<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] For the Fiscal Year Ended December 30, 1994 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the Transition Period from
__________ to __________
COMMISSION FILE NUMBER 0-8771
-----------------------------
EVANS & SUTHERLAND COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 87-0278175
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 KOMAS DRIVE, SALT LAKE CITY, UTAH 84108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 582-5847
Securities Registered Pursuant to Section 12(b) of the Act:
"None"
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Each Class
-------------------
Common Stock, $.20 par value
6% Convertible Debentures Due 2012
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 ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by stockholders who were
not affiliates (as defined by regulations of the Securities and Exchange
Commission) of the registrant was approximately $90,849,000 at March 3, 1995.
At March 3, 1995, the registrant had issued and outstanding an aggregate of
8,559,659 shares of its common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the registrant's proxy statement for the Annual
Meeting of Stockholders to be held on May 18, 1995 described in Part III hereof
are incorporated by reference in this report.
<PAGE>
[THIS SPACE INTENTIONALLY LEFT BLANK]
-2-
<PAGE>
FORM 10-K
PART I
ITEM 1. BUSINESS
--------
GENERAL:
-------
Evans & Sutherland Computer Corporation (E&S or the Company) designs,
develops, manufactures, and markets high-performance computer systems for
various applications with demanding graphics requirements. The Company is a
leading supplier of visual systems for flight training and simulation, is the
supplier of high-performance graphics accelerators to major workstation
manufacturers, and is a leading supplier of GL-based software development tools
used for advanced three-dimensional (3D) graphics applications on the industry's
leading workstation platforms.
The Company's current products are of three basic types:
1. Visual systems which create and display computed images of stored
--------------
digital models of various real-world environments. These systems allow
real-time interaction within databases that replicate specific
geographic areas or imaginary worlds. Operators are immersed and
interact with the environment by means of an interface that has
typically been integrated in flight training simulators, weapons
training systems, whole-vehicle engineering simulators, and virtual
reality systems for entertainment applications.
2. Graphics accelerators which are used as a component in high-
---------------------
performance, interactive graphics display systems of a workstation.
These machines allow users to make line drawings of the edges and
vertices of models of 3D objects and to also generate shaded images of
such models stored in computer memory. These products allow for easy
interaction with, and manipulation and alteration of, mathematical
models and are useful tools for computer-aided design, analysis,
research, and simulation. E&S graphics accelerators also support
standard application programs generally available on workstations.
3. Software development tools which are used with multi-platform
--------------------------
interactive graphics systems to produce leading-edge 3D graphics
software and hardware solutions to a broad customer base.
Evans & Sutherland was incorporated under the laws of the State of Utah on
May 10, 1968. The Company, including subsidiaries, currently employs
approximately 800 people and has its principal executive and operations
facilities in Salt Lake City, Utah. The Company also has software design
facilities in Austin, Texas, and several sales and service offices at various
locations around the world.
RECENT DEVELOPMENTS:
-------------------
1. Tripos Spin-off. On May 24, 1994, the Company announced the approval
---------------
by its board of directors of a special dividend to its shareholders in the form
of a spin-off of Tripos, Inc., a wholly-owned subsidiary of the Company at the
time. Effective June 1, 1994, E&S shareholders received a special dividend of
one share of Tripos common stock for every three shares of E&S common stock held
on May 25, 1994, the record date of the spin-off. Since the spin-off, Tripos
operates as an independently managed public company.
-3-
<PAGE>
Pertaining to the Tripos spin-off, on March 16, 1994, the Company and
Tripos filed with the Securities and Exchange Commission (SEC) an Information
Statement and a Form 10 Registration Statement, and, on October 6, 1994, the
Company filed a Form 8-K which provided Pro Forma Financial Information relative
to the spin-off.
2. Termination of Exclusive Agreement with Rediffusion (now Thomson). On
-----------------------------------------------------------------
July 7, 1994, E&S announced it is offering a complete range of fully-integrated
visual systems, support, and services directly to the civil aviation marketplace
that were supplied since 1973 through Rediffusion Simulation of Crawley,
England, now Thomson Training & Simulation (Thomson). E&S also announced it had
terminated its long-standing, exclusive marketing agreement with Thomson as a
result of Thomson offering its own image generator into areas of the market in
which the marketing agreement called for mutual exclusivity. Under a provision
of that agreement, which survives termination, both companies continue to have
access to the products each has been supplying to fulfill civil aviation
training requirements, but both are now free to market independently from each
other. As provided by the terms of the Agreement, the Company has now filed a
"Notice of Intention to Arbitrate" with the American Arbitration Association
relative to the matters involved in the termination (see Legal Proceedings).
3. OEM Agreement with Sun Microsystems. On July 12, 1994, Sun
-----------------------------------
Microsystems Computer Company (Sun) announced its agreement to sell and support
the Company's Freedom Series(TM) accelerators to its customers worldwide. The
agreement with Sun makes the powerful, high-end 3D visualization system
available to application developers and end-users through Sun's worldwide sales
and support network and broadens Sun's presence in the graphics market. Sun and
E&S first teamed in October 1992 when the Freedom Series accelerators were made
available to operate on the Sun SPARC/Solaris platform.
4. OEM Agreement with Hewlett-Packard. On July 18, 1994, the Company
----------------------------------
announced a strategic agreement with Hewlett-Packard Company (HP) under which
E&S will develop and build high-performance graphics accelerators for HP
workstations, and HP will sell and support those accelerators as part of its HP
9000 Series 700 workstation product line. This agreement, together with the Sun
agreement and a similar agreement with IBM in 1993, helps solidify Evans &
Sutherland's position as the supplier of choice for high-performance workstation
graphics.
5. Memorandum of Understanding with Digital Equipment Corp. On November
-------------------------------------------------------
11, 1994, Evans & Sutherland and Digital Equipment Corporation (DEC) jointly
announced the signing of a memorandum of understanding concerning plans to
develop high-performance 3D graphics accelerators for the newest members of
DEC's workstation family, the AlphaStation line. Customers with applications
which could capitalize on the high-performance system include visual simulation,
mechanical CAD, computer-aided molecular design, industrial design, and
entertainment. Completion of the agreement with DEC is expected in the first
half of 1995.
6. Purchase of Portable Graphics, Inc. On November 21, 1994, the Company
----------------------------------
announced the purchase of Portable Graphics, Inc. (PGI) of Austin, Texas, for
$1,000,000. Portable Graphics is a software company that develops and markets
GL-related libraries and toolkits for developing 3D graphics applications to run
on the industry's leading workstation platforms. The acquisition adds software
expertise and market experience to E&S, and it positions the Company as a
leading supplier of GL-based software development tools. PGI operates as a
wholly-owned subsidiary of E&S and continues to operate from its Austin
location.
7. James R. Oyler Elected President and CEO. On December 6, 1994, the
----------------------------------------
Company's Board of Directors announced the election of James R. Oyler to the
office of President and Chief Executive Officer. He was also elected a member
of the Company's Board of Directors. Mr. Oyler succeeds Rodney S. Rougelot, who
served as President and CEO since May 16, 1989 and who retired from that office
and as a director. Mr. Rougelot had been with the Company since 1972.
-4-
<PAGE>
Mr. Oyler began his career in the electronics industry as a consultant with
Booz, Allen & Hamilton and served at Harris Corporation from 1976 through 1990.
At Harris he had responsibility for the company's Computer Systems Division
which produced and marketed systems in many of the same markets as E&S. More
recently, he served as Senior Vice President of Harris' Information Systems
Sector with revenues in excess of $600 million. He has also worked extensively
with several smaller technology firms. Mr. Oyler's background is particularly
well suited to help the Company capitalize on its extensive technology base.
8. Restructuring of E&S Operations. In December 1994, E&S continued the
-------------------------------
implementation of its restructuring of operations, which is expected to result
in reduced costs and operating expenses of approximately $13,000,000 annually.
It eliminated about 200 jobs worldwide (approximately 20% of the workforce) and
entailed a restructuring charge of $8,212,000 against operating earnings in the
fourth quarter of 1994. The restructuring is in addition to the reductions that
were announced in January 1994, which resulted in reduced costs and operating
expenses of approximately $14,000,000 annually, eliminated about 170 jobs
worldwide (approximately 13% of the workforce at the time), and entailed a
restructuring charge of $7,900,000 against operating earnings in the fourth
quarter of 1993.
The purpose of the recent restructuring was to complete the process of
expense reductions that were started last year. It included the removal of a
divisional structure and associated management layers and consolidated separate
finance, manufacturing, and field service operations. These changes eliminated
overlaps and significantly reduced administrative costs while providing for the
sharing of technologies across all product lines and programs.
9. Sale of Design Software Group. On March 1, 1995, the Company announced
-----------------------------
the sale of its Design Software Group to Parametric Technology Corporation
(PTC), a Massachusetts corporation, for $34,500,000 in cash. Under the
agreement, PTC will acquire the Company's Conceptual Design and Rendering System
(CDRS(R)) and 3D Paint(TM), software tools which are used by industrial and
hardgoods designers to develop, view, and evaluate freeform surface models for
products such as automobiles, appliances, and sporting goods. The decision to
sell the group was based on a desire to focus more narrowly on the core
businesses of the Company and to take advantage of an offer considered to be
high relative to the earnings which could be realized inside the Company. The
transaction is intended to be closed upon receipt of governmental approvals and
the satisfaction of certain other requirements.
PRODUCTS AND MARKETS:
--------------------
1. Visual Systems. The Company produces visual systems that cover a broad
--------------
range of price and performance options. These visual systems include computer
image generators, display systems, modeling tools, and other software products
that are integrated into training and engineering simulators for a variety of
military and commercial applications. E&S visual systems range in price from
under $50,000 to $6,000,000. The following is a brief description of the image
generators currently marketed:
LIBERTY(TM): Liberty image generators provide true real-time graphics
-------
capability at a low price. The systems, produced in three standard desktop
configurations, are primarily suited for part-task training and small fire
arms training, as well as some entertainment applications. Liberty image
generators are fully compatible with the ESIG(R)-2000 and ESIG-3000 systems
and are easily integrated into existing installations.
ESIG-2000: Introduced in 1991, the ESIG-2000 is produced for military and
---------
commercial simulation. ESIG-2000 systems have been installed in
helicopter, gunnery, and battlefield simulators both domestically and
overseas. In the fourth quarter of 1992, the ESIG-2000 was selected as the
visual system for the U.S. Army's Close Combat Tactical Trainer (CCTT)
ground forces training system, which is one of the largest long-term
contracts
-5-
<PAGE>
secured in the history of the Company. The ESIG-2000 is also the
image generator used on Virtual Adventures, an entertainment product co-
developed with Iwerks Entertainment.
ESIG-3000: The ESIG-3000, also introduced in 1991, is a moderately priced,
---------
high-performance system that serves customer requirements across a broad
range of applications. The ESIG-3000 is a dominant player in the F-16
flight simulator market in the United States, Europe, and Asia. Systems
have also been installed in a variety of commercial aviation simulators
sold through Rediffusion Simulation (Thomson).
ESIG-4000: The ESIG-4000 represents high-performance image generation,
---------
meeting the most demanding requirements for mission rehearsal, special
operations, and intelligence applications in which a high degree of scene
realism and database complexity are critical. The ESIG-4000 is designed to
facilitate the rapid development of terrain and feature modeling using
satellite and photographic data.
ESIG high-density series: In December 1994, the Company introduced its
------------------------
newest image generators, the high-density series. The products incorporate
technologies and features that characterize the Liberty, ESIG-2000, ESIG-
3000, and ESIG-4000 systems. The products will be offered in standard
configurations and priced to deliver the most competitive price/performance
ratio available for high-performance visual solutions.
Display Systems: The Company designs and manufactures display systems that
---------------
range from simple monitors to very complex devices consisting of projectors
and large domes. VistaView(TM) is a head-tracking projection system that
provides a high-resolution picture within a pilot's immediate view.
TargetView(TM) is a target projector that displays a fast-moving target
image inside a simulator dome. NiteView(TM) is a display system that
simulates night-vision goggles.
Databases and Modeling Tools: EaSIEST(R) is a modeling tools software
----------------------------
package that enables database modelers to work efficiently within a
modeling environment and in which database generation is facilitated and
simplified. RapidDatabases(TM) is a new product announced in December 1994
which allows delivery of photo-typical databases of any geographic area
within four weeks of receipt of source material. The product makes use of
an extensive model library and offers customers timely, cost-effective
database solutions.
DIGISTAR II(R): Digistar II, the world's only digital planetarium
-----------
projector, projects traditional astronomical features and produces many
special effects, such as star movement through time, without being
restricted by mechanical motion. It can be customized to allow viewers to
travel through other artificial environments such as the human body or the
inside of a molecule.
The Company's product line provides solutions for a broad range of
applications and performance requirements. All of the image generators
described are modular and expandable to meet customers' evolving needs and
requirements. Extensive use of custom VLSI technology improves reliability,
maintainability, and cost/performance ratio.
2. Graphics Accelerators. Freedom Series products, introduced in the
---------------------
fourth quarter of 1992, provide world-class graphics solutions to a broad
customer base. Graphics accelerators allow users of HP, IBM, and Sun machines
to achieve high-performance 3D graphics similar to that available on other
systems in the market.
On March 2, 1995, the Company announced Freedom Graphics(TM) for the
personal computer class of machines. The graphics card incorporates the same
technology as the Freedom Series graphics accelerators. Freedom Graphics will
allow a low-cost, PC-based system to
-6-
<PAGE>
achieve the performance of a much more
expensive workstation. The card will be available in the second quarter of 1995
through OEM's and value-added-resellers (VARs).
3. Software Systems. Portable Graphics Inc. (PGI), the Company's wholly-
----------------
owned subsidiary, develops and markets GL-related libraries and toolkits for
developing 3D graphics applications on a variety of hardware platforms. PGI is
a leading supplier of GL-based software development tools, which allow
applications developed in the IRIS GL and Open GL programming interfaces to run
on all the industry's leading workstation platforms.
Sale of the Company's Design Software Group to Parametric Technology
Corporation (PTC) was announced on March 1, 1995. Under the agreement, PTC will
acquire CDRS and 3D Paint, the Company's industrial design software products.
(See Recent Developments.)
MARKETING:
---------
1. Visual Systems. Visual systems are primarily marketed by E&S or its
--------------
agents directly to end-users, subcontractors, and prime contractors on a
worldwide basis. The Company has developed, and continues to form, marketing
alliances in international markets. Such alliances are proving to be an
effective method of reaching specific foreign markets. It is expected that
other marketing alliances will be formed as new markets develop. In the civil
aviation market, E&S offers a complete range of fully-integrated visual systems,
support, and services directly to its civil pilot training customers.
2. Graphics Accelerators. In the first half of 1994, graphics accelerator
---------------------
products were sold and serviced directly by E&S through its own specialist sales
force and customer engineering group. In July 1994, the Company began a period
of transition from having its products sold and serviced directly to customers
to having its products sold OEM by the sales and marketing staffs of the
Company's OEM suppliers (HP, IBM, and Sun). Sales, marketing, and product
support are now being offered by the OEM suppliers except for second-level
support to the OEM supplier provided by the Company. The OEM agreements with
HP, IBM, and Sun, as well as the memorandum of understanding with DEC, provide a
new business model for the graphics accelerator business and further provides
new market access through the strong market presence of the Company's OEM
partners. (See Recent Developments.)
3. Software Systems. Portable Graphics Inc. products are sold through
----------------
some of the same OEM customers as the Graphics Accelerator products and directly
through normal software marketing channels.
SIGNIFICANT CUSTOMERS:
---------------------
Customers accounting for more than 10% of the Company's total sales during
1994 were the United States government, Loral Corporation, and Thomson Training
Systems.
Sales to the United States government and prime contractors under
government contracts were $51.4 million (45% of total sales) during 1994, $47.1
million (33% of total sales) during 1993, and $47.5 million (32% of total sales)
during 1992. A portion of these sales are included in the sales to Rediffusion
Simulation (Thomson) and Loral Corporation.
Sales to Loral Corporation accounted for $25.7 million (23% of total sales)
during 1994, $8.2 million (6% of total sales) during 1993, and $11.6 million (8%
of total sales) during 1992.
Sales through Rediffusion Simulation (Thomson) accounted for $13.9 million
(12% of total sales) during 1994, $21.0 million (15% of total sales) during
1993, and $25.0 million (17% of total sales) during 1992. Value-added resales
of the Company's visual systems by Thomson have been made primarily to
commercial airlines and, to a lesser extent, the governments of the
-7-
<PAGE>
United States and United Kingdom. (Please refer to the Recent Developments and
Legal Proceedings sections of this report concerning termination of the
exclusive agreement with Thomson.)
The Company has OEM agreements for its visual systems with STN Atlas
Elektronik GmbH (STN Atlas) in Germany, and Mitsubishi Precision Co., Ltd. (MPC)
in Japan. Under the terms of the agreement, STN Atlas markets ESIG-2000 and
ESIG-3000 image generators; MPC markets modeling tools, ESIG-2000, and ESIG-3000
image generators to Japan Defense Agency for military applications.
For its graphics accelerators, the Company has OEM agreements with HP, IBM,
and Sun. In addition, E&S has a memorandum of understanding with DEC to develop
high-performance 3D graphics accelerators.
COMPETITION:
-----------
Primary competitive factors for the Company's products are performance and
price. Because competitors are constantly striving to improve their products,
E&S must assure that it continues to offer products with the best technical
capability at a competitive price. The Company believes it is able to compete
well in this environment and will continue to be able to do so.
E&S has continued to gain market share in the U.S. military visual systems
simulation market. CAE Electronics, Ltd., Lockheed Martin (formerly Martin
Marietta, through its acquisition of General Electric Daytona, Florida
Division), and Silicon Graphics, Inc. are the major competitors in this market.
The Company's sales of military and tactical training visual systems increased
to $57 million in 1994. While sales are not expected to change significantly in
the coming year, the level of new orders being received is expected to bring
future growth in revenues. The Company has been successful in non-commercial,
international simulation markets. Sales in 1994 were $25 million. Significant
competitors include the previously mentioned simulation companies and Thomson.
Evans & Sutherland's line of graphics accelerators for use with HP, IBM,
and Sun workstations sells into the competitive market for high-performance
engineering workstations. The sale of these products through strong OEM
partners enhances the Company's competitive ability.
BACKLOG:
-------
The Company's backlog was $67,133,000 on December 30, 1994, compared with
$68,685,000 on December 31, 1993, and $75,900,000 on December 25, 1992. The
predominant portion of the backlog as of December 30, 1994, is for visual
simulation products. It is the Company's normal practice to book backlog only
upon receipt and acceptance of purchase orders and contracts. It should also be
noted that booked orders may be changed or canceled; however, the historical
effect of such changes and cancellations has been minimal.
INTERNATIONAL SALES:
-------------------
A significant amount of the Company's sales volume is for international
end-users. Sales to Thomson (previously Rediffusion Simulation) known by E&S to
be ultimately installed outside the United States are considered as
international sales by the Company. In order to take full advantage of this
sales pattern, the Company operated a wholly-owned Foreign Sales Corporation
(FSC) subsidiary through fiscal year 1994, the use of which resulted in tax
benefits in 1994 amounting to approximately $123,000. International sales,
including Thomson sales classified as international sales, comprised 34% of the
Company's 1994 sales volume. Additional information
-8-
<PAGE>
regarding foreign operations is contained in footnote 12 of "Notes to
Consolidated Financial Statements" in Part II of this report.
DEPENDENCE ON SUPPLIERS:
-----------------------
Most parts and assemblies used by E&S are readily available in the open
market; however, a limited number are available only from a single vendor. In
these instances the Company stocks a substantial inventory and attempts to
develop alternative components or sources where appropriate.
PATENTS:
-------
Evans & Sutherland owns a number of patents and is a licensee under several
others developed principally at the University of Utah. Several patent
applications are presently pending in the United States, Japan, and several
European countries. E&S is continuing the practice, begun in 1985, of
copyrighting chip masks designed by the Company and has instituted copyright
procedures for these masks in Japan.
E&S does not rely on, and is not dependent on, patent ownership for its
competitive position. Rather, the Company relies on its depth of technological
expertise. Were any or all patents held to be invalid, management believes the
Company would not suffer significant damage. However, E&S actively pursues
patents on its new technology.
RESEARCH & DEVELOPMENT:
----------------------
Expenses for company-funded research and development decreased 12%, from
$31,757,000 to $27,890,000, during 1994. As a percentage of sales, R&D
increased from 22% in 1993 to 25% in 1994. The Company continues to fund almost
all R&D efforts internally. It is anticipated that high levels of R&D will
continue in support of essential product development and research efforts to
ensure the Company maintains technical excellence, leadership, and market
competitiveness. However, it is further anticipated that R&D, as a percentage
of sales, will decline over the next few years.
ENVIRONMENTAL STANDARDS:
-----------------------
The Company believes its facilities and operations are within standards
fully acceptable to the Environmental Protection Agency and that all facilities
and procedures are in accord with environmental rules and regulations, as well
as federal, state, and local laws.
SEASONALITY:
-----------
The Company believes there is no inherent seasonal pattern to its business.
However, sales volume continues to fluctuate month-to-month or quarter-to-
quarter due to relatively large individual sales and the random nature of
customer-established shipping dates. Although the Company's volume has been
skewed toward the fourth quarter in the past few years the Company knows of no
reason for such a sales pattern but expects it to continue for at least 1995.
ITEM 2. PROPERTIES
----------
Evans & Sutherland's principal operations are located in the University of
Utah Research Park, in Salt Lake City, Utah, where it owns and occupies six
buildings totaling approximately 442,000 square feet. These buildings are
located on land leased from the University of Utah on 40-year land leases. Two
of the buildings have options to renew for an additional 40 years, and four have
options to renew for 10 years.
-9-
<PAGE>
E&S also leases 12,000 square feet of warehouse space in Salt Lake City and
holds leases on several sales and service facilities located throughout the U.
S. and in Europe. Evans & Sutherland owns 46 acres of land in North Salt Lake
in an undeveloped industrial area. This land was acquired for possible future
expansion. The Company's subsidiary, Portable Graphics, Inc. in Austin, Texas,
is housed in 4,000 square feet of leased space.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company has previously announced it has terminated its exclusive
arrangement with Thomson Training and Simulation Limited (Thomson). Since 1973,
the Company had an exclusive working agreement for the civil aviation market and
specific segments of the British military market with Rediffusion Simulation.
In late 1993, Rediffusion was acquired by Thomson, and in early 1994 Thomson
indicated that the terms and conditions of the working agreement were
unacceptable to it. On July 7, 1994, E&S announced it had terminated its long-
standing, exclusive marketing agreement with Thomson. As provided by the terms
of the Agreement, the Company has filed a "Notice of Intention to Arbitrate"
with the American Arbitration Association relative to the matters involved in
the termination. The Company claims damages in excess of $26 million exclusive
of costs against Thomson. Thomson has filed counterclaims claiming damages in
excess of $30 million. The Company believes these counterclaims are without
merit and intends to vigorously defend against them. Discussions are ongoing
with respect to the continued relationship between E&S and Thomson. (See Recent
Developments.)
Except as noted above, neither the Company, nor any of its subsidiaries, is
a party to any material legal proceeding other than ordinary routine litigation
incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not Applicable
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The following sets forth certain information regarding the executive
officers of the Company as of March 31, 1995:
<TABLE>
<CAPTION>
Name Age Position
--------------------------- --- ----------------------------------------------
<S> <C> <C>
Stewart Carrell 61 Chairman of the Board of Directors
James R. Oyler 49 President of the Company and Chief Executive
Officer
Gary E. Meredith 60 Vice President, Chief Financial Officer and
Corporate Secretary
Stuart J. Anderson 55 Vice President, General Manager of Commercial
Simulation
Gene R. Chidester 46 Vice President of Manufacturing
Peter K. Doenges 48 Director of Strategic Development
Steven C. Eror 41 Vice President, Assistant Chief Financial
Officer
Leslie D. Horwood 44 Vice President, General Manager of
Entertainment & Education
Gordon B. Hurley 50 Vice President of Shared Technology Group
Thomas W. Jensen 42 Vice President, General Manager of Design
Software
C. Grant Schultz 51 Corporate Controller
Ronald R. Sutherland 56 Vice President, General Manager of Government
Simulation
Lloyd D. Turner 62 Vice President, General Manager of Graphics
Systems
-------
</TABLE>
-10-
<PAGE>
Mr. Carrell was elected Chairman of the Board of Directors of the Company on
March 7, 1991. He has been a member of the Board for 11 years. He also serves
as the Chairman of FOCAL Surgery, Inc. and Seattle Silicon Corporation, and he
is a director of Diasonics Ultrasound Inc. and Tripos, Inc. From mid-1984 until
October 1993, Mr. Carrell was Chairman and Chief Executive Officer of Diasonics,
Inc., a medical imaging company. From November 1983 until early 1987, Mr.
Carrell was also a General Partner in Hambrecht & Quist, a west coast based
investment banking and venture capital firm.
Mr. Oyler was appointed President and Chief Executive Officer of the Company and
a member of the Board of Directors in December 1994. He is also a director of
Ikos Systems, Inc. Previously, Mr. Oyler served as Senior Vice President of
Harris Corporation from 1976 through 1990 and also served as consultant with
Booz, Allen & Hamilton. He has less than 1 year of service with the Company.
Mr. Meredith has been Vice President, Chief Financial Officer and Secretary
since 1994. He is also a director of Blue Cross Blue Shield of Utah.
Previously, Mr. Meredith was President of the Interactive Systems Division. He
has 17 years of service with the Company.
Mr. Anderson has been Vice President, General Manager of Commercial Simulation
since 1994. Prior to joining the Company, he served as General Manager Business
Development for Hughes Rediffusion Simulation Ltd. from 1992 to 1994, and
numerous other positions with Rediffusion Simulation beginning in 1961. He has
less than 1 year of service with the Company.
Mr. Chidester has been Vice President of Manufacturing since 1994. He
previously served as Director of Graphics Workstation Manufacturing and has 6
years of service with the Company.
Mr. Doenges has been Director of Strategic Development since 1994. He
previously served as Vice President, Strategic Technology, and Manager of New
Business Development. Mr. Doenges has 21 years of service with the Company.
Mr. Eror has been Vice President, Assistant Chief Financial Officer since 1994.
Prior to joining the Company, he served as Director of Planning with Guardian
Industries, a position he held since 1985. Mr. Eror has less than 1 year of
service with the Company.
Mr. Horwood has been Vice President, General Manager of Entertainment &
Education since 1994. Prior to joining the Company, he was Manager of Marketing
and Sales with Hughes Training, Inc. He has 1 year of service with the Company.
Mr. Hurley has been Vice President of Shared Technology Group since 1994. He
previously served as Vice President of Engineering in the Simulation Division.
Mr. Hurley has 13 years of service with the Company.
Mr. Jensen has been Vice President, General Manager of Design Software since
1994. He previously was General Manager of the Design Software Group. Mr.
Jensen has 16 years of service with the Company.
Mr. Schultz has been Controller since 1979. He has 19 years of service with the
Company.
Mr. Sutherland has been Vice President, General Manager of Government Simulation
since 1994. He previously served as Executive Vice President of the Government
Sector, and Vice President of Simulation Products. Mr. Sutherland has 13 years
of service with the Company.
Mr. Turner has been Vice President, General Manager of Graphics Systems since
1994. Prior to joining the Company, he was Chief Executive Officer of Floating
Point Systems, Inc. He has 3 years of service with the Company.
-11-
<PAGE>
FORM 10-K
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
----------------------------------------
AND RELATED SECURITY HOLDER MATTERS
-----------------------------------
Price Range of Common Stock:
---------------------------
The Company's common stock trades on The Nasdaq Stock Market under the
symbol "ESCC". The following table sets forth the range of the high and low
sales prices per share of the Company's common stock for the calendar quarters
indicated, as reported by Nasdaq. Quotations represent actual transactions in
Nasdaq's quotation system but do not include retail markup, markdown, or
commission.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1994:
-----
First Quarter 21 17-1/4
Second Quarter 19-1/2 13-1/4
Third Quarter 14 11-3/4
Fourth Quarter 14-3/4 11-1/4
1993:
-----
First Quarter 18-3/4 14
Second Quarter 17-3/4 14-1/4
Third Quarter 18-1/4 15
Fourth Quarter 20 16-1/4
</TABLE>
Approximate Number of Equity Security Holders:
---------------------------------------------
On March 22, 1995, there were 1,034 holders of record of the Company's
common stock. Because many of such shares are held by brokers and other
institutions on behalf of shareholders, the Company is unable to estimate the
total number of shareholders represented by these record holders.
Title of Class Approximate Number of Record Holders
-------------- ------------------------------------
Common Stock, $0.20 Par Value 1,034
Dividends:
---------
Evans & Sutherland has never paid a cash dividend on its common stock,
retaining its earnings for the operation and expansion of its business. The
Company intends for the foreseeable future to continue the policy of retaining
its earnings to finance the development and growth of its business.
-12-
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
For the Year:
-------------
Net sales $ 113,090 $ 142,253 $ 148,594 $ 144,890 $ 157,551
Research and development 27,890 31,757 31,342 32,068 27,671
Earnings (loss) before
extraordinary gain and
cumulative effect of change
in accounting principle -5,559 1,826 6,849 9,452 16,581
Per share -0.65 0.22 0.78 1.07 1.84
Net earnings (loss) -3,700 4,093 7,558 10,704 16,581
Per share -0.43 0.50 0.86 1.21 1.84
Weighted average number
of shares outstanding 8,519,990 8,256,331 8,780,051 8,863,075 9,019,241
Return on equity -2.8% 3.1% 5.7% 8.4% 14.9%
At End of the Year:
-------------------
Current assets $ 128,186 $ 161,188 $ 141,824 $ 154,320 $ 149,827
Current liabilities 28,956 40,516 29,286 32,040 36,442
Current ratio 4.4 4.0 4.8 4.8 4.1
Working capital 99,230 120,672 112,538 122,280 113,385
Net fixed assets 41,664 48,247 53,531 56,307 59,526
Total assets 178,740 216,187 200,979 215,072 213,785
Long-term debt 20,375 37,066 37,067 45,715 51,609
Stockholders' equity 127,118 137,030 130,795 133,339 122,045
Stockholders' equity
per outstanding share 14.86 16.41 15.91 15.01 13.81
Quarterly Financial Data: (Unaudited)
-------------------------
April 1 July 1 Sep. 30 Dec. 30
----------- ----------- ----------- -----------
1994:
Net sales $ 26,860 $ 22,839 $ 21,934 $ 41,457
Gross profit 14,583 11,485 10,482 15,914
Loss before extraordinary gain -83 -1,578 -405 -3,493
Extraordinary gain from repurchase
of convertible debentures, net of
income taxes 91 369 1,270 129
Net earnings (loss) 8 -1,209 865 -3,364
Loss per share before extraordinary gain -0.01 -0.18 -0.05 -0.41
Extraordinary gain 0.01 0.04 0.15 0.02
Earnings (loss) per common and common
equivalent share 0.00 -0.14 0.10 -0.39
-------------------------------------
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Quarterly Financial Data - Continued: (Unaudited)
April 2 July 2 Oct. 1 Dec. 31
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1993:
Net sales $ 29,916 $ 36,009 $ 33,368 $ 42,960
Gross profit 14,949 18,847 18,379 24,400
Earnings (loss) before cumulative effect
of change in accounting principle -1,409 867 3,646 -1,278
Cumulative effect of change in
accounting for income taxes 2,267 - - -
Net earnings (loss) 858 867 3,646 -1,278
Earnings (loss) per share before cumulative
effect of change in accounting principle -0.17 0.11 0.44 -0.15
Cumulative effect of change in accounting
for income taxes 0.27 - - -
Earnings (loss) per common and common
equivalent share 0.10 0.11 0.44 -0.15
</TABLE>
[THIS SPACE INTENTIONALLY LEFT BLANK]
-14-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
SUMMARY:
-------
The following table sets forth, for the periods indicated, the percentages
which selected items in the Statements of Operation bear to total sales of the
Company and the percentage increase or decrease in such items as compared to the
indicated prior period:
<TABLE>
<CAPTION>
Percentage of Total Sales
---------------------------------------
52 Weeks 52 Weeks 53 Weeks Period-to-period
Ended Ended Ended Increase/(Decrease)
Dec. 30, Dec. 31, Dec. 25, -------------------
1994 1993 1992 1993-94 1992-93
--------- --------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % -20.5 % -4.3 %
Cost of sales 53.6 46.2 45.7 -7.7 -3.2
--------- --------- --------
Gross profit 46.4 53.8 54.3 -31.5 -5.1
Expenses:
Marketing, general, and
administrative 29.1 28.2 25.7 -18.1 4.9
Research and development 24.7 22.3 21.1 -12.2 1.3
Restructuring charge 7.2 5.6 - 3.9 -
--------- --------- --------
Total 61.0 56.1 46.8 -13.6 14.6
--------- --------- --------
Operating earnings (loss) -14.6 -2.3 7.5 -410.3 -129.1
Other income (expense), net 4.5 4.3 -0.1 -15.5 7073.6
--------- --------- --------
Earnings (loss) before income
taxes, extraordinary gain, and
cumulative effect of change
in accounting principle -10.1 2.0 7.4 -502.1 -74.3
Income tax expense (benefit) -5.2 0.7 2.8 -679.6 -75.9
--------- --------- --------
Earnings (loss) before extraordinary
gain and cumulative effect of
change in accounting principle -4.9 1.3 4.6 -404.4 -73.3
Extraordinary gain from
repurchase of convertible
debentures, net of income taxes 1.6 - 0.5 - -100.0
Cumulative effect at December
26, 1992 of change in
accounting for income taxes - 1.6 - -100.0 -
--------- --------- --------
Net earnings (loss) -3.3 % 2.9 % 5.1 % -190.4 % -45.8 %
========= ========= ========
</TABLE>
RESULTS OF OPERATIONS:
---------------------
Evans & Sutherland's domestic and international businesses operate in
highly competitive markets. The business of the Company is subject to national
and worldwide economic and political influences such as recession, political
instability, the economic strength of governments, and rapid changes in
technology.
Evans & Sutherland will continue to address these factors by expanding its
markets, building strategic alliances both domestically and internationally, and
providing lower-priced products. Costs are being controlled through strict
budgetary reviews, cost-effective product design, and efficient and effective
purchasing and manufacturing.
-15-
<PAGE>
Sales: The following table summarizes sales for the three years of 1992 through
-----
1994 in the five market sectors served by the Company. Sales in 1994 declined
21% from 1993, compared to a 4% decrease from 1992 to 1993.
<TABLE>
<CAPTION>
SALES (in Thousands)
---------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
U.S. Government $ 56,300 $ 48,100 $ 51,400
International Government 25,100 38,100 28,100
Design Systems 19,300 19,700 26,400
Tripos, Inc. /(1)/ 6,000 18,000 13,500
World Civil Pilot Training 4,200 15,500 24,600
Education and Entertainment 2,200 2,800 4,600
--------- --------- ---------
Total $ 113,100 $ 142,200 $ 148,600
========= ========= =========
</TABLE>
/(1)/ Tripos, Inc. sales are shown separate from Design Systems because of
the spin-off of Tripos that occurred on June 1, 1994. Results for
Tripos in 1994 represent five months of operations.
U.S. government sales increased 17% from 1993 to 1994, compared to the
6% decrease experienced from 1992 to 1993. Orders from the U.S. government in
1993 and 1994, with some deliveries extending beyond 1994, were significantly
above those of prior years and were driven by an increase in the use of
simulation training for ground combat by the U.S. Army. The Company's ESIG-2000
has proven to be an ideal product to serve this market, where high volume and
low cost are required. U.S. military services and intelligence agencies are
becoming increasingly interested in mission planning and rehearsal where very
rapid production of complex, mission-specific databases are a critical
requirement. The Company's ESIG-4000 and the new RapidDatabases product are
well-positioned to meet this need.
International government sales decreased 34% from 1993 to 1994,
compared to a 36% increase from 1992 to 1993. Results were below expectations
for 1994, which reflects the unsettled political and business environment
currently fueled by the end of the cold war, the worldwide recession, and low
oil prices. 1995, however, appears to be strengthening and the Company has
recently won several key programs. As with the U.S. military, the international
military community is increasingly recognizing the use and value of simulation
capability as a cost- and performance-effective solution to the accomplishment
of its mission in a reduced-budget environment. In Europe, lower-priced product
offerings by the Company have also spurred interest in the commercial market.
Design Systems sales declined 2% in 1994 from 1993, compared to the
25% decrease from 1992 to 1993.
Revenues from the Freedom Series products were below expectations
for 1994, but the year was marked by transition. On January 12, 1994, E&S
announced it would serve the graphics accelerator market entirely as an OEM
supplier. The Company has now completed strategic OEM agreements with HP,
IBM, and Sun, and a memorandum of understanding with DEC. These agreements
have solidified the Company's move from direct supplier of high-end
graphics to an OEM supplier of high-performance graphics to the world's
largest computer and workstation manufacturers. These agreements are
expected to provide new opportunities for E&S in 1995.
Design Software (CDRS) sales increased 35% in 1994 compared to
1993. The CDRS and 3D Paint software products have been a successful
combination as tools for styling and design. On March 1, 1995, the Company
announced the sale of its Design Software Group to Parametric Technology
Corporation (PTC). Under the agreement, PTC
-16-
<PAGE>
will acquire the Company's CDRS and 3D Paint software tools. (See
Recent Developments.)
Tripos, Inc. sales for 1994 represent five months of operations due to
the spin-off of Tripos that occurred on June 1, 1994. (See Recent
Developments.)
The total number of civil aviation visual systems ordered throughout
the world declined markedly during the period 1992 through 1994. The Company's
world civil pilot training business decreased 73% from 1993 to 1994, compared to
a 37% decrease from 1992 to 1993, reflecting a continuing downturn. Since 1993,
the Company's share of new order placements has dropped dramatically. On July
7, 1994, E&S announced it had terminated its long-standing, exclusive marketing
agreement with Thomson. (Please refer to the Recent Developments and Legal
Proceedings section of this report.)
It is the Company's intention to participate in the civil airline
market as an independent supplier of visual systems. On July 7, 1994, E&S
announced it is offering a complete range of fully-integrated visual systems,
support, and services directly to the civil aviation marketplace. The Company
believes its long history of providing world-class visual systems for civil
pilot training will provide a significant opportunity and substantial benefits
to its customers by understanding their needs first-hand and by more rapidly
responding to those needs. Based on projected growth in air traffic miles and
orders for new equipment, this market is expected to begin to experience a
slight recovery in 1995. (Please see Recent Developments.)
Education and Entertainment sales decreased 21% in 1994 from 1993
compared to a 39% decrease from 1992 to 1993. Results were lower than expected
for 1994, however the Company's efforts are beginning to produce growth. Sales
of the Company's new DIGISTAR II planetarium system are running strong. The
Virtual Adventures system jointly developed with Iwerks Entertainment, Inc. and
the new ElectraDome product should position the Company in the emerging virtual
reality entertainment market. This new business, however, had negligible
contribution to 1994 sales results.
Cost of Sales: As a percent of sales, cost of sales were 54%, 46%, and 46%,
-------------
respectively, in 1994, 1993, and 1992. Increased competition with respect to
nearly all of the Company's products has added pressure on prices and margins.
As anticipated, the cost of sales percentage increased in 1994.
Expenses: Total operating expenses as a percent of sales, excluding the
--------
restructuring expenses in 1994 and 1993, were 54%, 51%, and 47%, respectively,
for 1994, 1993, and 1992.
Marketing, General, and Administrative: Marketing, general, and
--------------------------------------
administrative expenses were 18% lower in 1994 compared to 1993, but were
slightly higher as a percent of sales. The reduction in expenses is due to
the restructuring efforts that took place in January 1994. Further expense
reductions are expected in 1995 resulting from the restructuring that took
place in January 1995.
Expenses rose 5% in 1993 from 1992. As a percent of sales, 1993
expenses were 2% above the 1992 level. The 1993 increase came from the
Design Systems and Tripos business groups and was predominantly marketing
related. The Simulation and Design Software business groups experienced
reductions in their marketing expenses.
Research and Development: Company-funded research and development expense
------------------------
decreased 12% in 1994 from 1993, compared to a 1% increase from 1992 to
1993. As a percent of sales, expenses were slightly higher than 1993.
Management continues to practice stringent expense controls with the intent
of reducing research and development expense, as a percent of revenues,
over the next few years. However, high levels of R&D
-17-
<PAGE>
will continue in support of essential product development to ensure that
the Company maintains technical excellence and market competitiveness. The
Company continues to fund almost all R&D costs internally.
Restructuring Expense: As stated elsewhere in this report, the markets
---------------------
served by E&S have undergone significant changes which are presenting many
opportunities, and the Company is adjusting accordingly. The restructuring
sharpens the focus of the Company more clearly. Management attention is
focused on the core graphics-related business segments (simulation,
accelerator products, and entertainment) where E&S has long-term technical
strengths and competitive advantages.
The restructuring, essentially completed in January 1995, affected
every business group in the Company. (Please refer to the Recent
Developments section of this report.) The core business segments have been
organized to focus on the applications of its major customer groups:
Government Simulation, which serves domestic and international military
training; Commercial Simulation, which serves the world civil aviation
market; Entertainment and Education, which includes the virtual reality
market; and Graphics Systems, which has been organized to serve its
graphics accelerator market entirely as an OEM supplier. Final changes and
adjustments are incident to the sale of the Company's Design Software group
to Parametric Technology Corporation (PTC).
The Company-wide restructuring expense, as recognized in the fourth
quarter of 1994, was comprised of the following general expense elements:
<TABLE>
<CAPTION>
<S> <C>
1. Reduction in-force payroll and related benefits expense/*/ $5,037,000
2. Inventory adjustment, write-off or write-down 3,175,000
---------
Total restructuring expense $8,212,000
==========
</TABLE>
/*/Estimated cash expenditures.
Other Income (Expense), Net: Other income (expense), net, decreased 16% in 1994
---------------------------
from 1993, compared to an increase of 7074% in 1993 from 1992.
Interest income decreased 1% in 1994 from 1993, compared to a decrease of
19% in 1993 from 1992. Lower cash balances in 1994 from 1993 were nearly offset
by rising interest rates, whereas higher cash balances in 1993 were more than
offset by lower interest rates.
Interest expense declined 27% and 15% respectively in 1994 from 1993 and in
1993 from 1992 due to a lower balance of the Company's outstanding convertible
debentures during both 1994 and 1993.
Sales of appreciated assets during 1994 and 1993 resulted in net realized
gains of $4,009,000 and $6,238,000 respectively. The underlying marketable
securities comprising these sales were 295,000 shares of VLSI common stock sold
in 1994, and 510,000 shares of VLSI common stock sold in 1993. There were no
sales of appreciated assets in 1992.
Extraordinary Gain: The Company realized extraordinary gains of $1,859,000 and
------------------
$709,000 in 1994 and 1992, respectively. The gains resulted from repurchase by
the Company of its 6% Subordinated Convertible Debentures at less than par.
Income Taxes: Provision (benefit) for income taxes was 51%, 36%, and 38% of
------------
pre-tax earnings (loss) for 1994, 1993, and 1992 respectively. The rate
increase in 1994's tax benefit results primarily from the closing of the
Company's wholly-owned subsidiary in France. In 1993, the Company adopted FASB
109 Accounting for Income Taxes as described in footnote 1 of "Notes to
-18-
<PAGE>
Consolidated Financial Statements" in Part II of this report with the resulting
tax effects shown as a separate line item in the Consolidated Financial
Statements of Operations.
LIQUIDITY AND CAPITAL RESOURCES:
-------------------------------
Funds to support the Company's operations generally come from net cash
provided by operating activities, sales of marketable securities, and proceeds
from employee stock purchase and option plans. The Company also has cash
equivalents and short-term investments which can be used as needed for operating
funds.
During 1994, proceeds from employee stock purchases contributed $4,840,000,
and the sale of marketable securities provided $4,502,000. The major use of
cash was for the repurchase of convertible debentures of $13,748,000, the Tripos
spin-off of $8,485,000, the purchase of capital equipment for $6,520,000, the
funding of operating activities of $3,531,000, and an increase in capitalized
software and intangible and other assets of $1,404,000. The net result was a
decrease in cash and short-term investments from $78,536,000 in 1993 to
$51,810,000 at the end of 1994.
There were no material capital commitments at the end of 1994.
The Company believes that, through internal cash generation, plus the cash
investments and marketable securities identified above, it has sufficient
resources to cover its cash needs during fiscal year 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The following constitutes a list of Financial Statements included in Part II of
this report:
. Report of Management
. Independent Auditors' Report
. Consolidated Balance Sheets - December 30, 1994 and December 31, 1993.
. Consolidated Statements of Operations - Years ended December 30, 1994,
December 31, 1993, and December 25, 1992.
. Consolidated Statements of Stockholders' Equity - Years ended December
30, 1994, December 31, 1993, and December 25, 1992.
. Consolidated Statements of Cash Flows - Years ended December 30, 1994,
December 31, 1993, and December 25, 1992.
. Notes to Consolidated Financial Statements - Years ended December 30,
1994, December 31, 1993, and December 25, 1992.
The following constitutes a list of Financial Statement Schedules included in
Part IV of this report:
. Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because of the absence
of conditions under which they are required or because the required information
is presented in the Financial Statements or notes thereto.
-19-
<PAGE>
REPORT OF MANAGEMENT
Responsibility for the integrity and objectivity of the financial
information presented in this report rests with the management of Evans &
Sutherland. The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis and include amounts that are based on management's best estimates and
judgments. Management also prepared other information in this report and is
responsible for its accuracy and consistency with the financial statements.
Evans & Sutherland has established and maintains an effective system of
internal accounting controls. The Company believes this system provides
reasonable assurance that transactions are executed in accordance with
management authorization in order to permit the financial statements to be
prepared with integrity and reliability and to safeguard, verify, and maintain
accountability of assets. In addition, Evans & Sutherland's business ethics
policy requires employees to maintain the highest level of ethical standards in
the conduct of the Company's business.
Evans & Sutherland's financial statements have been audited by KPMG Peat
Marwick LLP, independent public accountants. Management has made available all
the Company's financial records and related data to allow KPMG Peat Marwick LLP
to express an informed professional opinion in their accompanying report.
The Audit Committee of the Board of Directors is composed of the Chairman
of the Board and all outside directors and meets periodically with the
independent accountants, as well as with Evans & Sutherland management and
internal auditing, to review accounting, auditing, internal accounting control,
and financial reporting matters.
James R. Oyler Gary E. Meredith
President and Vice President and
Chief Executive Officer Chief Financial Officer
-20-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Evans & Sutherland Computer Corporation:
We have audited the consolidated financial statements of Evans &
Sutherland Computer Corporation and subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Evans
& Sutherland Computer Corporation and subsidiaries as of December 30, 1994 and
December 31, 1993, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 30, 1994, in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
As discussed in note 1 to the consolidated financial statements, the
Company changed its method of accounting for investments to adopt the provisions
of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities effective January 1, 1994 and
the Company changed its method of accounting for income taxes in 1993 to adopt
the provisions of SFAS No. 109, Accounting for Income Taxes.
KPMG Peat Marwick LLP
Salt Lake City, Utah
February 16, 1995, except for
note 20, which is as of
March 1, 1995
-21-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 30, 1994 and December 31, 1993
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
Assets 1994 1993
------ --------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 25,213 $ 3,250
Short-term investments 26,597 75,286
Receivables:
Trade accounts, less allowance for
doubtful receivables of $144 in 1994 20,724 30,667
and $406 in 1993
Income taxes 1,633 -
Interest 1,142 1,076
Employees and other 150 399
--------- ---------
Total receivables 23,649 32,142
Inventories (note 2) 26,192 32,839
Costs and estimated earnings in excess
of billings on uncompleted contracts,
net (note 3) 18,549 10,048
Deferred income taxes (note 9) 6,561 6,050
Prepaid expenses and deposits 1,425 1,573
--------- ---------
Total current assets 128,186 161,188
Property, plant, and equipment, at cost
(note 4) 104,466 113,366
Less accumulated depreciation and
amortization 62,802 65,119
--------- ---------
Net property, plant, and
equipment 41,664 48,247
Long-term investments (note 5):
Marketable equity securities at cost - 3,178
Marketable equity securities
available-for-sale at fair value 7,277 -
Other 35 35
--------- ---------
Total long-term investments 7,312 3,213
Other assets, at cost, less accumulated
amortization of $1,157 in 1994 and
$5,813 in 1993 1,578 3,539
--------- ---------
$ 178,740 $ 216,187
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-22-
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1994 1993
------------------------------------ --------- ---------
<S> <C> <C>
Current liabilities:
Notes payable to banks (note 6) $ 1,817 $ 2,685
Accounts payable 2,401 5,095
Accrued expenses (note 7) 15,556 19,321
Customer deposits 9,182 11,303
Income taxes payable (note 9) - 2,112
--------- ---------
Total current liabilities 28,956 40,516
Long-term debt (note 8) 20,375 37,066
Deferred income taxes (note 9) 2,291 1,575
Stockholders' equity (notes 10 and 15):
Preferred stock, no par value.
Authorized 10,000,000 shares; no
shares issued and outstanding - -
Common stock, $.20 par value.
Authorized 30,000,000 shares; issued
and outstanding 8,552,106 shares in
1994 and 8,352,525 shares in 1993 1,710 1,671
Additional paid-in capital 2,850 11,899
Retained earnings 119,251 122,951
Net unrealized gain on marketable 2,847 -
equity securities available-for-sale
Cumulative translation adjustment 460 509
--------- ---------
Total stockholders' equity 127,118 137,030
--------- ---------
Commitments and contingencies (notes 11
and 17) $ 178,740 $ 216,187
========= =========
</TABLE>
-23-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 30, 1994, December 31, 1993, and December 25, 1992
(In thousands except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Net sales (note 12) $ 113,090 $ 142,253 $ 148,594
Cost of sales 60,626 65,678 67,863
--------- --------- ---------
Gross profit 52,464 76,575 80,731
--------- --------- ---------
Expenses:
Marketing, general, and administrative 32,874 40,154 38,278
Research and development 27,890 31,757 31,342
Restructuring charge (note 18) 8,212 7,900 -
--------- --------- ---------
68,976 79,811 69,620
--------- --------- ---------
Operating earnings (loss) (16,512) (3,236) 11,111
Other income (expense):
Interest income 2,710 2,738 3,371
Interest expense (1,902) (2,613) (3,080)
Gain on sale of marketable equity
securities available-for-sale (note 5) 4,009 6,238 -
Miscellaneous 311 (296) (378)
--------- --------- ---------
Earnings (loss) before income
taxes, extraordinary gain, and
cumulative effect of change in
accounting principle (11,384) 2,831 11,024
Income tax expense (benefit) (note 9) (5,825) 1,005 4,175
--------- --------- ---------
Earnings (loss) before
extraordinary gain and cumulative
effect of change in accounting
principle (5,559) 1,826 6,849
Extraordinary gain from repurchase of
convertible debentures, net of income
taxes of $1,115 in 1994 and $435 in
1992 (note 8) 1,859 - 709
Cumulative effect at December 26, 1992,
of change in accounting for income
taxes (note 1) - 2,267 -
--------- --------- ---------
Net earnings (loss) $ (3,700) $ 4,093 $ 7,558
========= ========= =========
Earnings (loss) per common and common
equivalent share:
Before extraordinary gain and
cumulative effect of change in
accounting principle $ (.65) $ .22 $ .78
Extraordinary gain from repurchase of
convertible debentures .22 - .08
Cumulative effect of change in
accounting principle - .28 -
--------- --------- ---------
$ (.43) $ .50 $ .86
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-24-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 30, 1994, December 31, 1993, and December 25, 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Common stock:
Beginning of year $ 1,671 $ 1,644 $ 1,777
Par value of shares issued for cash
(199,581 shares in 1994, 155,497 41 31 10
shares in 1993, and 48,166 shares in
1992)
Par value of shares purchased and
retired (11,806 shares in
1994 and 22,240 shares in 1993) (2) (4) (143)
--------- --------- ---------
End of year 1,710 1,671 1,644
--------- --------- ---------
Additional paid-in capital:
Beginning of year 11,899 9,841 19,779
Proceeds in excess of par value of 3,273 2,385 660
shares issued for cash
Compensation expense on employee stock 83 101 62
purchase plan
Tax benefit from issuance of common 217 - 22
stock to employees
Cash paid in excess of par value on - - (10,381)
shares retired
Retirement of treasury stock (243) (428) (301)
Tripos spin off (note 19) (12,379) - -
--------- --------- ---------
End of year 2,850 11,899 9,841
--------- --------- ---------
Retained earnings:
Beginning of year 122,951 118,858 111,300
Net earnings (loss) (3,700) 4,093 7,558
--------- --------- ---------
End of year 119,251 122,951 118,858
--------- --------- ---------
Net unrealized gain on marketable
equity securities available-for-sale:
Beginning of year - - -
Effect of change in accounting for
marketable equity securities January 6,838 - -
1, 1994 (note 1)
Net gain realized on current year sales (2,486) - -
Change in unrealized gain (1,505) - -
--------- --------- ---------
End of year 2,847 - -
--------- --------- ---------
Cumulative translation adjustment:
Beginning of year 509 452 763
Translation adjustment (49) 57 (311)
--------- --------- ---------
End of year 460 509 452
--------- --------- ---------
Total stockholders' equity $ 127,118 $ 137,030 $ 130,795
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-25-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 30, 1994, December 31, 1993, and December 25, 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (3,700) $ 4,093 $ 7,558
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization of
plant and equipment 10,280 13,344 13,525
Provision for write down of inventory 4,316 114 1,308
Gain on repurchase of convertible
debentures (2,974) - (1,144)
Provision for warranty expense 348 1,121 655
Loss on disposal of fixed assets and
other assets 69 101 738
Other amortization 424 1,094 1,219
Restructuring charge (note 18) 8,212 7,900 -
Gain on sale of marketable equity
securities available-for-sale (note 5) (4,009) (6,238) -
Other, net 99 287 163
Decrease (increase) in operating
assets:
Receivables 7,426 17,197 (17,594)
Inventories (772) (13,278) 2,254
Costs and estimated earnings in
excess of billings on uncompleted
contracts, net (8,789) 8,685 (220)
Prepaid expenses and deposits and
other assets (241) (175) 620
Increase (decrease) in operating
liabilities:
Accounts payable and accrued
expenses (10,713) (6,137) (409)
Customer deposits 691 6,954 (878)
Income taxes payable (3,760) (4,463) 5,414
Deferred income taxes (1,541) (2,507) (2,087)
--------- --------- ---------
Net cash provided by (used in)
operating activities (4,634) 28,092 11,122
--------- --------- ---------
Cash flows from investing activities:
Net sales (purchases) of short-term
investments 48,689 (24,756) 23,841
Tripos spin off (note 19) (8,485) - -
Proceeds from sale of marketable
equity securities available-for-sale 4,502 7,089 -
Investment in marketable securities - (2,000) -
Payment for purchase acquisition, net
of cash acquired (note 19) (975) - (1,428)
Increase in capitalized software,
intangible and other assets (404) (1,159) (1,063)
Capital expenditures (6,417) (8,265) (11,251)
Proceeds from disposal of fixed assets
and other assets 61 182 84
--------- --------- ---------
Net cash provided by (used in)
investing activities 36,971 (28,909) 10,183
========= ========= =========
</TABLE>
-26-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Years ended December 30, 1994, December 31, 1993, and December 25, 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
--------- ------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Payments for repurchase of convertible
debentures $ (13,748) $ - $ (3,196)
Principal payments on long-term debt - (1) (4,389)
Net borrowings (payments) under line
of credit agreements (1,142) 255 (5,408)
Retirement of common stock (233) - (10,524)
Net proceeds from issuance of common
stock 4,840 2,084 649
--------- ------- ---------
Net cash provided by (used in)
financing activities (10,283) 2,338 (22,868)
--------- ------- ---------
Effect of foreign exchange rate changes
on cash (91) 235 63
--------- ------- ---------
Net change in cash and cash equivalents 21,963 1,756 (1,500)
--------- ------- ---------
Cash and cash equivalents at beginning
of year 3,250 1,494 2,994
--------- ------- ---------
Cash and cash equivalents at end of year $ 25,213 $ 3,250 $ 1,494
========= ======= =========
Supplemental Disclosures of Cash Flow
Information
-------------------------------------
Cash paid during the year for:
Interest $ 2,225 $ 2,537 $ 3,223
Income taxes 432 6,379 2,012
</TABLE>
See accompanying notes to consolidated financial statements.
-27-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 30, 1994, December 31, 1993, and December 25, 1992
(Dollars in thousands except per share amounts)
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Fiscal Year
-----------
The Company's fiscal year ends the last Friday in December. The fiscal
year ends for the years included in the accompanying consolidated
financial statements are the periods ended December 30, 1994, December
31, 1993, and December 25, 1992. Unless otherwise specified, all
references to a year are to the fiscal year ending in the year stated.
(b) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
(c) Revenue Recognition
-------------------
Sales of products and services to customers are generally recorded
when the products are shipped to the customer or the service has been
completed.
The Company records income from long-term contracts using the
percentage-of-completion method, determined by the ratio of costs
incurred to management's estimate of total anticipated costs. If
estimated total costs on any contract indicate a loss, the Company
provides currently for the total anticipated loss on the contract.
Billings on uncompleted long-term contracts may be greater than or less
than incurred costs and estimated earnings and are recorded as a net
asset in the accompanying consolidated balance sheets.
(d) Cash Equivalents
----------------
For purposes of reporting cash flows, the Company considers all highly
liquid financial instruments purchased with an original maturity to
the Company of three months or less to be cash equivalents.
(e) Short-term Investments
----------------------
Short-term investments, consisting of U.S. government securities, are
stated at cost, which approximates market value. All such investments
have original maturities to the Company of greater than three months and
less than one year.
-28-
<PAGE>
(f) Inventories
-----------
Raw materials and supplies inventories are stated at the lower of
weighted average cost or market. Work-in-process and finished goods
are stated on the basis of accumulated manufacturing costs, but not in
excess of market (net realizable value).
(g) Property, Plant, and Equipment
------------------------------
Property, plant, and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line and double-declining
balance methods based on the estimated useful lives of the related
assets.
(h) Other Assets
------------
Other assets include deferred bond offering costs, capitalized software
development costs, and goodwill, and are being amortized on a straight-
line basis over the bond term, estimated useful lives, and five years,
respectively.
(i) Marketable Equity Securities
----------------------------
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities (Statement 115) at January 1, 1994. Under Statement 115, the
Company classifies its debt and marketable equity securities in one of
three categories: trading, available-for-sale, or held-to-maturity.
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the
security until maturity. All other securities not included in trading
or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. All of the
Company's marketable equity securities are classified as available-for-
sale. Unrealized holding gains and losses, net of the related tax
effect, on available-for-sale securities are excluded from earnings and
are reported as a separate component of stockholders' equity until
realized. A decline in the market value of any available-for-sale
security below cost that is deemed other than temporary is charged to
earnings resulting in the establishment of a new cost basis for the
security. Dividend income is recognized when earned. Realized gains and
losses for securities classified as available-for-sale are included in
earnings and are derived using the specific-identification method for
determining the cost of securities sold.
Marketable equity securities at December 31, 1993 are stated at the
lower of aggregate cost or market value.
(j) Warranty Reserve
----------------
The Company provides a warranty reserve for estimated future costs of
servicing products under warranty agreements. Anticipated costs for
product warranty are based upon estimates derived from experience
factors and are recorded at the time of sale or over the contract
period for long-term contracts.
-29-
<PAGE>
(k) Earnings (Loss) Per Common and Common Equivalent Share
------------------------------------------------------
Earnings (loss) per common and common equivalent share have been computed
based on the weighted average number of shares outstanding during the
year, after giving effect, if necessary, to the assumption that all
dilutive stock options were exercised at the beginning of the year or
date of grant with the proceeds therefrom being used to acquire treasury
shares. Earnings per common and common equivalent share are based on
8,519,990, 8,256,331, and 8,780,051 shares outstanding for 1994, 1993,
and 1992, respectively.
(l) Income Taxes
------------
Effective December 26, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes and it has
reported the cumulative effect of the change in the method of accounting
for income taxes in the 1993 consolidated statement of operations.
Statement 109 requires a change from the deferred method of accounting
for income taxes of APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
Pursuant to the deferred method under APB Opinion 11, which was applied
in 1992 and prior years, deferred income taxes are recognized for income
and expense items that are reported in different years for financial
reporting purposes and income tax purposes using the tax rate applicable
in the year of the calculation. Under the deferred method, deferred taxes
are not adjusted for subsequent changes in tax rates.
(m) Foreign Currency Translation
----------------------------
The local foreign currency is the functional currency for the Company's
foreign subsidiaries. Assets and liabilities of foreign operations are
translated to U.S. dollars at the current exchange rates as of the
applicable balance sheet date. Revenues and expenses are translated at
the average exchange rates prevailing during the period. Adjustments
resulting from translation are reported as a separate component of
stockholders' equity.
Certain transactions of the foreign subsidiaries are denominated in
currencies other than the functional currency, including transactions
with the parent company. Transaction gains and losses are included in
miscellaneous income (expense) for the period in which exchange rates
change and amounted to net gains (losses) of $266 in 1994, $(291) in
1993, and $(56) in 1992.
(n) Reclassifications
-----------------
Certain reclassifications have been made in the 1993 and 1992
consolidated financial statements to conform with classifications
adopted in 1994.
-30-
<PAGE>
(2) Inventories
-----------
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Raw materials and supplies $ 10,498 $ 13,631
Work-in-process 13,491 14,470
Finished goods 2,203 4,738
-------- --------
$ 26,192 $ 32,839
======== ========
</TABLE>
(3) Long-term Contracts
-------------------
Comparative information with respect to uncompleted contracts follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Accumulated costs and estimated
earnings on uncompleted contracts $ 262,503 $ 260,288
Less billings 243,954 250,240
--------- ---------
$ 18,549 $ 10,048
========= =========
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 37,295 $ 28,063
Billings in excess of costs and
estimated earnings on uncompleted
contracts (18,746) (18,015)
--------- ---------
$ 18,549 $ 10,048
========= =========
</TABLE>
(4) Property, Plant, and Equipment
------------------------------
The cost and estimated useful lives of property, plant, and equipment are
summarized as follows:
<TABLE>
<CAPTION>
Estimated
useful lives 1994 1993
------------ --------- ---------
<S> <C> <C> <C>
Land - $ 1,436 $ 1,436
Buildings and improvements 40 years 35,055 34,658
Machinery and equipment 3 to 8 years 65,114 71,907
Office furniture and equipment 8 years 2,173 3,428
Construction-in-process - 688 1,937
--------- ---------
$ 104,466 $ 113,366
========= =========
</TABLE>
All buildings and improvements owned by the Company are constructed on land
leased from an unrelated third party. Such leases extend for a term of 40
years from 1986, with options to extend two of the leases for an additional
40 years and the remaining four leases for an additional 10 years. At the
end of the lease term, including any extension, the buildings and
improvements revert to the lessor.
-31-
<PAGE>
(5) Long-term Investments
---------------------
Long-term investments are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Marketable equity securities
(at fair value in 1994 and at
cost in 1993):
Iwerks Entertainment, Inc.
(Iwerks) $ 1,000 $ 2,000
VLSI Technology, Inc. (VLSI) 4,794 1,160
Adobe Systems, Inc. (Adobe) 1,483 18
------- -------
7,277 3,178
Other investments 35 35
------- -------
$ 7,312 $ 3,213
======= =======
</TABLE>
Iwerks - The Company owned 210,526 shares of common stock of Iwerks at
------
December 30, 1994 and December 31, 1993. The Company's investment in Iwerks
represents less than a three percent ownership. Gross unrealized gains
(losses) on the Iwerks investment amount to ($1,000) at December 30, 1994
and $3,632 at December 31, 1993. As of February 16, 1995, gross unrealized
losses amounted to $947.
VLSI - The Company owned the following voting common shares of VLSI: 399,500
----
at December 30, 1994 and 694,500 at December 31, 1993 and December 25, 1992.
The Company's investment in VLSI, an electronics manufacturing company,
represents less than a two percent ownership. A realized gain of $4,009 on
the sale of 295,000 shares was recognized in 1994. Gross unrealized gains
on the VLSI investment amounted to $4,127, $6,306, and $6,872 at December
30, 1994, December 31, 1993, and December 25, 1992, respectively. As of
February 16, 1995, gross unrealized gains on the investment amounted to
$4,976.
Adobe - The Company owned 49,864 shares of Adobe common stock at December
-----
30, 1994, December 31, 1993, and December 25, 1992. The Company's
investment in Adobe represents less than a one percent ownership. Gross
unrealized gains on the Adobe investment amounted to $1,465, $1,091, and
$752 at December 30, 1994, December 31, 1993, and December 25, 1992,
respectively. As of February 16, 1995, gross unrealized gains on the
investment amounted to $1,702.
(6) Notes Payable to Banks
----------------------
The following is a summary of notes payable to banks:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Balance at end of year $ 1,817 $ 2,685
Weighted average interest rate at
end of year 9.5% 10.0%
Maximum balance outstanding during
the year $ 3,215 $ 4,035
Average balance outstanding during
the year $ 1,195 $ 2,863
Weighted average interest rate
during the year 9.77% 10.7%
</TABLE>
-32-
<PAGE>
(6) Notes Payable to Banks (continued)
----------------------
The average balance outstanding and weighted average interest rate are
computed based on the outstanding balances and interest rates at month-end
during each year.
The Company has unsecured revolving line of credit agreements totaling
$6,134 at December 30, 1994, of which approximately $4,317 was unused and
available. At December 30, 1994, the Company also had standby letters of
credit outstanding totaling approximately $350 relating to performance
obligations under long-term contracts.
(7) Accrued Expenses
----------------
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Pension plan contribution (note 14) $ 2,998 $ 2,432
Long-term contract reserve - 404
Unused vacation 2,310 2,460
Restructuring (note 18) 5,037 7,313
Other 5,211 6,712
-------- --------
$ 15,556 $ 19,321
======== ========
</TABLE>
(8) Long-term Debt
--------------
Long-term debt is comprised of six percent convertible subordinated
debentures due in 2012.
The six percent convertible subordinated debentures are convertible at any
time prior to maturity into the Company's common stock at $42.10 per share,
subject to adjustments in certain events. The debentures are redeemable at
the Company's option, in whole or in part, at declining redemption premiums
until March 1, 1997, and at par on and after such date. The Company is
required to provide a sinking fund balance of five percent of the applicable
principal amount of the debentures annually beginning March 1, 1998. The
debentures are subordinated to all existing and future superior
indebtedness.
During 1994 and 1992, the Company repurchased $16,691 and $4,369,
respectively, of convertible debentures on the open market. These purchases
resulted in extraordinary gains of approximately $2,974 and $1,144,
respectively. These extraordinary gains are shown net of income taxes in
the accompanying consolidated statements of operations.
-33-
<PAGE>
(9) Income Taxes
------------
Components of income tax expense (benefit) attributable to income (loss)
from continuing operations:
<TABLE>
<CAPTION>
Share and
stock
option
Current Deferred benefit Total
--------- -------- --------- -------
<S> <C> <C> <C> <C>
1994:
Federal $ (4,505) $ (1,086) $ 188 $(5,403)
State (636) (167) 29 (774)
Foreign 352 - - 352
--------- -------- -------- -------
$ (4,789) $ (1,253) $ 217 $(5,825)
========= ======== ======== =======
1993:
Federal $ 962 $ (209) $ - $ 753
State 145 (32) - 113
Foreign 139 - - 139
--------- -------- -------- -------
$ 1,246 $ (241) $ - $ 1,005
========= ======== ======== =======
1992:
Federal $ 4,918 $ (1,524) $ 19 $ 3,413
State 752 (169) 3 586
Foreign 176 - - 176
--------- -------- -------- -------
$ 5,846 $ (1,693) $ 22 $ 4,175
========= ======== ======== =======
</TABLE>
The actual tax expense allocated to income from continuing operations
differs from the "expected" tax expense (benefit) for the three years shown
(computed by applying the U.S. corporate tax rate of 34 percent) as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Computed "expected" tax expense
(benefit) $ (3,871) $ 963 $ 3,748
Research and development and
foreign tax credits (226) (160) (344)
Foreign taxes 352 139 176
Losses (gains) of foreign
subsidiaries (1,461) 1,577 782
Federal and state refunds from
prior tax years - (1,275) -
Earnings of foreign sales
corporation (123) (343) (739)
State taxes (net of federal income
tax benefit) (511) 96 472
Other, net 15 8 80
-------- -------- -------
$ (5,825) $ 1,005 $ 4,175
======== ======== =======
</TABLE>
-34-
<PAGE>
(9) Income Taxes (continued)
------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 30, 1994 and December 31, 1993 in accordance with Statement 109
are presented below:
<TABLE>
<CAPTION>
Domestic Foreign
-------------------- -----------------
1994 1993 1994 1993
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Deferred tax assets:
Restructuring accrual $ 1,889 $ 2,302 $ - $ -
Warranty, vacation, and other
accruals 1,083 1,797 - -
Inventory reserves and other
inventory - related temporary
basis differences 2,527 1,022 - -
Pension accrual 1,122 912 - -
Long-term contract related
temporary differences 490 528 - -
Net operating loss carryforwards
from acquired subsidiary,
expiring primarily in 2006 479 518 2,276 1,802
Other 188 122 - -
-------- -------- ------- -------
Total gross deferred tax assets 7,778 7,201 2,276 1,802
Less valuation allowance 520 560 2,276 1,802
-------- -------- ------- -------
Total deferred tax assets 7,258 6,641 - -
-------- -------- ------- -------
Domestic Foreign
-------------------- -----------------
1994 1993 1994 1993
-------- -------- ------- -------
Deferred tax liabilities:
Plant and equipment, principally
due to differences in
depreciation and capitalized
interest (1,166) (1,220) - -
Capitalized software development
costs - (824) - -
Unrealized gain on marketable
equity securities (1,746) - - -
Other (76) (122) - -
-------- -------- ------- -------
Total gross deferred tax
liabilities (2,988) (2,166) - -
-------- -------- ------- -------
Net deferred tax asset $ 4,270 $ 4,475 $ - $ -
======== ======== ======= =======
</TABLE>
The domestic valuation allowance for deferred tax assets as of December 30,
1994 was $520. This represents a decrease of $40 in the total domestic
valuation allowance from the previous year.
-35-
<PAGE>
(9) Income Taxes (continued)
------------
Deferred income taxes result from timing differences in the recognition of
income and expense for tax and financial statement purposes. The sources
of these timing differences and their tax effects for the year ended
December 25, 1992 in accordance with APB Opinion No. 11 which was in
effect for this year follow:
<TABLE>
<CAPTION>
<S> <C>
Depreciation $ (677)
Revenue recognition on long-term
contracts (563)
State taxes (400)
Warranty, vacation, and other reserves 311
Pension expense (590)
Foreign subsidiary, net of currency
gains and losses 449
Other, net (223)
--------
$ (1,693)
========
</TABLE>
Management believes the existing net deductible temporary differences will
reverse during the periods in which the Company generates net taxable
income. The Company has a strong taxable earnings history. A valuation
allowance is provided when it is more likely than not that some portion of
the deferred tax asset will not be realized. The Company has established a
valuation allowance primarily for net operating loss and tax credit
carryforwards from an acquired subsidiary and foreign subsidiaries as a
result of the uncertainty of realization.
(10) Stock Option, Purchase, and Bonus Plans
---------------------------------------
Stock Option Plans - The Company has granted options to officers,
------------------
directors, and employees to acquire shares of the Company's common stock.
Substantially all options so granted provide for purchase prices equal to
the fair market value on the date of grant. A summary of activity follows:
<TABLE>
<CAPTION>
Number of shares
(in thousands)
--------------------- Exercise
1994 1993 1992 price
------- ----- ----- ---------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of
year 895 1,093 1,153 $5.00 to $33.50
Options granted 1,173 31 18 $12.22 to $21.00
------- ----- -----
2,068 1,124 1,171
------- ----- -----
Options exercised 173 115 11 $5.00 to $18.00
Options canceled or expired 1,080 114 67 $15.75 to $33.50
------- ----- -----
1,253 229 78
------- ----- -----
Options outstanding at end of year 815 895 1,093 $5.00 to $23.25
======= ===== =====
Options exercisable at end of year 333 754 849 $5.00 to $23.00
======= ===== =====
</TABLE>
-36-
<PAGE>
(10) Stock Option, Purchase, and Bonus Plans (continued)
---------------------------------------
Under the terms of the stock option plan, 429,370, 522,305, and 438,799
shares of common stock were authorized and reserved for issuance, but were
not granted at December 30, 1994, December 31, 1993, and December 25, 1992,
respectively.
Stock Purchase Plan - The Company has an employee stock purchase plan
-------------------
whereby qualified employees are allowed to purchase limited amounts of the
Company's common stock at 85 percent of the market value of the stock at
the time of the sale.
Stock Bonus Plan - The Company has authorized a total of 200,000 shares of
----------------
common stock for an executive stock bonus plan under which officers and key
employees may be granted stock bonuses. No shares were issued under this
plan in 1994, 1993, or 1992.
(11) Lease Commitments
-----------------
The Company occupies real property and uses certain equipment under lease
arrangements, which are accounted for primarily as operating leases. A
summary of lease expense under such arrangements follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Real property $ 1,433 $ 1,610 $ 1,185
Equipment 464 539 527
------- ------- -------
Total lease expense $ 1,897 $ 2,149 $ 1,712
======= ======= =======
</TABLE>
A summary of noncancelable long-term operating lease commitments follows:
<TABLE>
<CAPTION>
Real
Fiscal year(s) property Equipment Total
-------------- -------- --------- -------
<S> <C> <C> <C>
1995 $ 979 $ 272 $ 1,251
1996 731 211 942
1997 672 159 831
1998 638 130 768
1999 657 126 783
Thereafter 8,820 126 8,946
------- ------ -------
Total commitments $12,497 $1,024 $13,521
======= ====== =======
</TABLE>
-37-
<PAGE>
(12) Industry Segment and Foreign Operations
---------------------------------------
The Company's operations consist of a single line of business composed of
designing, manufacturing, selling, and servicing interactive computing
systems for pilot training and for general engineering and scientific
applications.
A summary of operations by geographic area follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Net sales:
U.S. operations $ 107,477 $ 134,556 $ 138,237
European operations 6,813 15,933 16,586
Eliminations (1,200) (8,236) (6,229)
--------- --------- ---------
Total net sales $ 113,090 $ 142,253 $ 148,594
========= ========= =========
Operating earnings (loss):
U.S. operations $ (14,490) $ 550 $ 12,535
European operations (2,436) (3,984) (2,746)
Eliminations 414 198 1,322
--------- --------- ---------
Total operating earnings (loss) $ (16,512) $ (3,236) $ 11,111
========= ========= =========
Identifiable assets:
U.S. operations $ 104,773 $ 121,705 $ 134,221
European operations 3,694 11,182 9,440
Eliminations (216) (564) (761)
--------- --------- ---------
Total identifiable assets 108,251 132,323 142,900
Corporate assets 70,489 83,864 58,079
--------- --------- ---------
Total assets $ 178,740 $ 216,187 $ 200,979
========= ========= =========
</TABLE>
Transfers between geographic areas are accounted for at market price, and
intercompany profit is eliminated in consolidation. Operating earnings
(loss) are total sales, less operating expenses. Identifiable assets are
those assets of the Company that are identified with the operations in each
geographic area. Corporate assets are principally cash, short-term
investments, and long-term investments.
-38-
<PAGE>
(13) Sales to Foreign and Major Customers
------------------------------------
A summary of sales to foreign and major customers follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Sales to foreign end-users:
Australia and New Zealand $ 68 $ 90 $ 35
Canada 42 2,490 1,244
Europe (excluding Great Britain) 18,499 34,792 25,513
Pacific Rim 6,988 9,446 18,027
Great Britain 9,250 17,904 19,948
Middle East 3,046 5,090 4,914
Latin America 4 78 791
South Africa - 1 -
-------- -------- --------
Total $ 37,897 $ 69,891 $ 70,472
======== ======== ========
Major customers (10% or more of total
sales):
Loral $ 25,677 $ 8,192 $ 11,619
Rediffusion Simulation Ltd. and
Thomson/Hughes training 13,899 20,984 24,977
U.S. government (certain of which are
also included with sales set forth
above) 51,397 47,143 47,459
</TABLE>
(14) Employee Benefit Plans
----------------------
Pension Plan - The Company has a defined benefit pension plan covering
------------
substantially all employees who have attained age 21 with service in excess
of one year. Benefits at normal retirement age (65) are based upon the
employee's years of service and the employee's highest compensation for any
consecutive five of the last ten years of employment. The Company's funding
policy is to contribute annually the maximum amount that can be deducted
for federal income tax purposes.
Net annual pension expense of the plan is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Benefits for services rendered during
the year $ 2,549 $ 2,236 $ 1,979
Interest on projected benefit obligation 1,979 1,781 1,516
Actual return on plan assets 427 (3,175) (765)
Net amortization and deferral (2,790) 1,222 (995)
-------- -------- -------
$ 2,165 $ 2,064 $ 1,735
======== ======== =======
</TABLE>
-39-
<PAGE>
(14) Employee Benefit Plans (continued)
----------------------
The following assumptions were used in accounting for the pension plan:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rates used in determining
benefit obligations 8.50% 7.25% 8.25%
Rates of increase in compensation levels 4.50 4.50 5.50
Expected long-term rate of return on
plan assets 9.00 10.00 10.00
</TABLE>
The following summarizes the plan's funded status and amounts recognized
in the Company's consolidated financial statements:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits $ (11,231) $ (14,781)
Nonvested benefits (735) (1,357)
--------- ---------
Accumulated benefit obligation (11,966) (16,138)
Effect of projected future salary
increases (8,801) (12,008)
--------- ---------
Projected benefit obligation (20,767) (28,146)
Plan assets at fair value 24,619 26,601
--------- ---------
Projected benefit obligation below (in
excess of) plan assets 3,852 (1,545)
Unrecognized net gain (6,858) (1,367)
Unrecognized prior service cost (547) (155)
Unrecognized net transition obligation 555 635
--------- ---------
Accrued pension plan contribution $ (2,998) $ (2,432)
========= =========
</TABLE>
Deferred Savings Plan - The Company has a deferred savings plan which
---------------------
qualifies under Section 401(k) of the Internal Revenue Code. The plan
covers all employees of the Company who have at least one year of service
and who are age 18 or older. The Company makes matching contributions of 50
percent of each employee's contribution not to exceed six percent of the
employees compensation. The Company's contributions to this plan for 1994,
1993, and 1992 were $1,064, $1,025, and $1,022, respectively.
Post-employment Benefits - The Company adopted the provisions of Statement
------------------------
of Financial Accounting Standards No. 112 Employers' Accounting for Post-
employment Benefits during 1994, the impact of which was not material to
the Company's consolidated financial position or results of operations.
-40-
<PAGE>
(15) Preferred Stock
---------------
The Company has both Class A and Class B Preferred Stock with 5,000,000
shares authorized for each class. The Company has reserved 300,000 shares
of the Class A Preferred Stock as Series A Junior Preferred Stock under a
shareholder rights plan. This preferred stock entitles holders to 100
votes per share and to receive the greater of $2.00 per share or 100 times
the common dividend declared. Upon voluntary or involuntary liquidation,
dissolution, or winding up of the Company, holders of the preferred stock
would be entitled to be paid, to the extent assets are available for
distribution, an amount of $100 per share plus any accrued and unpaid
dividends before payment is made to common stockholders.
In connection with this preferred stock, the Company issued warrants to
each common stockholder that would be exercisable contingent upon certain
conditions and would allow the holder to purchase 1/100th of a preferred
share per warrant. At December 30, 1994 and December 31, 1993, the
warrants were not exercisable, and no shares of preferred stock have been
issued.
(16) Disclosures About the Fair Value of Financial Instruments and Off-Balance
-------------------------------------------------------------------------
Sheet Credit Risk and Risk of Accounting Loss
---------------------------------------------
The carrying amount approximates fair value because of the short maturity
of the following financial instruments: cash and cash equivalents, short-
term cash investments, receivables, notes payable to banks, accounts
payable, and accrued expenses.
The fair value of the Company's long-term debt instruments ($15,281 at
December 30, 1994) is based on quoted market prices (note 8).
(17) Commitments and Contingencies
-----------------------------
The Company is the plaintiff in a suit that alleges, among other things,
breach of a working agreement and is seeking damages in the amount of
$26,000. The defendant has filed a counter claim seeking damages in the
amount of $30,000. Management and the Company's legal counsel intend to
vigorously prosecute its claims and defend against the defendant's
counterclaims. However, as the legal proceeding is in an early stage, no
estimate can be made at this time of the potential outcome or potential
loss, if any.
In the normal course of business, the Company has various other claims and
contingent matters, including items raised by government contracting
officers and auditors. Although the final outcome of such matters cannot
be predicted, the Company believes the ultimate disposition of these
matters will not have a material adverse effect on the Company's
consolidated financial condition, liquidity, or results of operations.
-41-
<PAGE>
(18) Restructuring Charges
---------------------
In the fourth quarter of 1993, the Company incurred a restructuring charge
of $7,900. The restructuring was undertaken to better serve the Company's
changing markets and focus more appropriately its resources on profitable
opportunities. This restructuring eliminated approximately 170 jobs
worldwide or about 13 percent of the work force. Amounts expended in 1994
approximated the December 31, 1993 accrual balance.
In the fourth quarter of 1994, the Company incurred a restructuring charge
of $8,212. The restructuring was undertaken to remove the Company's
divisional structure, reengineer research and development, consolidate
manufacturing, finance, administration and field service operations, and
to modify product lines. This restructuring eliminated approximately 200
jobs worldwide in the areas noted above or about 20 percent of the work
force. A liability of $5,037 consisting primarily of estimated termination
benefits payable, is included in accrued expenses at December 30, 1994
(note 7). The remaining restructuring charge is attributable to inventory
write-offs related to the activities exited. As of February 16, 1995,
approximately 135 employees had been terminated and $3,743 in termination
benefits had been paid and charged against this liability.
(19) Businesses Acquired and Spin-off
--------------------------------
On November 21, 1994 and on March 31, 1992, the Company acquired all of
the outstanding common stock of Portable Graphics, Inc. (PGI) and New
Methods Research Inc. (NMRi), for $1,000 and $1,500 cash, respectively.
PGI and NMRi were involved in software development. These business
combinations were accounted for under the purchase method of accounting.
Accordingly, the purchase price was allocated to assets and liabilities
based on their estimated fair values as of the date of acquisition.
Operations of PGI and NMRi are included in the accompanying consolidated
financial statements from the date of acquisition, and are not material in
relation to the Company's consolidated financial statements and pro forma
financial information has therefore not been presented.
Effective June 1, 1994 the Company's stockholders received a special
dividend in the form of a spin-off of Tripos, Inc. (Tripos), a wholly-
owned subsidiary of the Company at the time. Stockholders received one
share of Tripos common stock for every three shares of E&S common stock
held on May 25, 1994, the record date of the spin-off.
(20) Subsequent Event
----------------
On March 1, 1995, the Company entered into an agreement to sell its Design
Software Group to Parametric Technology Corporation, for cash
consideration of $34,500.
-42-
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
----------------------------------------------------
"None"
[THIS SPACE INTENTIONALLY LEFT BLANK]
-43-
<PAGE>
Form 10-K
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
-----------------------------------------------
Information regarding directors of the Company is incorporated by reference
from "Election of Directors" in the 1994 Proxy Statement to be delivered to
shareholders in connection with the Annual Meeting of Shareholders to be held on
May 18, 1995.
Information concerning current executive officers of the Company is
incorporated by reference to the section in Part I hereof found under the
caption "Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information regarding this item is incorporated by reference from
"Executive Compensation" in the 1994 Proxy Statement to be delivered to
shareholders in connection with the Annual Meeting of Shareholders to be held on
May 18, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Information regarding this item is incorporated by reference from "Security
Ownership of Certain Beneficial Owners and Management" in the 1994 Proxy
Statement to be delivered to shareholders in connection with the Annual Meeting
of Shareholders to be held on May 18, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information regarding this item is incorporated by reference from
"Executive Compensation - Summary Compensation Table", "Report of the
Compensation and Stock Options Committee of the Board of Directors", and
"Termination of Employment and Change of Control Arrangements", in the 1994
Proxy Statement to be delivered to shareholders in connection with the Annual
Meeting of Shareholders to be held on May 18, 1995.
-44-
<PAGE>
Form 10-K
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
---------------------------------------------------------------
The following constitutes a list of Financial Statements, Financial
Statement Schedules, and Exhibits required to be included in this report:
1. Financial Statements - Included in Part II, Item 8 of this report:
--------------------
Report of Management
Independent Auditors' Report
Consolidated Balance Sheets - December 30, 1994 and December 31, 1993.
Consolidated Statements of Operations - Years ended December 30, 1994,
December 31, 1993, and December 25, 1992.
Consolidated Statements of Stockholders' Equity - Years ended December
30, 1994, December 31, 1993, and December 25, 1992.
Consolidated Statements of Cash Flows - Years ended December 30, 1994,
December 31, 1993, and December 25, 1992.
Notes to Consolidated Financial Statements - Years ended December 30,
1994, December 31, 1993, and December 25, 1992.
2. Financial Statement Schedules - included in Part IV of this report are as
-----------------------------
follows:
Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because of the absence
of conditions under which they are required or because the required
information is presented in the Financial Statements or notes thereto.
3. Exhibits
--------
3.1 Articles of Incorporation, as amended, filed as Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 25, 1987, and incorporated herein by this reference.
Amendments to Articles of Incorporation filed as Exhibit 3.1.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1988, and incorporated herein by this reference.
3.2 By-laws, as amended, filed as Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 25, 1987, and
incorporated herein by this reference.
-45-
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
----------------------------------------------------
ON FORM 8-K (Continued)
-----------------------
3. Exhibits (Continued)
--------
10.1 Working Agreement dated October 11, 1986, between the Company and
Rediffusion Simulation Ltd. filed as Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 26,
1986, and incorporated herein by this reference.
10.1.1 Amendment Number 1 to the October 11, 1986 Working Agreement
between the Company and Rediffusion Simulation Ltd. effective
June 7, 1988, and filed as Exhibit 10.1.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
30, 1988, and incorporated herein by this reference.
10.1.2 Amendment Number 2 to the October 11, 1986 Working Agreement
between the Company and Rediffusion Simulation Ltd. effective
January 15, 1991, and filed as Exhibit 10.1.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
28, 1990, and incorporated herein by this reference.
10.2 1985 Stock Option Plan, filed as Exhibit 1 to the Company's Post-
effective Amendment No. 1 to Registration Statement on Form S-8, SEC
File No. 2-76027, and incorporated herein by this reference.
10.3 1989 Stock Option Plan for Non-employee Directors, filed as Exhibit
10.5 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 1989, and incorporated herein by this reference.
10.5 The Company's 1981 Executive Stock Bonus Plan, filed as Exhibit 10.11
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1982, and incorporated herein by this reference.
10.6 The Company's 1991 Employee Stock Purchase Plan, filed as Exhibit 4.1
to the Company's Registration Statement on Form S-8, SEC File No. 33-
39632, and incorporated herein by this reference.
10.7 Transition Employment and Separation Agreement dated January 19,
1994, between the Company and Mr. Richard F. Leahy.
10.8 Terms of Employment Agreement dated June 23, 1994, between the
Company and Mr. Steven C. Eror.
10.9 Employment Agreement dated November 17, 1994, between the Company and
Mr. Gary E. Meredith.
10.10 Employment Agreement dated November 29, 1994, between the Company
and Mr. James R. Oyler.
10.11 Release and Separation Agreement dated January 6, 1995, between the
Company and Mr. Robert A. Schumacker.
10.12 Mutual Release and Separation Agreement dated January 27, 1995,
between the Company and Mr. Rodney S. Rougelot.
-46-
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
----------------------------------------------------
ON FORM 8-K (CONTINUED)
-----------------------
3. Exhibits (Continued)
--------
23.1 Consent of Independent Accountants.
24.1 Powers of Attorney for Messrs. Stewart Carrell, Henry N.
Christiansen, Peter O. Crisp, James R. Oyler, Ivan E. Sutherland, and
John E. Warnock.
The Company filed a Form 8-K on October 6, 1994. This filing provided the
following Pro Forma Financial Information relative to the Tripos spin-off
effective June 1, 1994.
. Consolidated Pro Forma Statement of Earnings - Year Ended December 31,
1993.
. Consolidated Pro Forma Statement of Earnings - Three Months Ended April
1, 1994.
. Consolidated Pro Forma Balance Sheet dated April 1, 1994.
No other reports on Form 8-K were filed during the fourth quarter of the
year ended December 30, 1994.
TRADEMARKS USED IN THIS FORM 10-K
---------------------------------
CDRS, DIGISTAR II, EaSIEST, ESIG, Freedom Graphics, Freedom Series,
Liberty, NiteView, RapidDatabases, TargetView, VistaView, and 3D Paint are
trademarks or registered trademarks of Evans & Sutherland Computer Corporation.
OpenGL is a registered trademark of Silicon Graphics, Inc. All other products
or services mentioned in this Form 10-K are identified by the trademarks or
service marks of their respective companies or organizations.
-47-
<PAGE>
Schedule II
-----------
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 30, 1994, December 31, 1993, and December 25, 1992
(In thousands)
<TABLE>
<CAPTION>
Additions Receivables
Balance at charged to charged
Allowance for doubtful beginning cost and against Balance at
receivables of year expenses allowance end of year
----------------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 30, 1994 $ 406 $ 99 $ 361 $ 144
========= =========== ============ ===========
Year ended December 31, 1993 $ 223 $ 287 $ 104 $ 406
========= =========== ============ ===========
Year ended December 25, 1992 $ 408 $ (78) $ 107 $ 223
========= =========== ============ ===========
Costs
Additions incurred for
Balance at charged to product
beginning cost and warranty Balance at
Warranty reserve of year expenses provisions end of year
---------------- --------- ----------- ------------ -----------
Year ended December 30, 1994 $ 1,600 $ 348 $ 1,702 $ 876
========= =========== ============= ===========
Year ended December 31, 1993 $ 1,539 $ 1,120 $ 1,059 $ 1,600
========= =========== ============= ===========
Year ended December 25, 1992 $ 1,504 $ 655 $ 620 $ 1,539
========= =========== ============= ===========
Balance at Additions Charges
Deferred tax asset beginning and against Balance at
valuation allowance of year adjustments allowance end of year
------------------- --------- ----------- --------- -----------
Year ended December 30, 1994 Domestic $ 560 $ (40) $ - $ 520
========= =========== ========= ===========
Foreign $ 1,802 $ 474 $ - $ 2,276
========= =========== ========= ===========
Year ended December 31, 1993 Domestic $ 560 $ - $ - $ 560
========= =========== ========= ===========
Foreign $ 1,802 $ - $ - $ 1,802
========= =========== ========= ===========
Year ended December 25, 1992 Not applicable
Balance at
Accumulated amortization of other beginning Additions Balance at
assets of year (deletions) Amortization end of year
------ --------- ----------- ------------ -----------
Year ended December 30, 1994 $ 5,813 $ (4,719) $ 63 $ 1,157
========= =========== ============ ===========
Year ended December 31, 1993 $ 6,089 $ (1,279) $ 1,003 $ 5,813
========= =========== ============ ===========
Year ended December 25, 1992 $ 4,621 $ 751 $ 717 $ 6,089
========= =========== ============ ===========
</TABLE>
-48-
<PAGE>
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.
EVANS & SUTHERLAND COMPUTER CORPORATION
March 29, 1995 By: /s/ JAMES R. OYLER
-------------------------
James R. Oyler, President
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ STEWART CARRELL * Chairman of the March 29, 1995
------------------------- Board of Directors
Stewart Carrell
/s/ JAMES R. OYLER Director and President March 29, 1995
------------------------- (Chief Executive Officer)
James R. Oyler
/s/ GARY E. MEREDITH Vice President and Chief March 29, 1995
------------------------- Financial Officer
Gary E. Meredith (Principal Financial and
Accounting Officer)
/s/ HENRY N. CHRISTIANSEN* Director March 29, 1995
-------------------------
Henry N. Christiansen
/s/ PETER O. CRISP * Director March 29, 1995
-------------------------
Peter O. Crisp
/s/ IVAN E. SUTHERLAND * Director March 29, 1995
-------------------------
Ivan E. Sutherland
/s/ JOHN E. WARNOCK * Director March 29, 1995
-------------------------
John E. Warnock
By: /s/ GARY E. MEREDITH * March 29, 1995
----------------------
Gary E. Meredith
Attorney-in-Fact
-49-
<PAGE>
EXHIBITS
TO THE
ANNUAL REPORT OF FORM 10-K
FOR THE
FISCAL YEAR ENDED DECEMBER 30, 1994
OF
EVANS & SUTHERLAND COMPUTER CORPORATION
<PAGE>
EXHIBIT 10.7
TRANSITION EMPLOYMENT AND SEVERANCE AGREEMENT
This Agreement is made this 19th day of January, 1994, between EVANS &
SUTHERLAND COMPUTER CORPORATION, a Utah corporation with offices at 600 Komas
Drive, Salt Lake City, Utah 84108 (the "Corporation") and RICHARD F. LEAHY, an
individual whose address is 4480 Matthews Way, Salt Lake City, Utah 84124
("Employee").
W I T N E S S E T H :
--------------------
WHEREAS, Employee currently serves as Vice President, Secretary and
Treasurer of the Corporation; and
WHEREAS, the Corporation is restructuring its operations and pursuant to
such restructuring, Employee has agreed to resign as an officer of the
Corporation but remain as an employee during a transition period before taking
early retirement in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereby agree as follows:
1. Resignation as Officer. Effective as of the close of business
----------------------
on April 1, 1994, Employee will resign his position as Vice President, Secretary
and Treasurer of the Corporation.
2. Transition Employment. From and after the close of business
---------------------
on April 1, 1994, until the close of business on December 2, 1994 (the
"Transition Period"), Employee shall remain a full-time employee of the
Corporation but at a reduced salary of One Thousand Five Hundred Dollars
($1,500.00) per week, subject to the accelerated retirement option set forth in
Section 5 of this Agreement.
3. Transition Duties. Employee's duties for the Corporation during
-----------------
the Transition Period set forth in Section 2 above shall include such special
assignments, duties and responsibilities as the Corporation may require from
time to time to assist those persons who succeed to the duties and
responsibilities of Employee from and after the close of business on April 1,
1994 and such other management affairs as the Corporation may deem appropriate
from time to time during the Transition Period. Employee's duties during
the Transition Period will not require Employee to come to the Corporation's
offices regularly during business hours, but may be handled by telephone
conferences, correspondence and similar arrangements, but upon reasonable notice
Corporation may require that Employee come to the office to attend meetings or
otherwise perform specific tasks during the Transition Period.
4. Continuation of Benefits. During the Transition Period,
------------------------
Employee shall continue to participate in all employee benefit plans and
programs maintained by the Corporation, including without limitation, the
Corporation's group medical plan, qualified retirement plans (including the
Corporation's 401(k) plan),disability plan, and group life insurance plan;
<PAGE>
provided, however, that vacation accruals shall be subject to the special
provisions of Section 6 of this Agreement. In addition, notwithstanding
Employee's resignation as an officer, the Corporation shall continue to provide
the following additional benefits normally provided to officers throughout the
Transition Period:
a. Supplemental Medical Benefits. Employee shall continue
-----------------------------
to be covered for the supplemental medical benefits as presently
provided.
b. Company Car. Employee shall continue to have unlimited
-----------
personal use of the automobile provided by the Corporation in accordance
with the current policy of the Corporation to provide automobiles to its
officers, including without limitation, the option to purchase said
automobile upon retirement.
c. Tax Assistance. The Corporation shall reimburse Employee
--------------
for expenses incurred in connection with tax and estate planning
assistance, up to a maximum One Thousand Five Hundred Dollars
($1,500.00) for the calendar year 1994, which reimbursement may be made
subsequent to Employee's retirement on or before December 2, 1994.
5. Employee's Option to Accelerate Retirement. In the event that
------------------------------------------
the Corporation's need for the services of Employee has markedly diminished
prior to December 2, 1994, the Employee may, in his sole discretion and at his
option, elect to retire prior to December 2, 1994, upon at least 14 days'
advance notice to the Corporation, to be effective as of the close of business
at the end of any fiscal week of the Corporation. In the event that Employee
should die or suffer a disability that precludes continued employment during
the Transition Period, Employee shall be treated as if he had elected
accelerated retirement as of the end of the week in which such event occurs.
6. Vacation Accruals. Employee shall not accrue any additional
-----------------
days of vacation during the Transition Period. Upon retirement, Employee shall
be paid for vacation days accrued but unused prior to the Transition Period at
the Employee's compensation rate in effect prior to the Transition Period.
7. Severance Pay at Retirement. Upon Employee's retirement on
---------------------------
December 2, 1994 (or such earlier date as Employee may elect in accordance with
the provisions of Section 5 of this Agreement), the Corporation shall pay to the
Employee as severance pay an amount equal to Two Hundred Sixty-Two Thousand
Dollars ($262,000.00) plus, if applicable, an amount equal to One Thousand Five
Hundred Dollars ($1,500.00) for each week between the effective date of
Employee's accelerated retirement as provided in Section 5 of this Agreement and
December 2, 1994.
8. Medical Benefits Continuation. Upon Employee's retirement,
-----------------------------
Corporation shall pay to Employee an amount, calculated by the Corporation's
Human Resources Department, that is sufficient to offset, on an after-tax basis,
the amount of medical insurance premiums that
<PAGE>
the Employee would be required to pay under the Corporation's Group Medical Plan
for continuation of coverage from the date of Employee's retirement until July
28,1996, the date on which the Employee will attain age 65.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this
19th day of January, 1994.
CORPORATION:
EVANS & SUTHERLAND COMPUTER CORPORATION,
a Utah corporation
By: /s/ RODNEY S. ROUGELOT
----------------------------------------
Rodney S. Rougelot, President and
Chief Executive Officer
EMPLOYEE:
/s/ RICHARD F. LEAHY
----------------------------------------
Richard F. Leahy
<PAGE>
EXHIBIT 10.8
[EVANS & SUTHERLAND LETTERHEAD APPEARS HERE]
June 23, 1994
Mr. Steven C. Eror
Vice President,
Assistant Chief Financial Officer
Evans & Sutherland Computer Corporation
600 Komas Drive
Salt Lake City, Utah 84108
Re: Terms of Employment
Dear Steve:
This letter is to confirm our basic agreement with regard to your
employment at Evans & Sutherland Computer Corporation. You are employed as a
corporate Vice President and Assistant Chief Financial Officer of Evans &
Sutherland Computer Corporation. As a corporate officer, you will have those
duties that may be assigned to you from time to time by the Company's Board of
Directors and by other senior corporate officers, including the President and
Chief Financial Officer.
As a corporate officer, you serve at the pleasure of the Board of
Directors, and may be terminated at will. However, in consideration of your
accepting the duties and responsibilities connected with your employment, the
Company has agreed that if you are terminated within the first year of your
employment, unless you are terminated for cause, it will pay you the unpaid
portion of your total first year compensation of $107,000 according to the
Company's standard payroll procedures. If at any time you voluntarily terminate
your employment, the severance policies set forth in the Company's Employee
Handbook and Policies shall apply.
All of the other conditions, procedures and terms of your employment are
found in the Company's Employee Handbook and Policies, copies of which you have
received or have access to.
<PAGE>
Mr. Steven C. Eror
Vice President,
Assistant Chief Financial Officer
Evans & Sutherland Computer Corporation
June 23, 1994
Page 2
Assuming that you agree to the terms of your employment as outlined in
this letter, please sign two copies of this letter, retaining one copy for your
files and delivering a copy to me.
We look forward to a wonderful working relationship and to the
contribution you will make to Evans & Sutherland Computer Corporation.
Sincerely,
EVANS & SUTHERLAND COMPUTER CORPORATION
/s/ GARY E. MEREDITH
--------------------
Gary E. Meredith
Chief Financial Officer
ACCEPTED AND AGREED TO this 28th day of June, 1994.
/s/ STEVEN C. EROR
------------------
Steven C. Eror
<PAGE>
EXHIBIT 10.9
[LETTERHEAD OF EVANS & SUTHERLAND APPEARS HERE]
November 17, 1994
Gary E. Meredith
Vice President and Chief Financial Officer
Evans & Sutherland Computer Corporation
600 Komas Drive
Salt Lake City, Utah 84108
Dear Gary:
As you know, the Board is contemplating a change in the President and Chief
Executive Officer of the Company. This circumstance could result in the new
President desiring a new Chief Financial Officer, regardless of the quality
service you have provided to the Company in the past. After significant
consideration, the Board of Directors of the Company has authorized me to extend
to you the following offer regarding severance and termination issues. At times
in this letter, you are referred to as "Meredith".
As used in this letter, the following other terms shall have the meanings
indicated:
A. "ACCRUED BENEFITS" shall mean the amount payable not later than ten (10)
days following an applicable Termination Date and which shall be equal to the
sum of the following amounts:
1. All salary earned or accrued through the Termination Date;
2. Reimbursement for any and all monies advanced in connection with
Meredith's employment for reasonable and necessary expenses incurred by
Meredith through the Termination Date;
3. Any and all other cash benefits previously earned through the
Termination Date and deferred at the election of Meredith or pursuant to any
deferred compensation plans then in effect;
<PAGE>
Gary E. Meredith
November 17, 1994
Page 2
4. The full amount of any stated bonus payable to Meredith in accordance
with respect to the year in which termination occurs; and
5. All other payments and benefits to which Meredith may be entitled under
the terms of any benefit plan of the Company.
B. "BASE SALARY" shall be an amount equal to Meredith's base salary as
determined from time to time by the Company's Board, but in no event an
amount less than $174,000;
C. "BOARD" shall mean the Board of Directors of the Company;
D. "CAUSE" shall mean the engaging by Meredith in fraudulent conduct which the
Board determines, in its sole discretion, has a significant adverse impact on
the Company in the conduct of the Company's business; the conviction of a
felony which the Board determines, in its sole discretion, has a significant
adverse impact on the Company in the conduct of the Company's business; the
neglect or refusal by Meredith to perform Meredith's duties or
responsibilities; or a significant violation by Meredith of the Company's
established policies and procedures;
E. "DISABILITY" shall mean a physical or mental condition whereby Meredith is
unable to perform on a full-time basis the customary duties of Meredith under
this Agreement;
F. "TERMINATION DATE" shall mean the date of delivery of the Notice of
Termination if Meredith's employment is terminated by the Company for any
reason other than death or Disability;
G. "TERMINATION PAYMENT" shall mean the payment described hereinafter.
There are several circumstances under which your employment with the Company
might terminate before you turn age 65. This letter covers only that period of
time from the date hereof until normal retirement at age 65. If your employment
terminates after you reach age 65, you will receive only the normal retirement
benefits to which you would otherwise be entitled. With regard to each of the
described circumstances, the Board proposes the following severance and
termination benefits:
<PAGE>
Gary E. Meredith
November 17, 1994
Page 3
I. TERMINATION AS A RESULT OF DEATH.
If Meredith shall die during the term of this Agreement, Meredith's
employment shall terminate on Meredith's date of death and Meredith's surviving
spouse, or Meredith's estate if Meredith dies without a surviving spouse, shall
be entitled to Meredith's Accrued Benefits as of the Termination Date, but shall
not be entitled to any Termination Payment.
II. TERMINATION FOR DISABILITY.
If, as a result of Meredith's Disability, Meredith's employment is
terminated, Meredith shall be entitled to receive his Accrued Benefits and such
other (if any) benefits set forth in the Company's policies and practices, but
shall not be entitled to any Termination Payment.
III. TERMINATION FOR CAUSE.
If Meredith's employment with the Company is terminated by the Company for
Cause, Meredith shall be entitled to receive Meredith's Accrued Benefits as of
the Termination Date, but shall not be entitled to any Termination Payment.
IV. OTHER TERMINATION BY COMPANY.
If, prior to Meredith's 65th birthday, Meredith's employment with the
Company is terminated by the Company other than by reason of death, Disability
or Cause, Meredith (or in the event of Meredith's death following the
Termination Date, Meredith's surviving spouse or Meredith's estate if Meredith
dies without a surviving spouse) shall receive the applicable Termination
Payment and other benefits described below.
V. VOLUNTARY TERMINATION BY MEREDITH.
Meredith shall have the right at any time to terminate his employment with
the Company according to the Company's normal policies and procedures. In the
case of Meredith's voluntary termination, Meredith shall receive Meredith's
Accrued Benefits as of the Termination Date and, unless otherwise agreed in
writing, shall not be entitled to any Termination Payment.
<PAGE>
Gary E. Meredith
November 17, 1994
Page 4
VI. TERMINATION PAYMENT.
A. If Meredith's employment is terminated by the Company for any reason
other than death, Disability or Cause, the Termination Payment payable to
Meredith shall be equal to one and a half times the then current year's
Base Salary, plus the amount, if any, of the prior year's bonus. In
addition, the Company will pay the medical insurance premiums under the
Company's regular insurance plan for continuation coverage and, after the
expiration of continuation coverage, under the conversion policy provided
under the medical plan. The Company will also pay a single sum cash
payment for Company defined benefit pension plan service lost due to early
termination. The single sum is calculated as the difference, if any, of
the amount set forth in paragraph A (1) of this Section 6 less the
amount set forth in paragraph A (2) of this Section 9.
1. The present value at the Termination Date of the benefit at normal
retirement age (age 65) assuming compensation exceeds the 401(a)(17)
compensation limit.
2. The present value at the Termination Date of the benefit earned
through the Termination Date but assuming early retirement age is one
year older than the actual age on the Termination Date.
B. Except for the medical insurance premium payments set forth in
paragraph 6 (A) hereof, the Termination Payment shall be payable in a
lump sum not later than thirty (30) days following Meredith's Termination
Date.
VII. TERMINATION NOTICE.
Any termination by the Company or Meredith of Meredith's employment
during the Employment Period shall be communicated by written Notice of
Termination to Meredith if such Notice of Termination is delivered by the
Company and to the Company if such Notice of Termination is delivered by
Meredith.
VIII. WITHHOLDING.
The Company shall be entitled to withhold from amounts to be paid to
Meredith under this Agreement any federal, state or local withholding or other
taxes or charges which
<PAGE>
Gary E. Meredith
November 17, 1994
Page 5
it is from time to time required to withhold in connection with this Agreement
or in connection with any plan or arrangement in which Meredith is a
participant. Meredith shall also be required to pay to the Company such amount
of cash as shall be necessary to satisfy such withholding or other taxes or
charges to the extent that the amounts to be paid to Meredith under this
Agreement are insufficient therefor. The Company shall be entitled to rely on
an opinion of counsel if any question as to the amount or requirement of any
such withholding shall arise.
Gary, the Board is very appreciative of the contributions you have made to
the Company over the years. We look forward to a long and continued association
with you. Assuming that these terms are acceptable to you, please sign where
indicated below, keeping the duplicate original for your files and returning one
original to me.
Sincerely,
EVANS & SUTHERLAND COMPUTER CORPORATION
By: /s/ STEWART CARRELL
---------------------------
Stewart Carrell, Chairman
ACCEPTED AND AGREED TO:
/s/ GARY E. MEREDITH
--------------------
Gary E. Meredith
Date: December 6, 1994
------------------
<PAGE>
EXHIBIT 10.10
As concerns:
------------
Evans & Sutherland and James Oyler
1. Position President and Chief Executive Officer and member of
-------- the Board of Directors, effective November 28.
2. Compensation
------------
Base Salary $300,000 per annum.
Incentive Bonus Approximately 50% of base salary "at plan
performance" with a sliding scale applying to both
below (with limits) and above "plan performance".
We have yet to establish the plan for 1995 and the
criteria for paying our incentive awards. As we
discussed, the bonus or incentive system is in the
process of being substantially revised and it is
important that the changes underway have your input
and approval, as well as that of the Compensation
Committee of the Board of Directors.
3. Stock Options Grant 150,000 shares to be granted under the terms of the
------------------- Evans & Sutherland Option Plan, the price to be
the market price on November 28.
An addition of 25,000 shares will be "targeted"
for the end of your first year, in accordance with
our incentive system.
4. Other Benefits You will be eligible for the Evans & Sutherland
-------------- Medical, Life Insurance, Retirement, and any other
applicable program benefits.
5. Relocation and It is my understanding that you intend to relocate
-------------- your family next summer to Salt Lake City; however,
related issues you plan to purchase a home in the Salt Lake City
-------------- area as soon as practical. As pertains to the home
in the Boston area recently purchased, you will
decide, probably with the next three to six
months, whether you will keep this property or
dispose of it. Evans & Sutherland will:
a) cover a reasonable number of trips by you
between Salt Lake City and Boston, and the same
for your family for house hunting purposes for
a reasonable period.
<PAGE>
b) provide you with temporary living expenses in
Salt Lake City - an apartment, etc. - for up
to six months while you are looking for a
permanent residence.
c) either purchase your home in the Boston area or
cover your closing costs if you choose to
handle the sale yourself. If you choose to
maintain possession of such property, Evans &
Sutherland will have no further obligations.
Although it is your intent to reach a decision
within the next several months, Evans &
Sutherland will stand by with the offer to
either purchase the property or cover your
closing costs for one year.
d) cover costs involved in severing your current
rental agreement in the Boston area, allowing
you to relocate to Salt Lake City as soon as
possible. It is understood that you will
attempt to negotiate the terms of your lease
and any remaining lease obligations with the
owner of the rental property, so as to avoid
any such costs or penalty. In any event, the
unexpired lease term would not exceed nine
months at $2400 per month.
e) cover your "extra" mortgage payments - defined
as those on the Salt Lake City residence -
until we have resolution on the Boston
property, not to exceed nine months and $6500
per month.
f) cover your move under the Evans & Sutherland
relocation policy, plus provide an additional
one-time move expense related payment of
$50,000.
6. Severance In the unlikely event that things don't work out
--------- and you are dismissed for other than cause, you
will have a severance of one year's base pay plus
prior years actual bonus and medical and life
insurance benefits for one year.
<PAGE>
Evans & Sutherland does have certain Change of
Control protection of key officers. Consistent with
this protection, Evans & Sutherland will protect
you for the equivalent of two years pay and two
years of medical and life insurance coverage and
fully vest all outstanding stock options, assuming
you choose not to accept employment with the
acquiring party. If such change of control were to
take place within the next two years, Evans &
Sutherland will also protect you for mortgage
payment on your home for a period of nine months or
until the property is sold.
Accepted for Evans & Sutherland Accepted by James Oyler
/s/ S. CARRELL /s/ J.R. OYLER
------------------------------- -----------------------
Date: Nov. 28, 1994 Date: 28 Nov. 94
------------- ----------
<PAGE>
EXHIBIT 10.11
RELEASE AND SEPARATION AGREEMENT
In consideration of the payment of Six Hundred Fifty Eight Thousand Dollars
($658,000.00) to be allocated as set forth below, which sum shall be paid in a
lump sum upon execution of this Agreement, together with Evans & Sutherland
Computer Corporation's ("Evans & Sutherland") agreement to make medical
insurance premium payments directly to the Evans & Sutherland's medical plan for
continuation coverage required under COBRA for a period of eighteen (18) months
for Robert A. Schumacker ("Schumacker") and his family that would be eligible
under Evans & Sutherland's current health insurance policy, and after COBRA
expiration, to Evans & Sutherland's insurance company for a conversion policy
(or other individual policy) for Schumacker and his family for an additional six
(6) month period of time, and other good and valuable consideration, the receipt
and legal sufficiency of which is hereby acknowledged, Evans & Sutherland and
Schumacker hereby agree as follows:
RELEASE OF ALL CLAIMS
---------------------
1. Schumacker hereby releases Evans & Sutherland and its officers,
directors, employees and legal successors from all claims, liabilities, demands
and causes of action, whether known or unknown, which Schumacker has, may have
or claim to have against Evans & Sutherland based upon or arising out of
Schumacker's employment with Evans & Sutherland or the termination of
Schumaker's employment with Evans & Sutherland. Schumacker hereby agrees not to
file any lawsuit to assert such claims, which include, but are not limited to,
any claims of wrongful discharge or any claims of age, sex or other
discrimination under federal, state or local laws prohibiting such
discrimination. As used herein, Evans & Sutherland includes any and all parents,
divisions or subsidiaries of Evans & Sutherland. This Agreement does not prevent
Schumacker from receiving any benefit to which Schumacker would otherwise have a
non-forfeitable right to receive under an existing Evans & Sutherland benefit
plan or arrangement, including, without limitation, benefits under Evans &
Sutherland's pension retirement (401(k)), disability, group life, or other
plans; Worker's Compensation benefits; or health and medical benefit plan.
2. Evans & Sutherland hereby releases Schumacker from all claims,
liabilities, demands and causes of action, whether known or unknown, which Evans
& Sutherland has, may have or claim to have against Schumacker based upon or
arising out of Schumacker's employment with Evans & Sutherland or the
termination of Schumacker's employment with Evans & Sutherland. As used herein,
Evans & Sutherland includes any and all parents, divisions or subsidiaries of
Evans & Sutherland.
<PAGE>
3. For the purpose of implementing a full and complete release and
discharge of Evans & Sutherland, Schumacker expressly waives and relinquishes
all rights and benefits afforded by applicable law other than those rights and
benefits provided by this Agreement, and acknowledges that this Agreement and
Release is intended to include and discharge all claims, known or unknown,
relating to Schumacker's employment or its termination as of the date hereof.
4. Schumacker agrees to indemnify and hold Evans & Sutherland harmless from
and against any and all loss, cost and expense, including, but not limited to
court costs and attorneys' fees, arising from or in connection with any action
or proceeding which may be commenced, prosecuted or threatened by, or for
Schumacker's benefit, upon Schumacker's initiative, or with Schumacker's aid or
approval, contrary to the provisions of this Agreement and Release. Schumacker
further agrees that in any such action or proceeding, this Agreement and Release
may be plead by Evans & Sutherland as a complete defense, or may be asserted by
way of counter claim or cross claim.
CONFIDENTIALITY PROVISION
-------------------------
5. Schumacker agrees that he will maintain in strict confidence all
Confidential Information (as defined below) about Evans & Sutherland which
Schumacker has received while employed by Evans & Sutherland. For purposes of
this Section 5, the term "Confidential Information" shall mean all documents
and information which Evans & Sutherland reasonably deems to be proprietary or
confidential in nature and shall include, but not be limited to, any and all
proprietary facts regarding product or production costs; suppliers; customers;
technology; business strategy; product innovation; employment matters;
compensation; and contemplated, pending or completed contracts for services or
products. Notwithstanding the foregoing, "Confidentiality Information" shall not
include any of the following:
(a) Any documents or information required to be disclosed pursuant to
federal or state statute or pursuant to order by a court of competent
jurisdiction;
(b) Any documents or information in the public domain at the time of
receipt or coming into the public domain thereafter;
(c) Any documents or information known to Schumacker on a
nonconfidential basis prior to disclosure from Evans & Sutherland;
(d) Any documents or information disclosed with the prior written
approval of Evans & Sutherland;
(e) Any documents or information independently developed by Schumacker;
2
<PAGE>
(f) Any documents or information lawfully disclosed to Schumacker by a
third party that is under no obligation of confidentiality; or
(g) Any documents or information disclosed by Evans & Sutherland to
others on a non-confidential basis.
Schumacker has no obligation to supply to any party any proprietary
information pursuant to this Agreement. This Agreement contains the entire
understanding between the parties relative to the protection of Confidential
Information and supersedes all prior and collateral communications, reports and
understandings between the parties in respect thereto. Evans & Sutherland shall
have the right to obtain injunctive relief to enforce the terms of this Section
5, in addition to such other monetary damages from breach of this Agreement as
may be awarded by a court of competent jurisdiction.
NON-COMPETITION PROVISION
-------------------------
6. Schumacker hereby agrees that for a period of twenty four (24) months
after the date hereof, neither Schumacker nor any affiliate of Schumacker will,
directly or indirectly, individually or in concert with others, as promoter,
shareholder (except with regard to a publicly traded company in which Schumacker
does not hold a controlling interest), officer, director, employee, agent,
representative, independent contractor or otherwise:
(a) engage anywhere in North or South America, Europe, Asia or
Australia in any business which is competitive in any way with the business
currently undertaken by Evans & Sutherland, and any or its subsidiaries;
(b) induce or attempt to induce any customer or supplier of Evans &
Sutherland or of Evans & Sutherland's business who was such on the date hereof
to reduce the level of business with, or to cease or refrain from doing business
with Evans & Sutherland, or any affiliate of Evans & Sutherland, within such
geographical area, or to in any way materially interfere with the relationships
between Evans & Sutherland or its affiliates and any such customer or supplier
in any of the geographical area set forth in Section 6 (a) above.
7. As used in this Agreement, the term "affiliate" shall mean any
individual, joint venture, partnership, corporation, limited liability company
or partnership, or stockholder which controls, is controlled by, or is under
common control with, or the management and operations of which are substantially
influenced by Evans & Sutherland or Schumacker, as the case may be, or in which
Evans & Sutherland or Schumacker owns any interest or by which Schumacker is
employed, as required by the context of this Agreement.
3
<PAGE>
8. Notwithstanding anything to the contrary herein contained, in the event
Schumacker desires employment or a consultancy arrangement with any party which
would violate or potentially violate the terms of this non-competition
provision, Schumacker may propose an exception to the provisions of this
Agreement which would prevent such employment or consultancy, and Evans &
Sutherland will respond to such request within a reasonable period of time.
Further, Evans & Sutherland agrees that it will consider and respond to any such
request for an exception in good faith; provided, however, that nothing herein
shall be construed as requiring Evans & Sutherland to grant any such requested
exception.
9. If the provision herein which restricts competitive activity is deemed
unenforceable by virtue of its scope in terms of area, business activity
prohibited and/or length of time, but would be enforceable by reducing any part
or all thereof, Schumacker agrees that the same shall be enforced to the fullest
extent permissible under the laws and public policies applied in the
jurisdiction in which enforcement is sought.
CONSULTING SERVICES ACCESS AND ASSISTANCE PROVISION
---------------------------------------------------
10. Schumacker agrees to cooperate fully and make himself reasonably
available to Evans & Sutherland and its counsel, regarding all matters
concerning the litigation, arbitration or settlement of claims between Evans &
Sutherland and Thomson Training & Simulation Limited (and its present and former
affiliates and owners). Evans & Sutherland agrees to pay all of Schumacker's
reasonable expenses in connection with this agreement of cooperation, together
with reasonable consulting fees to be determined hereafter, and Schumacker
agrees that this covenant of availability, cooperation and consultation shall
include, but not be limited to, assistance in pre-trial or pre-arbitration
preparation, testimony in any proceeding or arbitration and the like.
11. Schumacker further agrees that upon Evans & Sutherland's request, he
will reasonably assist and consult with Evans & Sutherland during the eighteen
(18) month period commencing on the date hereof on other matters regarding which
Schumacker may provide reasonable assistance to Evans & Sutherland. All such
services shall be on similar terms and conditions as those set forth in Section
10 hereof.
GENERAL PROVISIONS
------------------
12. In addition to any other remedies available, both parties shall be
entitled to specific performance of the provisions of this Agreement. Both
parties agree to reimburse the other for all costs reasonably incurred by the
other party in enforcing or attempting to enforce their rights under this
Agreement (or any portion of this Agreement), including without limitation,
reasonable attorneys' fees. Prior to any action being brought to enforce the
terms of this Agreement, the party claiming a breach thereof shall provide the
other party
4
<PAGE>
thirty (30) days notice of breach and all parties shall in good faith seek to
resolve the alleged breach.
13. This Agreement and all performances hereunder shall be governed by and
construed in accordance with the laws of the State of Utah. Schumacker hereby
irrevocably submits to the exclusive jurisdiction of any Utah court and any
federal court sitting in Utah in respect of any suit or proceeding arising out
of or connected to this Agreement.
14. Except as expressly provided to the contrary herein, each paragraph,
term and provision of this Agreement, and any portion thereof, shall be
considered severable and if, for any reason, any such provision of this
Agreement is held to be invalid, contrary to or in conflict with any applicable
present or future law or regulation by any court, agency or tribunal with
competent jurisdiction in a proceeding to which Evans & Sutherland is a party,
that ruling shall not impair the operation of, or have any other effect upon,
such other portions of this Agreement as may remain otherwise intelligible,
which shall continue to be given full force and effect and bind the parties
hereto, although any portion held to be invalid shall be deemed not to be a part
of this Agreement from the date the time for appeal expires. In such case, the
parties shall negotiate in good faith to replace the invalid provision with one
which has the same commercial and economic effect on the parties and affords
them essentially the same basic rights and obligations.
15. Schumacker represents and warrants that Schumaker has not assigned or
transferred any claim covered by this Agreement and Release, or any portion of
any such claim, and that no promises or representations have been made to
Schumacker by Evans & Sutherland about benefits other than as set forth in this
Agreement and Release, or in a separate written agreement.
16. All payments received by Schumacker under the terms of this Agreement
shall be allocated one-half to the non-competition provisions herein contained
and one-half to the release of claims granted by Schumacker to Evans &
Sutherland.
17. SCHUMACKER ACKNOWLEDGES THAT HE HAS HAD SUFFICIENT TIME TO READ AND
------------------------------------------------------------------
UNDERSTAND THIS AGREEMENT AND THAT HE HAS CAREFULLY READ AND DOES FULLY
-----------------------------------------------------------------------
UNDERSTAND THIS AGREEMENT. SCHUMACKER UNDERSTANDS THAT SCHUMACKER MAY CONSULT
---------------------------------------------------------------------------
WITH AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT AND THAT SCHUMACKER IS GIVING
-----------------------------------------------------------------------------
UP ANY LEGAL CLAIMS SCHUMACKER MAY HAVE AGAINST EVANS & SUTHERLAND BY SIGNING
----------------------------------------------------------------------------
THIS AGREEMENT. SCHUMACKER FURTHER ACKNOWLEDGES THAT NO REPRESENTATIONS OTHER
----------------------------------------------------------------------------
THAN THOSE CONTAINED IN THIS AGREEMENT HAVE BEEN MADE TO HIM TO INDUCE OR
-------------------------------------------------------------------------
INFLUENCE HIS EXECUTION OF THIS AGREEMENT AND THAT SCHUMACKER
-------------------------------------------------------------
5
<PAGE>
DOES SO WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE PAYMENT DESCRIBED ABOVE.
------------------------------------------------------------------------------
Dated: January 6, 1995
EVANS & SUTHERLAND COMPUTER CORPORATION
By: /s/ GARY E. MEREDITH
----------------------------------------------
Its: Vice President & CFO
---------------------------------------------
/S/ ROBERT A. SCHUMACKER
---------------------------------------------
Robert A. Schumacker
6
<PAGE>
Exhibit 10.12
MUTUAL RELEASE AND SEPARATION AGREEMENT
---------------------------------------
THIS MUTUAL RELEASE AND SEPARATION AGREEMENT ("Agreement") is made this 27
day of January, 1995, by and between EVANS & SUTHERLAND COMPUTER CORPORATION
("Evans & Sutherland"), a Utah corporation with offices in Salt Lake City, Utah,
and RODNEY S. ROUGELOT ("Rougelot"), an individual residing in Salt Lake City,
Utah.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Evans & Sutherland and Rougelot have determined that the
employment of Rougelot at Evans & Sutherland shall terminate as of December 30,
1994 (the "Termination Date"); and
WHEREAS, the parties desire to obtain mutual releases of claims including,
without limitation, any and all claims which may have arisen or may arise
because of Rougelot's employment with and termination from Evans & Sutherland;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereby agree as follows:
1. Termination of Service as Officer and Resignation as Director.
-------------------------------------------------------------
Effective as of the close of business on December 6, 1994, service by Rougelot
as President and CEO of Evans & Sutherland has been terminated. Effective as of
the execution date of this Agreement, Rougelot shall resign from the Board of
Directors of Evans & Sutherland.
2. Payment. Upon execution of this Agreement, Evans & Sutherland shall
-------
pay to Rougelot the sum of Six Hundred Eighty Thousand Dollars ($680,000.00),
less income tax withholding, which amount shall be paid in a single cash
payment. The sum paid to Rougelot shall be paid in settlement of, and shall be
allocated to, the following:
Releases Contained in Paragraph
4(a) Below of Claims Which Could
be Asserted Now or In the Future
by Rougelot Under the Age
Discrimination in Employment Act,
29 U.S.C. (S) 621 et seq.: $ 520,000.00
Noncompetition Covenant Contained
in Paragraph 7 Below: 150,000.00
All Other Mutual Releases Contained
Below 5,000.00
<PAGE>
Consulting Access Agreement Contained
in Paragraph 8 Below: 5,000
-------------
TOTAL $ 680,000.00
=============
On the Termination Date, Evans & Sutherland will also pay Rougelot all accrued
and unpaid final wages, unused vacation, and any amounts held for the benefit of
Rougelot under any other accrued benefit in accordance with the normal policies
and procedures of Evans & Sutherland for terminated employees.
3. Continuation of Medical Benefits. Evans & Sutherland will make family
--------------------------------
medical insurance premium payments directly to Evans & Sutherland's medical plan
for continuation coverage required under COBRA and, after that continuation
coverage has expired, to the Evans & Sutherland insurance company for a
conversion policy through March 3, 1998, the date that Rougelot will attain age
sixty-five (65), thereby permitting Rougelot at no cost to continue to
participate until such date in all employee and employee dependent health
benefits, group medical and supplemental medical benefits to the same extent as
Rougelot is participating on the Termination Date.
4. Releases.
--------
(a) Without limiting the generality of the mutual releases set forth in
this paragraph 4 below, Rougelot hereby releases Evans & Sutherland from all
claims, liabilities, demands and causes of action, whether known or unknown,
which Rougelot has, may have or claims to have against Evans & Sutherland
based upon or arising out of the Age Discrimination in Employment Act, 29
U.S.C. (S) 621 et seq.
(b) Except as set forth herein, Rougelot hereby releases Evans &
Sutherland and its officers, directors, employees and legal successors from
all claims, liabilities, demands and causes of action, whether known or
unknown, which Rougelot has, may have or claims to have against Evans &
Sutherland based upon or arising out of Rougelot's employment with Evans &
Sutherland or the termination of Rougelot's employment with Evans & Sutherland
to the date of execution of this Agreement. One of the effects of Rougelot's
signing of this Agreement is to prevent Rougelot from filing a lawsuit to
assert claims for wrongful discharge or for claims of age discrimination under
federal, state or local laws prohibiting such discrimination. As used herein,
Evans & Sutherland includes any and all parents, divisions or subsidiaries of
- 2 -
<PAGE>
Evans & Sutherland. This Agreement does not prevent Rougelot from receiving
any benefit to which Rougelot would otherwise have a non-forfeitable right to
receive under an existing Evans & Sutherland benefit plan or arrangement,
including, without limitation, benefits earned under Evans & Sutherland's
pension retirement (401(k)), disability, group life, or other plans; Worker's
Compensation benefits; or health and medical benefit plan.
(c) Notwithstanding anything contained in this Agreement to the
contrary, Rougelot will continue to participate in and receive the benefit of
any Evans & Sutherland corporate policy, shareholders resolution, directors
resolution, directors and officers insurance policy, provision contained in
the corporate Articles of Incorporation of Bylaws, and any other agreement
respecting the release or indemnification of Rougelot against claims
individually, or of officers and directors generally. Evans & Sutherland shall
secure and maintain the continuation of any directors' and officers' insurance
coverage or benefit afforded Rougelot as of the Termination Date for the
lesser of six (6) years from and after the date of execution of this
Agreement, or for so long as Evans & Sutherland maintains similar coverage for
other officers and directors.
(d) Except as set forth herein, Evans & Sutherland hereby releases
Rougelot and his legal successors, personal representatives and assigns from
all claims, liabilities, demands and causes of action, whether known or
unknown, which Evans & Sutherland has, may have or claims to have against
Rougelot based upon or arising out of Rougelot's employment with Evans &
Sutherland or the termination of Rougelot's employment with Evans & Sutherland
to the date of execution of this Agreement.
(e) For purposes of implementing a full and complete mutual release and
discharge, the parties expressly waive and relinquish all rights and benefits
other than those rights and benefits provided by this Agreement, and
acknowledge that this Agreement is intended to include and discharge all
claims, known or unknown, relating to Rougelot's employment, the termination
of such employment, or of the performance by Rougelot of his responsibilities
and duties in connection with his employment for Evans & Sutherland, except as
provided herein.
5. Indemnification. The parties agree to indemnify and hold each other
---------------
harmless from and against all loss, cost and
- 3 -
<PAGE>
expense, including, but not limited to, court costs and attorneys' fees, arising
from or in connection with any action or proceeding which may be commenced,
prosecuted or threatened by either of the parties hereto, contrary to the
provisions of this Agreement. The parties agree that in any such action or
proceeding, this Agreement may be pled as a complete defense, or may be asserted
by way of counterclaim or crossclaim.
6. Confidentiality and Proprietary Rights. Rougelot agrees that he will
--------------------------------------
maintain in strict confidence all Confidential Information (as defined below)
about Evans & Sutherland which Rougelot has received while employed by Evans &
Sutherland. For purposes of this paragraph 6, the term "Confidential
Information" shall mean all documents and information which Evans & Sutherland
reasonably deems to be proprietary or confidential in nature and shall include,
but not be limited to, any and all proprietary facts regarding product or
production costs; suppliers; customers; technology; business strategy; product
innovation; employment matters; compensation; and contemplated, pending or
completed contracts for services or products. Notwithstanding the foregoing,
"Confidential Information" shall not include any of the following:
(a) Any documents or information required to be disclosed pursuant to
federal or state statute or pursuant to order by a court of competent
jurisdiction;
(b) Any documents or information in the public domain at the time of
receipt or coming into the public domain thereafter;
(c) Any documents or information known to Rougelot on a
nonconfidential basis prior to disclosure from Evans & Sutherland;
(d) Any documents or information disclosed with the prior written
approval of Evans & Sutherland;
(e) Any documents or information independently developed by Rougelot;
(f) Any documents or information lawfully disclosed to Rougelot by a
third party under conditions reasonably believed to permit such disclosure;
or
(g) Any documents or information disclosed by Evans & Sutherland to
others on any unrestricted basis.
- 4 -
<PAGE>
Rougelot has no obligation to supply to any party any proprietary
information pursuant to this Agreement. This Agreement contains the entire
understanding between the parties relative to the protection of Confidential
Information and supersedes all prior and collateral communications, reports and
understandings between the parties in respect thereto. Evans & Sutherland shall
have the right to obtain injunctive relief to enforce the terms of this
paragraph 6, in addition to such other monetary damages from breach of this
Agreement as may be awarded by a court of competent jurisdiction.
7. Noncompetition. Rougelot hereby agrees that for a period of one (1)
--------------
year from December 30, 1994, neither Rougelot nor any affiliate of Rougelot
will, directly or indirectly, individually or in concert with others, as
promoter, shareholder, officer, director, employee, agent, representative,
independent contractor or otherwise:
(a) Engage anywhere in North or South America, Europe, Asia or
Australia in any business which is competitive in any way with the businesses
engaged in as of December 30, 1994 by Evans & Sutherland and any of its
subsidiaries;
(b) Induce or attempt to induce any customer or supplier of Evans &
Sutherland or of Evans & Sutherland's business who was such on December 30,
1994 to reduce the level of business with, or to cease or refrain from doing
business with Evans & Sutherland, or any affiliate of Evans & Sutherland,
within such geographical area, or to in any way materially interfere with the
relationships between Evans & Sutherland or its affiliates and any such
customer or supplier in any of the geographical areas set forth in Section
7(a) above.
As used in this Agreement, the term "affiliate" shall mean any individual,
joint venture, partnership, corporation, limited liability company or
partnership, or stockholder which controls, is controlled by, or is under common
control with, or the management and operations of which are substantially
influenced by Evans & Sutherland or Rougelot, as the case may be, or in which
Evans & Sutherland or Rougelot owns any interest or by which Rougelot is
employed, as required by the contents of this Agreement. Notwithstanding
anything contained herein to the contrary, Rougelot may own or hold an interest
or shares of stock in a publicly held entity deemed to be competitive with Evans
& Sutherland, so long as it is not a controlling interest or position.
Notwithstanding anything to the contrary herein contained, in the event Rougelot
desires employment or a consultancy arrangement with any party which would
- 5 -
<PAGE>
violate or potentially violate the terms of this non-competition provision,
Rougelot may propose an exception to the provisions of this Agreement which
would prevent such employment or consultancy, and Evans & Sutherland will
respond to such a request within a reasonable period of time. Further, Evans &
Sutherland agrees that it will consider and respond to any such request for an
exception in good faith; provided, however, that nothing herein shall be
construed as requiring Evans & Sutherland to grant any such requested exception.
If the provision herein which restricts competitive activity is deemed
unenforceable by virtue of its scope in terms of area, business activity
prohibited and/or length of time, but would be enforceable by reducing any part
or all thereof, Rougelot agrees that the same shall be enforced to the fullest
extent permissible under the laws and public policies applied in the
jurisdiction in which enforcement is sought.
8. Consulting Services, Access and Assistance Provisions.
-----------------------------------------------------
(a) Rougelot agrees to reasonably cooperate and make himself reasonably
available to Evans & Sutherland and its counsel regarding all matters
concerning the litigation, arbitration or settlement of claims between Evans
& Sutherland and Thomson Training & Simulation Limited (and its present and
former affiliates and owners). In addition to payment of the sum set forth
in paragraph 2 above, Evans & Sutherland agrees to pay all of Rougelot's
reasonable travel and other expenses in connection with this Agreement of
cooperation, together with reasonable consulting fees in an amount to be
mutually agreed upon. Rougelot agrees that this agreement of availability,
cooperation and consultation shall include, but not be limited to,
reasonable assistance in pre-trial or pre-arbitration preparation, testimony
in any proceeding or arbitration and the like.
(b) Rougelot further agrees that, upon reasonable request from Evans &
Sutherland, he will reasonably assist and consult with Evans & Sutherland
with regard to matters upon which Rougelot may provide reasonable assistance
to Evans & Sutherland for a period not to exceed one year (or as otherwise
later mutually agreed by the parties in writing), commencing on the date
hereof. In addition to payment of the sum set forth in paragraph 2 above,
all such consulting services shall be compensated at the same rate and upon
the same terms and conditions as set forth in paragraph 8(a) above.
9. Confidentiality. Evans & Sutherland and Rougelot agree that the
---------------
existence and terms of this Agreement and all matters
-6-
<PAGE>
relating to the released claims shall be and remain confidential. Therefore,
Evans & Sutherland and Rougelot agree not to divulge or describe any information
concerning such matters or the existence of the terms of this Agreement to
anyone, with the exception of Rougelot's spouse, and except as required by law
or permitted herein. This paragraph shall not apply to any action by either
party to enforce the Agreement.
10. General Provisions.
------------------
(a) Each party hereto acknowledges that a remedy at law for a breach
or attempted breach of this Agreement may be inadequate, and agrees that
each party hereto shall be entitled to specific performance and injunctive
or other equitable relief in case of any breach or attempted breach.
(b) Any dispute, claim or controversy concerning questions of fact or
law arising out of or relating to this Agreement, to performance by either
party, or to the threatened, alleged or actual breach thereof by either
party, which is not disposed of by mutual agreement, shall be subject to
resolution by appropriate legal proceedings and the prevailing party shall
be entitled to all costs of litigation, including reasonable attorneys'
fees and costs.
(c) This Agreement and all performances hereunder shall be governed
by and construed in accordance with the laws of the State of Utah. The
parties hereby irrevocably submit to the exclusive jurisdiction of any Utah
court and any federal court sitting in Utah in respect of any suit or
proceeding arising out of or connected to this Agreement.
(d) Except as expressly provided to the contrary herein, each
paragraph, term and provision of this Agreement, and any portion thereof,
shall be considered severable and if, for any reason, any such provision of
this Agreement is held to be invalid, contrary to or in conflict with any
applicable present or future law or regulation by any court, agency or
tribunal with competent jurisdiction and a proceeding to which either party
to this Agreement is a party, that ruling shall not impair the operation
of, or have any other effect upon, such other portions of this Agreement as
may remain otherwise enforceable, and which shall continue to be given
full force and effect and bind the parties hereto, although any portion
held to be invalid shall be deemed not to be a part of this Agreement from
the date the time for appeal expires.
-7-
<PAGE>
(e) The parties represent and warrant that they have not assigned or
transferred any claim covered by this Agreement, or any portion of such
claim, and that no promises or representations have been made other than as
set forth in this Agreement.
(f) THE PARTIES ACKNOWLEDGE THAT THEY HAVE HAD SUFFICIENT TIME TO
--------------------------------------------------------------
READ AND UNDERSTAND THIS AGREEMENT AND THAT THEY HAVE CAREFULLY READ AND
------------------------------------------------------------------------
DO FULLY UNDERSTAND THIS AGREEMENT. THE PARTIES UNDERSTAND THAT THEY MAY
------------------------------------------------------------------------
CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT AND THAT THEY
----------------------------------------------------------------------
ARE GIVING UP ANY LEGAL CLAIMS THEY MAY HAVE AGAINST THE OTHER NOT
------------------------------------------------------------------
RETAINED OR PROVIDED FOR HEREIN BY SIGNING THIS AGREEMENT. THE PARTIES
----------------------------------------------------------------------
FURTHER ACKNOWLEDGE THAT NO REPRESENTATIONS OTHER THAN THOSE CONTAINED
----------------------------------------------------------------------
IN THIS AGREEMENT HAVE BEEN MADE TO INDUCE OR INFLUENCE ITS EXECUTION
---------------------------------------------------------------------
AND THAT THE PARTIES DO EXECUTE THIS AGREEMENT WILLINGLY AND VOLUNTARILY IN
---------------------------------------------------------------------------
EXCHANGE FOR THE CONSIDERATION DESCRIBED HEREIN.
------------------------------------------------
(g) This Agreement shall be fully binding upon, inure to the benefit
of, and be enforceable by and against the parties hereto and their
respective successors, assigns and legal representatives.
(h) Any notice, request, demand or other communication will be deemed
given if in writing and delivered in person, by fascimile, or by first-
class U.S. mail, properly addressed with the required postage prepaid, to
the intended recipient at the recipient's address specified below:
Evans & Sutherland
Attn: Chief Financial Officer
600 Komas Drive
Salt Lake City, Utah 84108
with a simultaneous copy to:
David F. Evans
Snell & Wilmer, L.L.P.
111 East Broadway, Suite 900
Salt Lake City, Utah 84111
Rodney S. Rougelot
1574 South Cherokee Circle
Salt Lake City, Utah 84108
Either party may change its address by giving the other written notice of
the change in accordance with this paragraph.
-8-
<PAGE>
DATED effective as of the date first above written.
EVANS & SUTHERLAND:
EVANS & SUTHERLAND COMPUTER
CORPORATION, a Utah corporation
By: /s/ GARY E. MEREDITH
----------------------------
Title: Vice President
----------------------
ROUGELOT:
/s/ RODNEY S. ROUGELOT
-------------------------------
RODNEY S. ROUGELOT
-9-
<PAGE>
Exhibit 23.1
Accountants' Consent
--------------------
The Board of Directors
Evans & Sutherland Computer Corporation:
We consent to incorporation by reference in the Registration Statements No.
33-39632 and No. 2-76027 on Forms S-8 of Evans & Sutherland Computer Corporation
of our report dated February 16, 1995, except for note 20, which is as of March
1, 1995, relating to the consolidated balance sheets of Evans & Sutherland
Computer Corporation and subsidiaries as of December 30, 1994 and December 31,
1993, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the years in the three-year period ended December 30,
1994, which report appears in the December 30, 1994 Annual Report on Form 10-K
of Evans & Sutherland Computer Corporation.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Salt Lake City, Utah
March 29, 1995
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that each officer and/or director of
Evans & Sutherland Computer Corporation whose signature appears below
constitutes and appoints James R. Oyler and Gary E. Meredith, or either of them,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign in the name and on behalf of the undersigned, as
a director and/or officer of said corporation, the Annual Report on Form 10-K of
Evans & Sutherland Computer Corporation for the year ended December 30, 1994,
and any and all amendments to such Annual Report, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney's-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney's-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney
this 21st day of February, 1995.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ STEWART CARRELL
------------------------------- Chairman of the Board of February 21, 1995
Stewart Carrell Directors
/s/ JAMES R. OYLER
------------------------------- President and Chief February 21, 1995
James R. Oyler Executive Officer
(Principal Executive
Officer) and Director
/s/ GARY E. MEREDITH
------------------------------- Vice President and Chief February 21, 1995
Gary E. Meredith Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ HENRY N. CHRISTIANSEN
------------------------------- Director February 21, 1995
Henry N. Christiansen
/s/ PETER O. CRISP
------------------------------- Director February 21, 1995
Peter O. Crisp
/s/ IVAN E. SUTHERLAND
------------------------------- Director February 21, 1995
Ivan E. Sutherland
/s/ JOHN E. WARNOCK
------------------------------- Director February 21, 1995
John E. Warnock
</TABLE>
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-30-1994
<CASH> 53948
<SECURITIES> 0
<RECEIVABLES> 23649
<ALLOWANCES> 144
<INVENTORY> 26192
<CURRENT-ASSETS> 128186
<PP&E> 104466
<DEPRECIATION> 62802
<TOTAL-ASSETS> 178740
<CURRENT-LIABILITIES> 28956
<BONDS> 20375
<COMMON> 1710
0
0
<OTHER-SE> 125408
<TOTAL-LIABILITY-AND-EQUITY> 178740
<SALES> 113090
<TOTAL-REVENUES> 113090
<CGS> 60626
<TOTAL-COSTS> 68976
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1902
<INCOME-PRETAX> (11384)
<INCOME-TAX> (5825)
<INCOME-CONTINUING> (16512)
<DISCONTINUED> 0
<EXTRAORDINARY> 1859
<CHANGES> 0
<NET-INCOME> (3700)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
