SECURITY AGREEMENT
SECURITY AGREEMENT dated as of July 22, 1999, made and
entered into by and among XXXXXXX X. XXXXXXXX (the "BORROWER") and COMPAQ
COMPUTER CORPORATION, a Delaware Corporation ("COMPAQ").
PRELIMINARY STATEMENTS
A. The Borrower and Compaq have entered into a loan evidenced by a
note dated as of July 22, 1999, (said loan as it may hereafter be amended or
otherwise modified from time to time, being the "LOAN" and said note as it
may hereafter be amended or otherwise modified from time to time being the
"NOTE").
B. The Borrower has used the proceeds of the loan to purchase
222,917 shares of common stock of Compaq (the "SHARES").
C. The Borrower has caused Xxxxxxx Xxxxx Barney Inc., as the
securities intermediary (the "SECURITIES INTERMEDIARY") to establish an
account (the "ACCOUNT") at its offices at New York, New York, Account No.
565-1B869-1-5-400, in the name of "Xxxxxxx X. Xxxxxxxx".
D. Compaq has appointed the Securities Intermediary for purposes of
maintaining the Account and performing certain actions with respect thereto
in accordance with the terms of an Account Control Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce Compaq to make the Loan, the Borrower hereby agrees with Compaq for
the benefit of Compaq, as follows:
SECTION 1. CERTAIN DEFINED TERMS. Unless otherwise defined in
this Section 1, (a) capitalized terms used in this Agreement have the
meanings specified herein, and (b) terms used in Article 8 or 9 of the
Uniform Commercial Code from time to time in effect in the State of Texas
(the "TXUCC") are used herein as therein defined. As used in this Agreement,
the following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and the plural forms of the terms
defined):
"BOOK-ENTRY SECURITY" means a security maintained in the form
of entries (including, without limitation the Security Entitlements in,
and the financial assets based on, such security) in the commercial
book-entry system of the Federal Reserve System.
"COLLATERAL" has the meaning specified in Section 2.
"ENTITLEMENT HOLDER" means a Person that (i) is an
"entitlement holder" as defined in Section 8-102(a)(7) of the TXUCC
(except in respect of a Book-Entry Security); and (ii) in respect of
any Book-Entry Security, is an "entitlement holder" as defined in 31
C.F.R. Section 357.2
(or, as applicable to such Book-Entry Security, the corresponding
Federal Book-Entry Regulations governing such Book-Entry Security)
which, to the extent required or permitted by the Federal Book-Entry
Regulations, is also an "entitlement holder" as defined in Section
8-102(a)(7) of the TXUCC.
"EVENT OF DEFAULT" means the failure to pay any amounts within
fifteen days of when due under the Note, or failure to comply with any
obligation herein within thirty days after receipt of written notice.
"FEDERAL BOOK-ENTRY REGULATIONS" means (a) the federal
regulations contained in Subpart B ("Treasury/Reserve Automated Debt
Entry System (TRADES)" governing Book-Entry Securities consisting of
U.S. Treasury bonds, notes and bills) and Subpart D ("Additional
Provisions") of 31 C.F.R. Part 357, 31 C.F.R. Section 357.10 through
Section 357.14 and Section 357.41 through Section 357.44 (including
related defined terms in 31 C.F.R. Section 357.2); and (b) to the
extent substantially identical to the federal regulations referred to
in clause (a) above (as in effect from time to time), the federal
regulations governing other Book-Entry Securities.
"OBLIGATIONS" has the meaning specified in Section 3.
"PLEDGED SHARES" has the meaning specified in Section 2(a)(i).
"SECURITIES INTERMEDIARY" means a Person that (a) is a
"securities intermediary" as defined in Section 8-102(a)(14) of the
TXUCC and (b) in respect of any Book-Entry Security, is also a
"securities intermediary" as defined in 31 C.F.R. Section 357.2 (or, as
applicable to such Book-Entry Security, the corresponding Federal
Book-Entry Regulations governing such Book-Entry Security).
"SECURITY ENTITLEMENT" means (a) "security entitlement" as
defined in Section 8-102(a)(17) of the TXUCC (except in respect of a
Book-Entry Security); and (b) in respect of any Book-Entry Security, a
"security entitlement" as defined in 31 C.F.R. Section 357.2 (or, as
applicable to such Book-Entry Security, the corresponding Federal
Book-Entry Regulations governing such Book-Entry Security) which, to
the extent required or permitted by the Federal Book-Entry Regulations,
is also a "security entitlement" as defined in Section 8-102(a)(17) of
the TXUCC.
SECTION 2. GRANT OF SECURITY. The Borrower hereby pledges and
assigns to Compaq and hereby grants to Compaq a continuing security interest in
and to all of Borrower's right, title and interest in and to the following
(whether consisting of investment securities, Book-Entry Securities or other
securities, Security Entitlements, financial assets or other investment
property, accounts, general intangibles, instruments or documents, chattel
paper, securities accounts or other property, assets or rights), whether now
owned or hereafter acquired, wherever located and whether now or hereafter
existing (collectively, the "COLLATERAL"):
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(a) the shares and issued by Compaq, whether or not evidenced
by certificates, and the certificates, if any, representing such
shares, all security therefor, and all dividends, distributions,
profits, bonuses, premiums, income, cash, instruments and other
property and assets from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such shares
or other interests, together with all shares of stock which may
hereafter be delivered by the Borrower; PROVIDED, HOWEVER, that in no
event shall such shares represent five percent (5%) or more of the
outstanding shares of any issuer ("PLEDGED SHARES");
(b) the Account, all funds held therein and all certificates
and instruments, if any, from time to time representing or evidencing
the Account, all Securities Entitlements from time to time maintained
or carried in the Account, and all financial assets held in or credited
to the Account;
(c) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter delivered to
or otherwise possessed, maintained or held by the Securities
Intermediary and all interest, dividends, cash, instruments and other
property and assets from time to time received, receivable or otherwise
distributed in respect of the Account; and
(d) all proceeds (including cash proceeds) of any and all of
the foregoing Collateral (including, but not limited to, proceeds that
constitute property of the types described above in this Section 2).
SECTION 3. SECURITY FOR OBLIGATIONS. This Agreement secures
the payment of all obligations of the Borrower, now or hereafter existing,
under the Loan, the Note, and this Agreement, whether for principal,
interest, fees, expenses or otherwise (all such Obligations of the Borrower
being collectively the "OBLIGATIONS"). Without limiting the generality of the
foregoing, this Agreement secures the payment of all amounts that constitute
part of the Obligations and would be owed by Borrower to Compaq under the
Loan and the Note but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization, or similar
proceeding involving the Borrower.
SECTION 4. DELIVERY OF COLLATERAL. All certificates or
instruments representing or evidencing the Collateral, if any, shall be
delivered to and held by the Securities Intermediary on behalf of Compaq
pursuant to the Account Control Agreement and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to
the Securities Intermediary. Compaq shall have the right at any time to
exchange certificates or instruments representing or evidencing any of the
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 5. OMITTED.
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SECTION 6. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants as follows:
(a) The Pledged Shares have been duly authorized and
validly issued and are fully paid and non-assessable.
(b) The Borrower is the sole legal owner of the Collateral
free and clear of any lien, security interest, option, or other charge,
encumbrance, or restriction (including, but not limited to, any restriction
(contractual or otherwise) on the transferability of the Pledged Shares)
except for the security interest created by this Agreement.
(c) The pledge and assignment of the Collateral pursuant to
this Agreement creates a valid and perfected first priority security interest
in the Collateral, securing the payment of the Obligations.
(d) No consent of any other person or entity and no
authorization, approval, consent or other action by, and no notice to or
filing or registration with, any governmental authority or regulatory body is
required for (i) the pledge and assignment by the Borrower of the Pledged
Shares pursuant to this Agreement, (ii) the execution, delivery or
performance of this Agreement by the Borrower, (iii) the creation, perfection
or maintenance of the security interest created hereby (including, but not
limited to, the first priority nature of such security interest) or (iv) the
exercise by Compaq of the voting or other rights provided for in this
Agreement or the remedies in respect of the Pledged Shares pursuant to this
Agreement (except as may be required in connection with any disposition of
any portion of the Pledged Shares by laws affecting the offering and sale of
securities generally).
(e) The Pledged Shares do not constitute five percent or
more of the issued and outstanding shares of stock of Compaq.
(f) There are no legends or restrictions on the
certificates representing any of the Pledged Shares.
(g) The Pledged Shares are either listed or admitted to
trading on the New York Stock Exchange or the American Stock Exchange or are
quoted on the NASDAQ National Market.
(h) No order of the Securities and Exchange Commission and
no provision of any federal or state securities laws or state "Blue Sky" laws
is or will be violated or contravened by any of (i) the making of the Loan to
the Borrower, (ii) the application of the proceeds of the Loan, (iii) the
repayment by the Borrower of all or any portion of the Loan, (iv) the payment
by the Borrower of any interest on the Loan, (v) the pledge and assignment by
the Borrower of the Pledged Shares pursuant to this Agreement, (vi) the
execution, delivery, or performance of this Agreement by the Borrower or
(vii) the creation, perfection, or maintenance of the security interest
created hereby.
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(i) The Borrower's social security number is ###-##-####.
(j) The Borrower, independently and without reliance upon
Compaq and based on such documents and information as the Borrower has deemed
appropriate, has made his own credit analysis and decision to enter into this
Agreement.
SECTION 7. FURTHER ASSURANCES. The Borrower agrees that at
any time and from time to time, at its sole expense, Borrower will promptly
execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable or that Compaq, may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted by it hereunder or to enable Compaq to
exercise and enforce its rights and remedies hereunder with respect to any of
the Collateral.
SECTION 8. COMPAQ APPOINTED ATTORNEY-IN-FACT. The Borrower
hereby appoints Compaq the Borrower's attorney-in-fact, with full authority
in the place and stead of the Borrower and in the name of the Borrower or
otherwise, from time to time in Compaq's discretion to take any action and to
execute any instrument which Compaq may deem necessary or advisable to
accomplish the purposes of this Agreement (subject to the rights of the
Borrower under Section 11), including, without limitation, to receive,
indorse and collect all instruments made payable to the Borrower representing
any dividend or other distribution in respect of the Pledged Shares or any
part thereof and to give full discharge for the same and to file any reports
or other filings required by Rule 144 or any other governmental authority or
regulatory body that may be substituted therefor or with any national
securities exchange.
SECTION 9. COMPAQ MAY PERFORM. If the Borrower fails to
perform any agreement contained herein, Compaq may itself perform, or cause
performance of, such agreement, and the expenses of Compaq incurred in
connection therewith shall be payable by the Borrower under Section 15.
SECTION 10. NO ASSUMPTION OF DUTIES; REASONABLE CARE. The
powers conferred on Compaq hereunder are solely to protect Compaq's interest
in the Collateral and shall not impose any duty upon Compaq to exercise any
such powers. Compaq shall not have any duty as to any of the Collateral, as
to ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders, or other matters relative to any of the
Collateral, whether or not Compaq has or is deemed to have knowledge of such
matters, or as to the taking of any necessary steps to preserve rights
against any parties or any other rights pertaining to any of the Collateral.
SECTION 11. VOTING RIGHTS; DIVIDENDS; ETC.
(a) So long as no Event of Default or event which, with the
giving of notice or the lapse of time, or both, would become an Event of
Default shall have occurred and be continuing:
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(i) The Borrower shall be entitled to exercise or
refrain from exercising any and all voting and other consensual rights
pertaining to the Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement or the Loan.
(ii) The Borrower shall be entitled to receive and
retain any and all dividends paid in respect of the Collateral;
PROVIDED that any and all
(A) dividends (including, but not limited
to, stock dividends) paid or payable other than in cash in
respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in
exchange for, any of the Collateral for any reason, including,
but not limited to, any change in the number or kind of
outstanding shares of any securities of any issuer of any of
the Pledged Shares, or any successor to any such issuer, by
reason of any recapitalization, merger, consolidation,
reorganization, separation, liquidation, stock split, stock
dividend, combination of shares, or other similar corporate
event,
(B) dividends and other distributions paid
or payable in cash in respect of any of the Collateral in
connection with a partial or total liquidation or dissolution
or in connection with a reduction of capital, capital surplus
or paid-in-surplus, and
(C) cash paid, payable or otherwise
distributed in respect of principal of, or in redemption of,
or in exchange for, any of the Collateral,
shall be, and shall be forthwith delivered to Compaq on behalf of
Compaq, as applicable, to hold as Collateral and shall, if received by
the Borrower, be received in trust for the benefit of Compaq, be
segregated from the other property or funds of the Borrower, and be
forthwith delivered to Compaq as Collateral in the same form as so
received (with any necessary indorsement or assignment).
(iii) Compaq shall cause to be executed and delivered
to the Borrower all such proxies and other instruments as the Borrower
may reasonably request for the purpose of enabling the Borrower to
exercise the voting and other rights which the Borrower is entitled to
exercise pursuant to Section 11(a)(i) and to receive the dividends
which the Borrower is authorized to receive and retain pursuant to
Section 11(a)(ii).
(b) Upon the occurrence and during the continuance of an
Event of Default or an event which, with the giving of notice or the lapse of
time, or both, would become an Event of Default:
(i) All rights of the Borrower (A) to exercise or
refrain from exercising the voting and other consensual rights which
the Borrower would otherwise be entitled to exercise pursuant to
Section 11(a)(i) shall, upon notice to the Borrower by Compaq, cease
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and (B) to receive the dividends which the Borrower would otherwise be
authorized to receive and retain pursuant to Section 7(a)(ii) shall
automatically cease, and all such rights shall thereupon become vested
in Compaq which shall thereupon have the sole right to exercise or
refrain from exercising such voting and other consensual rights and to
receive and hold as Collateral such dividends.
(ii) All dividends which are received by the Borrower
contrary to the provisions of Section 11(b)(i) shall be received in
trust for the benefit of Compaq, shall be segregated from other
property and funds of the Borrower and shall be forthwith paid over to
Compaq as Collateral in the same form as so received (with any
necessary indorsement).
SECTION 12. TRANSFERS AND OTHER LIENS. The Borrower will
not (a) sell, assign (by operation of law or otherwise) or otherwise dispose
of, or grant any option with respect to, any of the Collateral, or (b) create
or permit to exist any lien, security interest, option, right of first
refusal, or other charge or encumbrance upon or with respect to any of the
Collateral, except for the security interest under this Agreement.
SECTION 13. CONTINUING SECURITY INTEREST; ASSIGNMENT UNDER
CREDIT AGREEMENT. This Agreement shall create a continuing security interest
in the Collateral and shall (a) remain in full force and effect until the
later of (i) the payment in full in cash of the Obligations and all other
amounts payable under this Agreement and (ii) the expiration or termination
of the Commitment, (b) be binding upon the Borrower and the heirs, executors,
administrators, legal representatives, successors and assigns of the
Borrower, and (c) inure to the benefit of, and be enforceable by, Compaq and
the successors, transferees, and assigns of Compaq.
SECTION 14. REMEDIES. If an Event of Default shall have
occurred and be continuing:
(a) Compaq may exercise in respect of the Collateral,
in addition to other rights and remedies provided for herein or
otherwise available to Compaq, all the rights and remedies of a secured
party on default under the TXUCC (whether or not the TXUCC applies to
the affected Collateral), and may also, without notice except as
specified below, sell the Pledged Shares or any part thereof in one or
more parcels at public or private sale, at any exchange, at any
broker's board or at any of Compaq's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as Compaq may
deem commercially reasonable which may include block transactions
and/or sales at prices which are below the current prices quoted on any
open market. The Borrower agrees that, to the extent notice of sale
shall be required by law, at least three days notice to the Borrower of
the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification.
Compaq shall not be obligated to make any sale of any of the Collateral
regardless of notice of sale having been given. Compaq may adjourn any
public or private sale from time to time by announcement at the time
and place fixed
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therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.
(b) All cash proceeds received by Compaq in respect of any
sale of, collection from, or other realization upon all or any part of
the Collateral shall be held by Compaq as collateral for, and/or then
or at any time thereafter applied (after payment of any amounts payable
to Compaq pursuant to Section 15) in whole or in part by Compaq
against, all or any part of the Obligations in such order as Compaq
shall elect. Any surplus of such cash or cash proceeds held by Compaq
and remaining after payment in full of all the Obligations shall be
paid over to the Borrower or to whomsoever else may be lawfully
entitled to receive such surplus.
(c) Notwithstanding the foregoing, the Borrower and Compaq
recognize that any disposition of Collateral must be made in accordance
with any applicable federal or state securities laws. The Borrower
recognizes that Compaq may deem it impracticable to effect a public
sale of all or any part of the Collateral subject to such securities
laws and that Compaq may, therefore, determine to make one or more
private sales of any such Collateral to a restricted group of
purchasers who will be obligated to agree, among other things, to
acquire such Collateral for their own account, for investment and not
with a view to the distribution or resale thereof. The Borrower
acknowledges that any such private sale may be at prices and on terms
less favorable than the prices and other terms which might have been
obtained at a public sale and, notwithstanding the foregoing, agrees
that such private sale shall be deemed to have been made in a
commercially reasonable manner and that Compaq shall have no obligation
to delay sale of any such securities for the period of time necessary
to permit Borrower to register such Collateral for public sale under
the Securities Act of 1933, as amended.
SECTION 15. EXPENSES. The Borrower will upon demand pay to
Compaq the amount of any and all reasonable expenses, including, but not
limited to, the reasonable fees and expenses of Compaq's counsel and of any
experts and agents, which Compaq or the Securities Intermediary may incur in
connection with (a) the administration of this Agreement or the Account
Control Agreement, (b) the custody or preservation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (c) the
exercise or enforcement of any of the rights of Compaq hereunder or (d) the
failure by the Borrower to perform or observe any of the provisions hereof.
SECTION 16. AMENDMENTS, WAIVERS, AND CONSENTS. No amendment
or waiver of any provision of this Agreement, and no consent to any departure
by the Borrower from any provision of this Agreement, shall in any event be
effective unless the same shall be in writing and signed by Compaq, and then
such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
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SECTION 17. NOTICES; ETC. All notices and other
communications provided for hereunder shall be in writing (including
telecopier, telegraphic or cable communication) and, mailed, telecopied,
cabled or delivered:
(a) if to Borrower, to him at 0000 Xxxxxxx Xxxxx, Xxxx,
Xxxxx 00000.
(b) if to Compaq, to it at 00000 Xxxxx Xxxxxxx 000,
Xxxxxxx, Xxxxx 00000, Attention: Secretary;
or, as to any such party, at such other address as shall be designated by
such party in a written notice to each other party complying as to delivery
with the terms of this Section. All such notices and communications shall,
when mailed, telecopied or telegraphed, be effective when deposited in the
mails, or telecopied, respectively, except that notices and communications to
Compaq shall not be effective until received by Compaq. Delivery by
telecopier of an executed counterpart of any amendment or waiver of any
provision of this Agreement to be executed and delivered hereunder shall be
effective as delivery of a manually executed counterpart thereof.
SECTION 18. EXECUTION IN COUNTERPARTS. This Agreement may
be executed in any number of counterparts and by 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. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 19. SEVERABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 20. GOVERNING LAW; ENTIRE AGREEMENT. This Agreement
shall be governed by, and construed in accordance with, the laws of the State
of Texas. This Agreement constitutes the entire understanding among the
Borrower and Compaq with respect to the subject matter hereof and supersede
any prior agreements, written or oral, with respect thereto.
SECTION 21. RESIGNATION AND REMOVAL OF THE SECURITIES
INTERMEDIARY. Compaq may remove the Securities Intermediary upon 30 days'
prior written notice to the Borrower and the Securities Intermediary. Upon
any such removal of the Securities Intermediary to act hereunder, Compaq
shall appoint a successor Securities Intermediary which successor shall be a
securities intermediary having a combined capital and surplus of at least
$500,000,000. Notwithstanding the foregoing, no resignation, removal or
replacement of the securities intermediary shall be effective until a
successor Securities Intermediary has been appointed and has agreed in a
manner reasonably satisfactory to Compaq to act as Securities Intermediary
hereunder.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.
BORROWER:
_______________________________________
Xxxxxxx X. Xxxxxxxx
COMPAQ:
COMPAQ COMPUTER CORPORATION
By: ____________________________________
Name:
Title:
