rating Agency, A- or better, and (iii) if
Moody's is a Rating Agency, at least A3 or (b) which is subject to regulation
regarding fiduciary funds on deposit substantially similar to 12 C.F.R. Section
9.10(b).
"Eligible Investments" shall mean book-entry securities entered on the
books of the registrar of such securities and held in the name or on behalf of
the Trustee, negotiable instruments or securities represented by instruments in
bearer or registered form (registered in the name of the Trustee or its nominee)
which evidence:
(a) direct obligations of, or obligations fully guaranteed as to timely
payment by, the United States of America or any agency thereof;
(b) demand deposits, time deposits or certificates of deposit (having
original maturities of no more than 270 days)
6
<PAGE> 13
of depository institutions or trust companies incorporated under the laws
of the United States of America or any state thereof (or domestic branches
of foreign banks), subject to supervision and examination by federal or
state banking or depository institution authorities, and having, at the
time of the Trust's investment or contractual commitment to invest therein,
the highest short-term unsecured debt rating from each Rating Agency;
(c) commercial paper (having original maturities of no more than 270
days) having, at the time of the Trust's investment or contractual
commitment to invest therein, the highest short-term rating from each
Rating Agency;
(d) investments in no-load money market funds having a rating from
each rating agency rating such fund in its highest investment category; or
(e) notes or bankers' acceptances (having original maturities of no
more than 270 days) issued by any depository institution or trust company
described in clause (b) above.
provided that securities which meet the following criteria shall not be Eligible
Investments: (a) any security to which S&P has attached the symbol "r" in its
rating, (b) any security that contains a noncredit risk that the "r" was
intended to highlight, whether or not such security is rated, and (c) all
mortgage-backed securities.
"Eligible Receivable" shall mean, at any time, unless otherwise
specified, each Receivable or portion thereof:
(i) as to which, at the time of the Transfer of such Receivable to
the Trust, the Transferor or the Trust will have good and marketable title
thereto free and clear from any and all Liens except as created hereunder,
and which has been the subject of either a valid transfer and assignment
from the Transferor to the Trust of all the Transferor's right, title and
interest therein (and in the proceeds thereof), or the grant of a first
priority perfected "security interest" (within the meaning of the UCC of
the jurisdiction the law of which governs the perfection of the interest in
such Receivable created hereunder) therein (and in the proceeds thereof);
(ii) which is not a Defaulted Receivable or a Diluted Receivable;
(iii) which arose in the ordinary course of business of any Originator
and is an account receivable representing all or part of the sales price of
merchandise or services within
7
<PAGE> 14
the meaning of Section 3(c)(5) of the Investment Company Act, the Obligor
of which is primarily liable with respect thereto;
(iv) which is an "account" (within the meaning of Section 9-106 of
the UCC of the jurisdiction the law of which governs the perfection of the
interest in such Receivable created hereunder);
(v) which is denominated and payable only in United States dollars
in the United States;
(vi) the Obligor of which is a United States resident;
(vii) which will at all times be the legal and assignable payment
obligation of the Obligor of such Receivable, enforceable against such
Obligor in accordance with its terms except as such enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting creditors' rights generally, and except as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity);
(viii) which was created in compliance with, and which, at the time of
the Transfer of such Receivable to the Trust, does not contravene in any
material respect any applicable Requirements of Law, and the Obligor of
which is not in violation of any such Requirements of Law in any material
respect with respect to such Receivable;
(ix) which satisfies in all material respects all applicable
requirements of the Credit Policy and Procedures Manual;
(x) with respect to which all material consents, licenses, approvals
or authorizations of, or registrations or declarations with, any
Governmental Authority required to be obtained, effected or given in
connection with the creation of such Receivable have been duly obtained,
effected or given and are in full force and effect;
(xi) which is not subject to any specific waiver or modification
except for a Receivable which is subject to a waiver or modification as
permitted in accordance with the Credit Policy and Procedures Manual and
which waiver or modification is reflected in the Servicer's records and
computer files relating thereto;
(xii) which is not subject to any enforceable provision prohibiting
the transfer or assignment by any Originator of such payment obligation;
8
<PAGE> 15
(xiii) the payment terms of which conform in all material respects to
the provisions of the Credit Policy and Procedures Manual;
(xiv) the Obligor of which is not a Controlled Affiliate of Dell, the
Servicer or the Transferor; and
(xv) the Obligor of which has been directed to remit payments with
respect thereto to a Dell Post-Office Box or a Dell Collection Account.
"Eligible Servicer" shall mean Dell USA L.P., the Trustee or another
entity which, at the time of its appointment as Servicer, (a) is servicing a
portfolio of trade receivables and has demonstrated the ability to
professionally and competently service a portfolio of similar trade receivables
with reasonable standards of skill and care and (b) is legally qualified and has
the capacity to service the Receivables.
"Enhancement" shall mean the rights and benefits provided to the
Investor Certificateholders of any Series or Class pursuant to any letter of
credit, surety bond, cash collateral account, spread account, guaranteed rate
agreement, maturity liquidity facility, tax protection agreement, interest rate
swap agreement or other similar arrangement.
"Enhancement Agreement" shall mean any agreement, instrument or
document governing the terms of any Enhancement of any Series or Class or
pursuant to which any Enhancement of any Series or Class is issued or
outstanding.
"Enhancement Provider" shall mean a Person providing any Enhancement,
other than any Certificateholders (including any holder of the Transferor
Certificate) the Certificates of which are subordinated to any other Series or
Class.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Expected Final Payment Date" with respect to any Series, shall have
the meaning specified in the related Supplement.
"Extended Term Receivable" shall mean an Eligible Receivable arising
under an account with an Obligor, the payment terms of which allow it to be paid
in full more than 30 days but no more than 90 days after the original billing
date of such Receivable.
"Extended Term Receivable Reduction Amount" shall mean, at any time,
the amount by which the aggregate outstanding balances of all Extended Term
Receivables exceeds 5% of the aggregate principal balance of all Receivables at
such time.
9
<PAGE> 16
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successor.
"Floating Allocation Percentage" with respect to each Series, shall
have the meaning specified in the related Supplement; provided, however, that
the aggregate of the Floating Allocation Percentages with respect to all
outstanding Series shall not exceed 100%.
"Floorplan Receivable" shall mean a Receivable which is guaranteed by a
third party obligor and which is subject to a financing arrangement with the
recipient of merchandise of Dell Marketing L.P. or Dell Direct Sales L.P.
"Floorplan Receivable Reduction Amount" shall mean, at any time, the
product of (a) the aggregate outstanding balances of Floorplan Receivables and
(b) 1.50%.
"Government Receivable" shall mean a Receivable with respect to which
the Obligor is a state or municipal entity or the federal government of the
United States or a political, administrative or regulatory subdivision thereof.
"Government Receivable Reduction Amount" shall mean, at any time, the
amount by which th