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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 SEPTEMBER 30, 1996
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 0-9134
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TANDEM COMPUTERS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-2266618
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
19333 VALLCO PARKWAY 95014-2599
CUPERTINO, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 285-6000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
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COMMON STOCK, $.025 PAR VALUE, AND NEW YORK STOCK EXCHANGE,
RIGHTS TO PURCHASE SERIES A MIDWEST STOCK EXCHANGE,
PARTICIPATING PREFERRED STOCK PACIFIC STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of December 2, 1996: $1,624,023,884.
The number of shares of Common Stock outstanding as of December 2, 1996:
118,667,378.
DOCUMENTS INCORPORATED BY REFERENCE
(1) The Registrant is incorporating by reference into Parts II (Items 5, 6, 7
and 8) and IV (Item 14) of this Form 10-K certain portions of the
Registrant's 1996 Annual Report to Stockholders.
(2) The Registrant is incorporating by reference into Part III (Items 10, 11, 12
and 13) of this Form 10-K certain portions of the Registrant's definitive
Proxy Statement dated December 10, 1996, for the 1997 Annual Meeting of
Stockholders.
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PART I
ITEM 1. BUSINESS.
Tandem Computers Incorporated (Tandem(R) or the Company), a Delaware
corporation founded in 1974, provides its customers with reliable, scalable
computer systems and client/server solutions. Tandem designs, develops,
manufactures, markets, and supports a full range of computer systems, software
and services, ranging from the workgroup to the data center, to deliver complete
customer solutions. The Company's product offerings during fiscal 1996 included
the NonStop(R) Himalaya(R) K-series of parallel processing servers and the
UNIX(R) System V, Release 4 (SVR4)-based Integrity(R) line of servers. In
October 1996 the Company expanded its product offering with the announcement of
the Himalaya S-series and the Microsoft(R) Windows NT(R) Server-based line of
symmetric multiprocessing servers.
Tandem leverages its fundamental strengths in three major application
areas: commercial online transaction processing (OLTP), decision support, and
electronic commerce. With the advent of the internet and growing corporate
intranets, the Company believes OLTP will be expanded in the future to include
internet transaction processing (iTP(TM)). The Company believes that it is well
positioned to provide the computing solutions to meet the demand for reliability
and scalability in these internet transaction processing computing
infrastructures.
In 1996 the Company reorganized into product line business units, including
Parallel Systems Group, Communications Platforms, ServerWare(TM), ServerNet(TM),
and Atalla.
PARALLEL SYSTEMS -- HIMALAYA AND WINDOWS NT SERVER-BASED SYSTEMS
NonStop Himalaya servers, together with the Tandem NonStop Kernel operating
system, deliver data integrity, linear scalability, distributed processing, and
distributed data capability. The parallel architecture of NonStop servers means
processors work in parallel so multiple units of work can be processed reliably
and simultaneously. All NonStop servers allow substantial linear expansion of
processing power within a single system through the addition of processors. This
enables the user to expand the system's transaction processing capacity without
sacrificing the initial investment in hardware and software.
Himalaya servers are based on reduced instruction-set computing (RISC)
technology. Himalaya servers connect to a wide range of client platforms and
operating systems, including Microsoft Windows(R), MS-DOS(R), OS/2, SCO UNIX,
SunOS, HP-UX, Microsoft Windows NT, and Apple System 7 operating systems.
NonStop Himalaya servers also support a wide range of open database gateways and
open networking
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All references to years throughout Parts I, II, and IV represent the
Company's fiscal years ended September 30, unless otherwise indicated.
Tandem, Atalla, Himalaya, Integrity, iTP, NonStop, ServerNet, ServerWare,
and the Tandem logo are trademarks or registered trademarks of Tandem Computers
Incorporated in the United States and/or other countries. Microsoft, MS-DOS,
Windows, and Windows NT are either registered trademarks or trademarks of
Microsoft corporation in the United States and/or other countries. UB Networks,
GeoLAN, GeoRim/E, GeoStax, and GeoSwitch are trademarks of Ungermann-Bass
Networks, Inc. UNIX is a registered trademark in the United States and other
countries, licensed exclusively through X/Open Company Ltd. X/Open is a
registered trademark, and the X device is a trademark, of X/Open Company Ltd.
TUXEDO is a registered trademark of Novell, Inc., exclusively licensed to BEA
Systems, Inc. MIPS is a registered trademark of MIPS Technologies, Inc., a
wholly owned subsidiary of Silicon Graphics, Inc. Java is a trademark of Sun
MicroSystems, Inc. All other brand and product names are trademarks or
registered trademarks of their respective companies.
"System Area Network" and the acronym "SAN" are being used by Tandem as
generic descriptive terms and neither are intended to be interpreted as
trademarks of Tandem. Third parties are encouraged to use these terms as they
are generic and descriptive.
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standards, including TCP/IP, NetBIOS, RSC, ODBC, AppleTalk, SNA, and OSI. In
addition, NonStop Himalaya servers support portability requirements through
their Open System Services.
In October 1996 the Company announced its S-series servers -- ServerNet(TM)
technology-enabled NonStop Himalaya servers and Windows NT Server-based systems.
The S-series Himalaya servers use ServerNet technology to provide direct,
high-speed interconnections between system components -- processors,
input/output (I/O) devices, and storage. The S-series Himalaya servers scale to
massive levels of I/O bandwidth, processing power, and storage. The S-series
Himalaya servers are designed to meet the high-bandwidth requirements of the
media-rich, megadata-intensive transactions that are anticipated in the future
over corporate intranets and the internet, as well as data warehousing and
decision support applications.
Based on the Intel Pentium Pro microprocessor, Tandem's S-series Windows NT
Server-based systems are designed to extend Tandem's strengths into the market
for commodity-based servers that support enterprise-wide business-critical
applications. These servers incorporate industry-standard symmetric
multiprocessing (SMP) technology, scale from one to four processors, and are
available in both deskside tower and data center rack-mounted configurations. In
1997, using optional software and either Ethernet or Tandem ServerNet
technology, customers can expect to connect these servers together into highly
reliable server clusters for improved application availability and scalability.
Tandem's S-series Windows NT Server-based systems are certified compatible
with the Microsoft Windows NT Server operating system, versions 3.51 and 4.0,
ensuring compatibility with numerous existing applications developed for the
Windows NT Server operating system, plus an extensive selection of development
tools and middleware. In addition, the S-series Windows NT Server-based systems
will fully support the Microsoft clustering environment when it becomes
available in early 1997.
Tandem's parallel servers are tailored for business-critical applications
in the finance, telecommunications, and retail industries, addressing
transaction processing, interactive customer service, decision support, and
electronic commerce.
COMMUNICATIONS PLATFORMS -- INTEGRITY SERVERS
The RISC-based Integrity servers are designed to extend Tandem's strengths,
particularly reliability and scalability, to the market for UNIX systems.
Integrity servers can detect, isolate, and recover from component failures
without the operating system or applications being affected. During 1996 Tandem
began shipping the Integrity S4000 server. The S4000 employs the ServerNet
architecture as the system area network for scalable I/O bandwidth.
Integrity servers conform to the System V Interface Definition (SVID), the
IEEE POSIX standards, the X/Open(R) Portability Guide Base Profile, and the
MIPS(R) ABI standard. Accordingly, numerous, existing applications based on the
UNIX operating system are available to users of Integrity servers. Integrity
servers also support application development tools and databases from a variety
of independent software vendors, as well as a variety of open middleware from
suppliers such as Oracle Corporation and Informix.
Tandem markets its Integrity servers to both telecommunications equipment
and telecommunications service providers. Within the Communications Platforms
business unit, Tandem Telecom Network Systems provides home location register
solutions for the wireless industry, authentication service management systems,
customer wireless applications, and telecommunications hardware and software for
"off-switch" service control solutions. The Electronic Commerce division markets
internet transaction processing solutions, including call center, intranet
servicers, and messaging, to internet service providers and communications
companies.
SERVERNET(TM) ARCHITECTURE
Designed to provide reliable, scalable communications between processors
and peripherals, the ServerNet technology, or system area network (SAN),
provides a core interconnect architecture for clustering -- a chip-
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level I/O subsystem allowing components to interconnect without mandatory
processor intervention. ServerNet technology uses multiple high-speed, low-cost
routers to switch data rapidly and directly between multiple data sources and
destinations, including processors, storage, and communications devices. By
providing the intelligent switching that previously could be supplied only by a
processor, ServerNet architecture eliminates the need for a processor in every
data path. With the ServerNet switch controlling the data path, data can flow
directly from processor to processor, from processor to device, from device to
processor, and from device to device.
ServerNet technology provides the architecture for Tandem's most recent
generation of NonStop Himalaya servers, Windows NT Server-based systems, and
Integrity servers. The Company also licenses the technology and sells
interconnect hardware and software on commodity boards to other leading hardware
vendors for inclusion in their products.
SERVERWARE(TM) SOFTWARE
Tandem's ServerWare software, originally developed on the Company's NonStop
Himalaya platform, is middleware that provides a robust, scalable infrastructure
for business-critical applications. ServerWare software is intended to run on
any vendor's Intel based Windows NT Server hardware, as well as on Tandem's
Himalaya and Windows NT Server-based platforms. ServerWare software solutions
are well suited to the high-performance, high-availability capabilities of
clustered systems, while providing the ease of management associated with a
single system.
ServerWare products comprise ServerWare database, a relational database
system derived from Tandem's NonStop SQL/MP product; transaction APIs that are
compatible with the TUXEDO(R) product from BEA Systems, Inc.; a new initiative
called TPObjects which will enable object-oriented transaction processing with
Java(TM); and the Information Matrix, a messaging infrastructure for rapid and
reliable delivery of high volumes of transactions.
ATALLA
Atalla provides robust hardware-based encryption technology for financial
institutions and retail merchants. Atalla designs, manufactures, and supports
online transaction automation systems for financial, retail, and other business
applications. Atalla's products include security processors for the internet and
other networks; point-of-sale, point-of-entry, credit/debit payment terminals,
check readers, and customer authorization PIN selection terminals that secure
enrollment products for banks, retailers, and state electronic bank transfers.
PERIPHERALS
For complete solutions, the Company offers high-quality, industry-standard
peripherals -- including high-performance UNIX system-based workstations and
servers, storage devices, and printing products -- through original equipment
manufacturer (OEM) and value-added reseller (VAR) relationships. The Company
adds hardware and software enhancements to several of these products prior to
resale.
NETWORKING -- UB NETWORKS, INC.
UB Networks, Inc. (UB Networks), a separate major line of business, is a
supplier of networking hardware and software products for shared and switched
environments. The full line of enterprise-wide networking products includes the
GeoLAN/500 fault tolerant super-switching hub, the GeoSwitch/155 ATM Switch, the
GeoRim/E Ethernet switch, and the GeoStax stackable workgroup hubs. UB Networks
also provides network management and application products, including its EMPower
distributed management system and Virtual Network Architecture. Its service
division offers innovative support solutions such as comprehensive integration
services and advanced interactive support via the internet.
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During 1996 the Company adopted a plan to sell UB Networks and engaged
Lehman Brothers to assist in executing the sale. The results of UB Networks have
been segregated and accounted for as a discontinued operation in the Company's
Consolidated Financial Statements, incorporated herein by reference.
MARKETING, SALES, AND SUPPORT
Tandem markets its products primarily through its own organization, which
includes marketing, direct sales, training, field support, and professional
services personnel. The Company also markets its products through distributors,
VARs, and OEMs. The Company's OEM and reseller relationships are principally
with major U.S. and Japanese telecommunications switching vendors. Tandem has
also established marketing relationships with leading systems integrators. The
Company intends to continue its expansion of alternate distribution channels
worldwide.
Applications are typically developed and provided by application software
providers and resellers or by the customer's own programmers. To facilitate the
development and availability of applications on Tandem systems, the Company
established the Tandem Alliance program for selected software houses, systems
integrators, VARs, and other related businesses. The Company offers Alliance
members a variety of licensing, marketing, technical, and sales support
programs. More than 350 Alliance members work with Tandem to develop solutions
for customers in a wide range of industries.
To enhance its international marketing, sales, and support efforts, Tandem
has established joint ventures in Chile, Japan, Mexico, Peru, Singapore, China,
and a number of European countries. The Company's joint ventures in Chile,
Mexico, and Peru distribute and support Tandem products. Other joint ventures
provide project management and contract consulting services to Tandem customers,
and develop and support customized application software to meet the needs of the
local marketplace. They may also assist Tandem Alliance members with the
distribution and support of their software products.
During 1996, approximately 70 percent of the Company's hardware sales were
to end users. The remaining sales were to distributors and to resellers. No
customer accounted for 10 percent or more of the Company's total 1996 revenues.
The Company strives to minimize the time between receipt of orders and
shipment of systems. Typically, Tandem ships within 90 days of receiving the
order. For this reason, and because customers may change delivery schedules or
cancel orders, the order backlog at any particular date may not be
representative of the Company's actual sales for any succeeding fiscal period.
Tandem offers professional services and education, including design
consulting, systems integration, operations management guidance, and system
requirements planning. Tandem's support centers can perform system diagnostics
remotely on both hardware and software. The Company also offers on-site service.
PRODUCT DEVELOPMENT
Tandem continues to develop new products and enhance existing products to
give its customers improved price/performance, to broaden Tandem's customer base
by providing industry-specific platforms and solutions, and to make Tandem
systems and their benefits more accessible in a client/server environment.
Tandem is committed to providing open systems that deliver connectivity,
interoperability, and portability. The Company expects to introduce additional
products in the future based on the NonStop Kernel, Microsoft Windows NT, and
UNIX operating systems, incorporating the Company's ServerNet technology.
The computer industry is characterized by rapid technological advances. To
remain competitive, computer companies must pursue technical development.
Accordingly, the Company continues to incur substantial engineering and software
development expenses. During 1996, 1995, and 1994, the Company's research and
development expenses, excluding discontinued operations, were $287.7 million,
$282.4 million, and $232.3 million, respectively. Reference is made to the
information found under the caption "Software development costs" in the Notes to
Consolidated Financial Statements of the Company's Annual Report, incorporated
herein by reference.
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COMPETITION
The market for computer systems is highly competitive. Potential purchasers
consider many factors: price/performance and cost of ownership, openness, system
capability, availability, scalability, compatibility, reliability and
maintainability, and the manufacturer's ability to develop new products and
enhance existing ones. Tandem believes that its Himalaya, Integrity, and Windows
NT Server-based products compete favorably with respect to these factors.
Tandem systems compete with those of three classes of competitors.
Competitors for traditional fault-tolerant systems include IBM, Digital
Equipment Corporation (DEC), and Stratus Computer, Inc. (Stratus). The new
pricing and open features of Himalaya servers position them in a broader market
and against a wider range of competitors, including Sequent Computers, Inc.
(Sequent); Sun Microsystems, Inc. (Sun); and Hewlett-Packard Company (HP).
Certain massively parallel configurations of NonStop servers are competitive
with products from other providers of parallel systems. Recent increased
industry focus on commercial parallelism has placed Tandem in competition with
nontraditional competitors. Specifically, in parallel database applications such
as decision support, AT&T Global Information Solutions and the IBM SP/2 product
family are competitors.
Tandem's Windows NT Server-based systems compete in the emerging market for
enterprise servers, running the Windows NT Server operating system. Major
competitors include HP, Compaq, DEC, NCR, and IBM. The Integrity server family
competes with UNIX system-based offerings from HP, IBM, Sequent, Stratus, and
Sun. In the highly competitive LAN market, UB Networks competes with several
established and emerging computer communications and LAN companies, including
IBM, DEC, Cabletron Systems, Bay Networks, 3Com Corporation, and Cisco Systems,
Inc.
MANUFACTURING
The Company's manufacturing facilities are located in Fremont, California,
and in Stirling, Scotland. Manufacture of Tandem computer systems requires the
testing of integrated circuits, circuit boards, peripheral subsystems, power
supplies, and other items, as well as final assembly, integration, and testing
of completed computer systems. All inspection, final assembly, and system
integration tests are performed by Company personnel. In general, the Company
assembles its systems from components and prefabricated parts manufactured by
others. Tandem's Windows NT Server-based systems are assembled by an outside
system integrator, based on Tandem specifications and using components specified
by Tandem. A number of the custom and semicustom integrated circuits, printed
circuit boards, and power supplies are manufactured by others to the Company's
specifications. Tandem purchases terminals, workstations, printers, disk drive
head disk assemblies, tape drives, cable assemblies, power supplies, and other
subassemblies and peripheral equipment.
Most of the components and peripherals used in the Company's systems are
available from a number of different suppliers. The Company believes that
alternative sources could be developed, if required, for present single-sourced
components or peripherals. Although the Company has not experienced any
significant problem in obtaining its required supplies, future shortages of
components or peripherals could result in production delays that could adversely
affect business.
ENVIRONMENTAL REGULATIONS
The Company's objectives include providing products and services that are
environmentally sound, and conducting business operations in an environmentally
responsible manner. Compliance with federal, state, and local provisions related
to the discharge of materials into the environment or otherwise related to
protection of the environment by the Company has not had, nor is expected to
have, a material effect on the capital expenditures, earnings, or competitive
position of the Company.
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PATENTS
Tandem has been awarded patents in the United States and other countries
for various aspects of its computer systems. Additional patent applications are
pending in the United States and other countries. There can be no assurance that
any of these applications will result in the award of a patent or that the
Company would be successful in asserting its patent rights in any subsequent
infringement actions. The patents and patent applications, although of
significant value to the Company, are not considered to be of material
importance to the business as a whole.
Because a large number of patents exist in the computer field and new
patents are issued frequently, it is not economically practical to determine in
advance whether a new product or any of its components infringe any patent. Some
of the Company's products have been alleged to infringe patents, and additional
allegations may be made in the future. In the event of an infringement, the
Company believes that, based on industry practice, any necessary licenses or
rights under such patents may be obtained on terms that would not have a
material adverse financial effect on the Company.
EMPLOYEES
As of September 30, 1996, the Company had 7,938 full-time equivalent
employees, including 1,070 full-time equivalent employees of UB Networks.
FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Reference is made to the information found in the Company's Annual Report
under the caption "Outlook and Risks" in Management's Discussion and Analysis of
Financial Condition and Results of Operations and under the caption "Segment
Information" in the Notes to Consolidated Financial Statements, incorporated
herein by reference.
ITEM 2. PROPERTIES.
The Company is headquartered in Cupertino, California, where it owns 18
buildings and leases one, totaling approximately 1.7 million square feet.
Approximately 60 percent of the space is devoted to product development
functions, while the remaining 40 percent houses marketing and administration.
In addition, Tandem owns approximately 18.2 acres of unimproved property,
situated near its Cupertino headquarters, for future expansion. The Company also
owns a 12.5 acre unimproved site and a 10 acre improved site, which are both
currently under contract to be sold. In 1996, the Company sold its Cupertino
retail shopping center and also leased, to another company, a 100,666 square
foot owned building.
Outside of Cupertino, the Company leases approximately 495,000 square feet
in Fremont, California, where it has consolidated all U.S. manufacturing.
Additionally, the Company leases a 70,809 square foot facility, devoted to
development, marketing and administration in Plano, Texas. The Company owns a
134,500 square foot manufacturing facility in Stirling, Scotland. In addition,
Tandem owns a product development facility of approximately 190,000 square feet
in Austin, Texas. The Company also leases sales, field service and training
offices at more than 180 locations in North America, Europe, Asia and the
Pacific Rim. In 1988, Tandem entered into a prepaid 999 year lease for property
near London, that serves as its United Kingdom headquarters.
The Company's UB Networks, Inc. subsidiary leases six buildings in Santa
Clara, California.
For information about Tandem's lease commitments, reference is made to the
information found under the caption "Property, Plant and Equipment" in the Notes
to Consolidated Financial Statements, incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
Mark Gaffney v. Tandem Computers Inc. The Company and three principal
officers, James G. Treybig, David J. Rynne and Robert C. Marshall, were named as
defendants in a class action complaint for damages
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filed in the United States District Court for the Northern District of
California on July 19, 1995. The class action is purported to be on behalf of
purchasers of the Company's Common Stock between March 8 and July 12, 1995. The
complaint alleges violations of Section 10(b) of the Securities Exchange Act and
Securities and Exchange Commission Rule 10b-5 in connection with public
statements about the Company's expected revenues for the second and third
quarters of 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Reference is made to the information regarding the principal United States
markets for the Company's Common Stock, market stock price range, dividends, and
holders of record of the Common Stock of the Company found under the caption
"Quarterly Financial Data" in the Notes to Consolidated Financial Statements
incorporated herein by reference from page 42 of the Company's 1996 Annual
Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is incorporated by reference from
page 18 of the Company's 1996 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this item is incorporated by reference from
pages 8 through 17 of the Company's 1996 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements and supplementary information included
in the 1996 Annual Report to Stockholders from pages 20 through 43 are
incorporated herein by reference:
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ANNUAL REPORT
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Consolidated Statements of Operations.............................. 20
Consolidated Balance Sheets........................................ 21
Consolidated Statements of Stockholders' Investment................ 22
Consolidated Statements of Cash Flows.............................. 23
Notes to Consolidated Statements................................... 24-42
Quarterly Financial Data........................................... 42
Report of Ernst & Young LLP........................................ 43
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
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NAME AGE POSITION OR OFFICE AND PRINCIPAL OCCUPATION
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EXECUTIVE OFFICERS OF THE
REGISTRANT
Roel Pieper...................... 40 Chief Executive Officer since January 8, 1996 and
Vice Chairman since October 22, 1996. President from
January 8, 1996 to October 22, 1996. Senior Vice
President, President and Chief Executive Officer of
UB Networks, Inc. from 1993 to January 1996.
President and Chief Executive Officer from 1991 to
1993 of UNIX Systems Laboratories, Inc. Chief
Technical Officer and Senior Vice President of
Software AG from 1981 to 1991. Director of Smart
Valley Inc., Veritas Software Corporation, Lincoln
National Corporation and General Magic Inc.
Enrico L. Pesatori............... 56 President and Chief Operating Officer of the Company
since October 22, 1996. Vice President and General
Manager, Computer Systems Division of Digital
Equipment Corporation from February 1993 to July
1996. President and Chief Executive Officer of
Zenith Data Systems from January 1991 to January
1993. Various management positions with Ing. C.
Olivetti & C., S.p.A., including President and Chief
Executive Officer of Olivetti North America, Chief
Executive Officer of Docutel-Olivetti, Vice
President of Corporate Product Strategy and head of
Olivetti Systems Group from August 1969 to December
1990.
Jack W. Chapman.................. 62 Vice President and Chairman, Tandem Europe since
October 1990. Vice President, Sales from 1988 to
1990, Vice President, International Sales Operations
from 1986 to 1988, and Vice President and Managing
Director, European Division from 1983 to 1986. Mr.
Chapman joined Tandem in 1978 as Managing Director
of Tandem Computers Limited in the United Kingdom.
He has also held the positions of Director of the
Northwest Europe Region and General Manager of
Central Europe.
Eric L. Doggett.................. 37 Senior Vice President and General Manager,
Communications Platforms Business Unit and
responsible for UNIX and Telecommunications Networks
Solutions divisions of the Company since 1996. Vice
President of Technology, Vice President Marketing,
Vice President/General Manager International
Switching, Vice President Operations-Japan and other
management positions with Public Carrier Network
Group of Nortel from 1984 to 1996.
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NAME AGE POSITION OR OFFICE AND PRINCIPAL OCCUPATION
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Kurt L. Friedrich................ 47 Senior Vice President, General Manager and Chief
Technology Officer, Parallel Systems Business Unit
since 1996. Senior Vice President and General
Manager, Systems Development Group from 1993 to
1996. Prior to joining Tandem, Mr. Friedrich was
General Manager, Software Development, at Hewlett
Packard Company from 1992 to 1993, and was Vice
President, Software Development, and held other
software and product management positions, at
Digital Equipment Corporation from 1974 to 1992.
William W. Heil, Jr.............. 39 Senior Vice President and General Manager,
ServerWare Business Unit since 1996. Senior Vice
President, Marketing from 1995 to 1996. Vice
President, Product Management/Marketing from 1991 to
1995. Director of Systems Product Management from
1989 to 1991. Product Manager, Distributed Systems
from 1986 to 1989.
Lawrence A. Laurich.............. 53 Vice President, Systems Development since 1992, and
General Manager, Austin Unit Operations since 1995.
Vice President, Systems and Manufacturing
Development from 1988 to 1992, Vice President,
Transaction Systems Division from 1987 to 1988, Vice
President, Engineering from 1985 to 1987, Vice
President, Hardware Development from 1983 to 1985,
and Vice President, Engineering from 1978 to 1983.
John T. Losier................... 43 Senior Vice President, Worldwide Sales and Services
since March 1996. President of Large Business
Services, Bell Atlantic, 1996. President of Bell
Atlantic Meridian Systems from 1993 to 1996. Vice
President Marketing, Private Networks, of Northern
Telecom, from 1991 to 1993. Held other key positions
with Northern Telecom, AT&T Information, Sperry
Information, and IBM.
Josephine T. Parry............... 48 Vice President, General Counsel and Secretary since
1992. Assistant General Counsel and Director of Law
from 1989 to 1992. Ms. Parry joined Tandem in 1987
from Atari Corporation where she served as Corporate
Counsel from 1984 to 1987.
Gerald L. Peterson............... 51 Senior Vice President and General Manager, ServerNet
Business Unit since 1996. Senior Vice President and
General Manager, Tandem Sales and Support Group from
1993 to 1996. Senior Vice President and General
Manager, Tandem Sales and Marketing Group from 1988
to 1993. Vice President, Marketing from 1985 to
1988, Vice President, International Marketing and
Product Management from 1984 to 1985, and Vice
President, International Marketing from 1982 to
1984. He joined Tandem in 1980 as Director of
Marketing.
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9
<PAGE> 11
<TABLE>
<CAPTION>
NAME AGE POSITION OR OFFICE AND PRINCIPAL OCCUPATION
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
John T. Reece.................... 52 Vice President and Corporate Controller of the
Company since January 1996. Director of Finance of
the Company from 1990 to January 1996. Held key
finance positions with IBM Corporation from 1965 to
1990.
David J. Rynne................... 56 Senior Vice President and Chief Financial Officer
since 1988. Vice President and Chief Financial
Officer from 1983 to 1988. Prior to joining Tandem
in 1983, Mr. Rynne was with the Burroughs
Corporation (now Unisys Corporation) for 18 years,
where he held key finance positions.
Gerd Stoecker.................... 53 Vice President and Treasurer since 1988. Treasurer
from 1987 to 1988. Prior to joining Tandem in 1984
as Controller of Marketing, Mr. Stoecker was with
Atari, Inc.
DIRECTORS OF THE REGISTRANT
Morton Collins................... 60 General Partner of DSV Partners III and DSV
Management, Ltd., Princeton, New Jersey, private
investment partnerships, since 1981, 1982 and 1985,
respectively; General Partner, DSV Associates,
private investment partnership, from 1974 to 1986;
Director of Kopin Corporation, The Liposome Company
and TermoTrex Corporation.
Robert M. Kavner................. 53 President and Chief Executive Officer of On Command
Corp. since September 1996; independent internet,
entertainment and telecommunications consultant from
August 1995 to September 1996; head of Business
Advisory Group of Creative Artists Agency from June
1994 to August 1995; Executive Vice President of
AT&T, Chief Executive Officer of Multimedia Products
and Services Group and member of Executive Committee
of AT&T from 1992 to June 1994 and held various
other positions with AT&T from 1984 to 1992;
Director of Fleet Financial Group and Ascent
Entertainment Inc.
Roel Pieper...................... 40 See page 8.
Alex S. Vieux.................... 39 Chairman of DASAR Inc., a company providing
strategic and marketing support for technology
companies and organizing international tradeshows
and industry conferences, since 1989; Special
Advisor to the French Ministry of Industry since
1990; U.S. business correspondent for French daily,
LeMonde, from 1986 to 1992; Consultant for Andersen
Consulting from 1982 to 1985; taught economics at
Universite de Paris-La Sorbonne from 1981 to 1984;
Director of NetSource Communications and AI Tech
International Corp.
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
NAME AGE POSITION OR OFFICE AND PRINCIPAL OCCUPATION
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
CLASS II
Franklin P. Johnson, Jr.......... 68 General Partner of Asset Management Partners, a Palo
Alto, California private investment partnership,
since 1982; Owner of Asset Management Company, a
Palo Alto, California investment management
proprietorship, since 1967; Member of the Advisory
Board of the Center for Economic Policy Research,
Stanford University; Director of AMGen, Boole &
Babbage, and Idec Pharmaceuticals Corporation.
Thomas J. Perkins................ 64 Chairman of the Board of the Company since 1974;
General Partner of Kleiner & Perkins and Kleiner
Perkins Caufield & Byers, San Francisco, California,
private investment partnerships, since 1972 and a
general or limited partner of the ensuing Kleiner
Perkins Caufield & Byers funds; Director of Philips
Electronics N.V. and the News Corporation, Ltd.
CLASS III
Vera Stephanie Shirley........... 63 Life President of F.I. Group, PLC, a computer
services, training and recruitment company, since
1962; Master of the Worshipful Company of
Information Technologists, 1992 through 1993;
Director of AEA Technology plc and UK Atomic Energy
Authority; Chair, the Kingwood Trust.
Enrico L. Pesatori............... 56 See page 8.
Robert G. Stone, Jr.............. 73 Chairman Emeritus and Director of the Board of Kirby
Corporation, a diversified corporation engaged,
through its subsidiaries, in inland and offshore
transportation and diesel repairs, since 1983;
Director of Core Industries, Inc., NovaCare, Russell
Reynolds Associates, Inc. and Tejas Gas Corporation;
Director emeritus of The Chubb Corporation, Corning
Incorporated, The Pittson Company, Japan Fund Inc.
and various funds managed by Scudder, Stevens &
Clark.
Walter B. Wriston................ 77 Chairman and Chief Executive Officer of Citicorp and
Citibank, N.A., from 1970 to 1984; President and
Chief Executive Officer of Citicorp from 1968 to
1970; President and Chief Executive Officer of
Citibank, N.A., from 1967 to 1970; Director of AEA
Investors, Inc., Cygnus, Inc., Vion Pharmaceuticals,
Inc., United Meridian Corporation, York
International Corporation, WMNB Acquisition Corp.
and ICOS Corporation.
</TABLE>
There are no family relationships among the executive officers.
Reference is made to the information regarding Section 16(a) of the
Securities Exchange Act of 1934 on page 6 of the Company's definitive Proxy
Statement dated December 10, 1996 for its 1997 Annual Meeting of Stockholders
(the "Proxy Statement"), which information is incorporated in this Form 10-K by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Reference is made to the information appearing under the captions
"Compensation of Executive Officers and Directors" appearing on pages 7-12 and
17 and "Certain Transactions and Employment Agreements" on pages 18 through 20
of the Proxy Statement, which information is incorporated in this Form 10-K by
reference.
11
<PAGE> 13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to the information appearing under the caption "Stock
Ownership" on pages 5 and 6 of the Proxy Statement, which information is
incorporated in this Form 10-K by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the information appearing under the caption "Certain
Transactions and Employment Agreements" on pages 18 through 20 of the Proxy
Statement, which information is incorporated in this Form 10-K by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of the report:
1. All financial statements.*
<TABLE>
<CAPTION>
ANNUAL REPORT
INDEX TO FINANCIAL STATEMENTS PAGES
------------------------------------------------------------------------ -------------
<S> <C>
Consolidated Statements of Operations................................... 20
Consolidated Balance Sheets............................................. 21
Consolidated Statements of Stockholders' Investment..................... 22
Consolidated Statements of Cash Flows................................... 23
Notes to Consolidated Financial Statements.............................. 24-42
Report of Ernst & Young LLP, Independent Auditors....................... 43
</TABLE>
- ---------------
* Incorporated herein by reference from the indicated pages of the 1996 Annual
Report to Stockholders.
2. Financial statement schedules.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENT SCHEDULES
------------------------------------------------------------------------
<S> <C>
Financial Statement Schedules
II. Valuation and Qualifying Accounts................................... S-1
</TABLE>
All other schedules have been omitted because the required information is
not present or not present in amounts sufficient to require submission of the
schedules, or because the information required is included in the consolidated
financial statements or notes thereto.
3. Exhibits required by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -----------------------------------------------------------------------------------
<C> <S>
3.1* Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the
Company's Report on Form 10-K for the fiscal year ended September 30, 1994.
3.2 By-laws of the Company, as amended.
4.1* First Amended and Restated Rights Agreement, dated June 17, 1988, between the
Company and Bank of America, N.T. & S.A., as Rights Agent, filed as Exhibit 4.1 to
the Company's Report on Form 10-K for the fiscal year ended September 30, 1988.
10.1*+ Form of Non-Qualified Stock Option Plan and Agreement between the Company and
Walter B. Wriston, dated as of October 9, 1991, filed as Exhibit 10.3 to the
Company's Report on Form 10-K for the fiscal year ended September 30, 1991.
10.2*+ Tandem Computers Incorporated 1979 Stock Option Plan, as amended, filed as Exhibit
10.6 to the Company's Report on Form 10-K for the fiscal year ended September 30,
1988.
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -----------------------------------------------------------------------------------
<C> <S>
10.3*+ Tandem Computers Incorporated 1981 Stock Option Plan, as amended, filed as Exhibit
10.7 to the Company's Report on Form 10-K for the fiscal year ended September 30,
1988.
10.4*+ Tandem Computers Incorporated 1989 Stock Plan, as amended, filed as Exhibit 10.1 to
the Company's Report on Form 10-Q for the quarter ended December 31, 1994.
10.5*+ Tandem Computers Incorporated Stock Option Plan for Non-Employee Directors, filed
as Exhibit 10.8 to the Company's Report on Form 10-K for the fiscal year ended
September 30, 1987.
10.6*+ Form of Non-Qualified Stock Option Plan and Agreement between the Company and Vera
Stephanie Shirley, dated as of December 8, 1992, filed as Exhibit 10.6 to the
Company's Report on Form 10-K for the fiscal year ended September 30, 1993.
10.7*+ Form of Non-Qualified Stock Option Plan and Agreement between the Company and Sir
Campbell Fraser, dated as of September 28, 1993, filed as Exhibit 10.7 to the
Company's Report on Form 10-K for the fiscal Year ended September 30, 1993.
10.8*+ Tandem Computers Incorporated Deferred Compensation Plan, as amended and restated
as of October 1, 1995, filed as Exhibit 10.8 to the Company's Report on Form 10-K
for the fiscal year ended September 30, 1995.
10.9*+ Form of Employment Agreement entered into during the quarter ended June 30, 1995,
between the Company and the following former and current executive officers: James
G. Treybig, Robert C. Marshall, David J. Rynne, Donald E. Fowler, Kurt L.
Friedrich, Gerald L. Peterson and Roel Pieper, filed as Exhibit 10.1 to the
Company's Report on Form 10-Q for the quarter ended June 30, 1995.
10.10*+ Amendment to Employment Agreement dated as of October 20, 1995 between the Company
and Donald E. Fowler, filed as Exhibit 10.10 to the Company's Report on Form 10-K
for the fiscal year ended September 30, 1995.
10.11*+ Amendment to Employment Agreement dated as of October 20, 1995 between the Company
and Robert C. Marshall, filed as Exhibit 10.11 to the Company's Report on Form 10-K
for the fiscal year ended September 30, 1995.
10.12+ Amendments to Employment Agreement dated January 1, 1996 and May 2, 1996 between
the Company and Kurt L. Friedrich.
10.13+ Amendment to Employment Agreement dated January 1, 1996 between the Company and
Gerald L. Peterson.
10.14+ Amendment to Employment Agreement dated January 1, 1996 between the Company and
David J. Rynne.
10.15+ Employment Agreement dated January 8, 1996 between the Company and Roel Pieper.
10.16+ Amendment to Employment Agreement dated January 10, 1996 between the Company and
James G. Treybig.
10.17+ Employment Agreement dated February 21, 1996 between John T. Losier and the
Company.
10.18+ The Tandem Computers Incorporated 1997 Stock Plan.
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -----------------------------------------------------------------------------------
<C> <S>
13.0 1996 Annual Report to Stockholders. Except for the portions expressly incorporated
by reference, this Annual Report is not deemed to be filed as part of this Annual
Report on Form 10-K.
22.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP (see page 15).
27 Financial Data Schedules.
</TABLE>
- ---------------
* Incorporated by reference.
+ Director or officer compensatory plan.
(b) Reports on Form 8-K during the fourth quarter: None.
14
<PAGE> 16
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Tandem Computers Incorporated of our report dated October 22, 1996,
included in the 1996 Annual Report to Stockholders of Tandem Computers
Incorporated.
Our audits also included the financial statement schedule of Tandem
Computers Incorporated, listed in Item 14(a)(2). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth herein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-2635, 33-12572, 33-15875, 33-29773, 33-55421,
33-58759 and 333-17139) and in the Registration Statement (Form S-3 No.
33-20902) of Tandem Computers Incorporated and in the related Prospectuses of
our report dated October 22, 1996, with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedule included in
this Annual Report (Form 10-K) of Tandem Computers Incorporated.
ERNST & YOUNG LLP
San Jose, California
December 17, 1996
15
<PAGE> 17
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.
December 17, 1996 TANDEM COMPUTERS INCORPORATED
By /s/ DAVID J. RYNNE
------------------------------------
David J. Rynne
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
Chief Executive Officer and
By /s/ ROEL PIEPER Director (Principal Executive December 17, 1996
- ------------------------------------------ Officer)
Roel Pieper
Senior Vice President and
By /s/ DAVID J. RYNNE Chief Financial Officer December 17, 1996
- ------------------------------------------ (Principal Financial Officer)
David J. Rynne
Vice President and Corporate
By /s/ JOHN T. REECE Controller (Principal December 17, 1996
- ------------------------------------------ Accounting Officer)
John T. Reece
President, Chief Operating
By /s/ ENRICO L. PESATORI Officer and Director December 17, 1996
- ------------------------------------------
Enrico L. Pesatori
By /s/ THOMAS J. PERKINS Director December 17, 1996
- ------------------------------------------
Thomas J. Perkins
By /s/ JACK F. BENNETT Director December 17, 1996
- ------------------------------------------
Jack F. Bennett
By /s/ MORTON COLLINS Director December 17, 1996
- ------------------------------------------
Morton Collins
By /s/ FRANKLIN P. JOHNSON, JR. Director December 17, 1996
- ------------------------------------------
Franklin P. Johnson, Jr.
By /s/ ROBERT M. KAVNER Director December 17, 1996
- ------------------------------------------
Robert M. Kavner
</TABLE>
16
<PAGE> 18
<TABLE>
<C> <S> <C>
By /s/ VERA STEPHANIE SHIRLEY Director December 17, 1996
- ------------------------------------------
Vera Stephanie Shirley
By /s/ ROBERT G. STONE, JR. Director December 17, 1996
- ------------------------------------------
Robert G. Stone, Jr.
By /s/ WASHINGTON SYCIP Director December 17, 1996
- ------------------------------------------
Washington SyCip
By /s/ ALEX S. VIEUX Director December 17, 1996
- ------------------------------------------
Alex S. Vieux
By /s/ WALTER B. WRISTON Director December 17, 1996
- ------------------------------------------
Walter B. Wriston
</TABLE>
17
<PAGE> 19
SCHEDULE II
TANDEM COMPUTERS INCORPORATED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
---------------------
COLUMN B ADDITIONS
---------- --------------------- COLUMN D COLUMN E
COLUMN A BALANCE AT CHARGED TO CHARGED ----------- -----------
- ------------------------------------------ BEGINNING COSTS AND TO OTHER AMOUNTS BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS WRITTEN OFF END OF YEAR
- ------------------------------------------ ---------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Accounts Receivable Allowance
1996.................................... $ 17,721 $8,021 $ (3,446)(1) $ 2,434 $19,862
======= ====== ======= ====== =======
1995.................................... $ 17,931 $2,738 -- $ 2,948 $17,721
======= ====== ======= ====== =======
1994.................................... $ 17,745 $2,684 -- $ 2,498 $17,931
======= ====== ======= ====== =======
</TABLE>
- ---------------
(1) Accounts receivable allowance of UB Networks has been reclassified and
presented as part of net current assets of discontinued operations.
S-1
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ------ -----------------------------------------------------------------------------
<C> <S> <C>
3.1* Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to
the Company's Report on Form 10-K for the fiscal year ended September 30,
1994.
3.2 By-laws of the Company, as amended.
4.1* First Amended and Restated Rights Agreement, dated June 17, 1988, between the
Company and Bank of America, N.T. & S.A., as Rights Agent, filed as Exhibit
4.1 to the Company's Report on Form 10-K for the fiscal year ended September
30, 1988.
10.1*+ Form of Non-Qualified Stock Option Plan and Agreement between the Company and
Walter B. Wriston, dated as of October 9, 1991, filed as Exhibit 10.3 to the
Company's Report on Form 10-K for the fiscal year ended September 30, 1991.
10.2*+ Tandem Computers Incorporated 1979 Stock Option Plan, as amended, filed as
Exhibit 10.6 to the Company's Report on Form 10-K for the fiscal year ended
September 30, 1988.
10.3*+ Tandem Computers Incorporated 1981 Stock Option Plan, as amended, filed as
Exhibit 10.7 to the Company's Report on Form 10-K for the fiscal year ended
September 30, 1988.
10.4*+ Tandem Computers Incorporated 1989 Stock Plan, as amended, filed as Exhibit
10.1 to the Company's Report on Form 10-Q for the quarter ended December 31,
1994.
10.5*+ Tandem Computers Incorporated Stock Option Plan for Non-Employee Directors,
filed as Exhibit 10.8 to the Company's Report on Form 10-K for the fiscal
year ended September 30, 1987.
10.6*+ Form of Non-Qualified Stock Option Plan and Agreement between the Company and
Vera Stephanie Shirley, dated as of December 8, 1992, filed as Exhibit 10.6
to the Company's Report on Form 10-K for the fiscal year ended September 30,
1993.
10.7*+ Form of Non-Qualified Stock Option Plan and Agreement between the Company and
Sir Campbell Fraser, dated as of September 28, 1993, filed as Exhibit 10.7 to
the Company's Report on Form 10-K for the fiscal Year ended September 30,
1993.
10.8*+ Tandem Computers Incorporated Deferred Compensation Plan, as amended and
restated as of October 1, 1995, filed as Exhibit 10.8 to the Company's Report
on Form 10-K for the fiscal year ended September 30, 1995.
10.9*+ Form of Employment Agreement entered into during the quarter ended June 30,
1995, between the Company and the following former and current executive
officers: James G. Treybig, Robert C. Marshall, David J. Rynne, Donald E.
Fowler, Kurt L. Friedrich, Gerald L. Peterson and Roel Pieper, filed as
Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended June
30, 1995.
10.10*+ Amendment to Employment Agreement dated as of October 20, 1995 between the
Company and Donald E. Fowler, filed as Exhibit 10.10 to the Company's Report
on Form 10-K for the fiscal year ended September 30, 1995.
10.11*+ Amendment to Employment Agreement dated as of October 20, 1995 between the
Company and Robert C. Marshall, filed as Exhibit 10.11 to the Company's
Report on Form 10-K for the fiscal year ended September 30, 1995.
10.12+ Amendments to Employment Agreement dated January 1, 1996 and May 2, 1996
between the Company and Kurt L. Friedrich.
10.13+ Amendment to Employment Agreement dated January 1, 1996 between the Company
and Gerald L. Peterson.
10.14+ Amendment to Employment Agreement dated January 1, 1996 between the Company
and David J. Rynne.
10.15+ Employment Agreement dated January 8, 1996 between the Company and Roel
Pieper.
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
<C> <S> <C>
10.16+ Amendment to Employment Agreement dated January 10, 1996 between the Company
and James G. Treybig.
10.17+ Employment Agreement dated February 21, 1996 between John T. Losier and the
Company.
10.18+ The Tandem Computers Incorporated 1997 Stock Plan.
13.0 1996 Annual Report to Stockholders. Except for the portions expressly
incorporated by reference, this Annual Report is not deemed to be filed as
part of this Annual Report on Form 10-K.
22.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP (see page 15).
27 Financial Data Schedules.
</TABLE>
- ---------------
* Incorporated by reference.
+ Director or officer compensatory plan.
(b) Reports on Form 8-K during the fourth quarter: None.
<PAGE> 1
Exhibit 3.2
B Y - L A W S
of
TANDEM COMPUTERS INCORPORATED
Adopted
January 15, 1980
Amended:
July 31, 1984
July 28, 1988
February 13, 1989
February 20, 1990
November 11, 1996
<PAGE> 2
B Y - L A W S
of
TANDEM COMPUTERS INCORPORATED
TABLE OF CONTENTS
Page
ARTICLE I - Offices
Section 1. Registered Office.......................... 1
Section 2. Other Offices.............................. 1
ARTICLE II - Meetings of Stockholders
Section 1. Election of Directors...................... 1
Section 2. Annual Meetings............................ 2
Section 3. Notice of Annual Meeting................... 3
Section 4. Stock Ledger............................... 3
Section 5. Special Meetings........................... 4
Section 6. Notice of Special Meetings................. 4
Section 7. Business at Special Meeting................ 4
Section 8. Quorum; Adjourned Meetings................. 4
Section 9. Required Vote.............................. 5
Section 10. Vote Per Share; Proxies.................... 5
Section 11. Written Consent............................ 6
ARTICLE III - Directors
Section 1. Number..................................... 8
Section 2. Vacancies.................................. 9
Section 3. Duties..................................... 9
Section 4. Meetings................................... 10
Section 5. Organizational Meeting..................... 10
Section 6. Regular Meetings........................... 10
Section 7. Special Meetings; Notice................... 11
Section 8. Quorum; Required Vote; Adjourned
Meetings................................... 12
Section 9. Written Consent............................ 12
Section 10. Telephone Meetings......................... 13
Section 11. Committees................................. 13
Section 12. Compensation............................... 14
Section 13. Removal.................................... 15
Section 14. Nominations................................ 15
Section 15. Rights Agreement........................... 17
-i-
<PAGE> 3
ARTICLE IV - Notices
Section 1. Manner........................................... 17
Section 2. Waiver........................................... 17
ARTICLE V - Officers
Section 1. Required Officers................................ 18
Section 2. Other Officers................................... 18
Section 3. Salaries......................................... 18
Section 4. Term; Removal.................................... 19
Section 5. Chief Executive Officer.......................... 19
Section 6. President........................................ 19
Section 7. Chief Operating Officer.......................... 20
Section 8. Vice President................................... 20
Section 9. Secretary........................................ 20
Section 10. Assistant Secretary.............................. 21
Section 11. Treasurer........................................ 22
Section 12. Assistant Treasurer.............................. 22
ARTICLE VI - Stock Certificates
Section 1. Required Signatures.............................. 23
Section 2. Facsimile Signatures............................. 23
Section 3. Partly Paid Shares............................... 23
Section 4. Classes of Stock................................. 24
Section 5. Lost Certificates................................ 24
Section 6. Transfer......................................... 25
Section 7. Record Date...................................... 25
Section 8. Record Owners.................................... 26
ARTICLE VII - Indemnification
Section 1. General.......................................... 26
Section 2. Non-Exclusivity.................................. 27
ARTICLE VIII - General Provisions
Section 1. Dividends........................................ 28
Section 2. Reserves......................................... 28
Section 3. Annual Statement................................. 28
Section 4. Checks........................................... 28
Section 5. Fiscal Year...................................... 29
Section 6. Seal............................................. 29
ARTICLE IX - Amendments
Section 1. Procedure........................................ 29
Section 2. Stockholder Amendments........................... 29
-ii-
<PAGE> 4
B Y - L A W S
of
TANDEM COMPUTERS INCORPORATED,
a Delaware corporation
ARTICLE I
Offices
Section 1. Registered Office. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle, State of Delaware. The board of directors may change the location of the
registered office to any other place in Delaware.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
Meetings of Stockholders
Section 1. Election of Directors. All meetings of the stockholders for
the election of directors shall be held in the City of Cupertino, State of
California, at such place as may be fixed from time to time by the board of
directors, or at such other place either within or without the State of Delaware
as shall be designated from time to time by the board of directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and
-1-
<PAGE> 5
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of stockholders shall be
held at such date and time as shall be designated from time to time by the board
of directors and stated in the notice of the meeting. At each annual meeting,
directors shall be elected for the class of directors whose terms are then
expiring and the stockholders shall transact such other business as may properly
be brought before such meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of directors, (b) otherwise
properly brought before the meeting by or at the direction of the board of
directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the secretary must have received written notice from the
stockholder not less than thirty (30) days nor more than sixty (60) days prior
to the meeting. Such written notice to the secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting, (b)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
corporation which are beneficially owned by the stockholder and (d) any material
interest of the
-2-
<PAGE> 6
stockholder in such business. Notwithstanding any other provision in the by-laws
to the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 2.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting. If mailed, notice is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
Section 4. Stock Ledger. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during
-3-
<PAGE> 7
the whole time thereof and may be inspected by any stockholder who is present.
Section 5. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by the General Corporation
Law of the State of Delaware or by the certificate of incorporation, may be
called by the president and shall be called by the president or secretary at the
request in writing of a majority of the board of directors. Such request shall
state the purpose or purposes of the proposed meeting.
Section 6. Notice of Special Meetings. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the corporation.
Section 7. Business at Special Meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 8. Quorum; Adjourned Meetings. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute
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or by the certificate of incorporation. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time until a quorum shall be present
or represented. Except as hereinafter provided, no notice of the adjourned
meeting need be given if the time and place thereof are announced at the meeting
at which the adjournment is taken. At any adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 9. Required Vote. When a quorum is present at any meeting of
stockholders, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
brought before such meeting unless the question is one upon which, by express
provision of the General Corporation Law of the State of Delaware or of the
certificate of incorporation, a different vote is required, in which case such
express provision shall govern and control the vote on such question.
Section 10. Vote Per Share; Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one
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vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on or after three
years from its date, unless the proxy provides for a longer period. At all
elections of directors of the corporation each stockholder having voting power
shall be entitled to exercise the right of cumulative voting as provided in the
certificate of incorporation.
Section 11. Written Consent. Unless otherwise provided in the
Certificate of Incorporation, any action required by law to be taken at any
annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, which consent shall be
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Prompt notice of the taking of corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
To be valid, a written consent must be signed by each and every record
owner for which such written consent is being
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given. No written consent shall be valid for longer than sixty (60) days after
its execution.
In addition to any other applicable requirements, for business to be
properly submitted to the stockholders for action by written consent by a
stockholder, the stockholder must have given timely notice thereof in writing
(the "Stockholder Notice") to the secretary of the corporation, in order that
the board of directors may fix a record date pursuant to this Section 11. A
Stockholder Notice must be delivered to or mailed and received at the principal
executive office of the corporation, addressed to the attention of the secretary
of the corporation. A Stockholder Notice shall set forth as to each matter the
stockholder proposes to submit to the stockholders for action by written consent
(a) a brief description of the business desired to be so submitted, (b) the name
and record address of the stockholder proposing such business, and (c) the class
and number of shares of the corporation which are beneficially owned by the
stockholder.
In order that the corporation may determine the stockholders entitled
to act by written consent, the board of directors shall fix in advance a record
date, which shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the board of directors. Any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent shall in its Stockholder Notice request the
board of directors to fix a record date. The board of directors shall, promptly,
but in all
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events not more than ten (10) days after the date on which such Stockholder
Notice is received, adopt a resolution fixing the record date. If no record date
has been fixed by the board of directors within ten (10) days of the date on
which such Stockholder Notice is received, the record date for determining
stockholders entitled to act by written consent, when no prior action by the
board of directors is required by applicable law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its secretary.
Delivery made to the Company's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the board of directors and prior action by the board of directors
is required by applicable law, the record date for determining stockholders
entitled to act by written consent shall be at the close of business on the date
on which the board of directors adopts the resolution taking such prior action.
ARTICLE III
Directors
Section 1. Number. The number and classes of directors which shall
constitute the whole board shall be as provided in the certificate of
incorporation. At each annual meeting of the stockholders, directors shall be
elected for that class of directors whose terms are then expiring, except as
provided in Section 2 of this Article, and each director so elected shall
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hold office until his successor is elected and qualified or until his earlier
resignation or removal. Directors need not be stockholders.
Section 2. Vacancies. Sole power to fill vacancies and newly created
directorships resulting from any increase in the authorized number of directors
shall be vested in the board of directors through action by a majority of the
directors then in office, though less than a quorum, or by a sole remaining
director, and each director so chosen shall hold office in that class until the
next annual election for directors of that class and until his successor is duly
elected and qualified or until his earlier resignation or removal. If there are
no directors in office, then an election of directors may be held in the manner
provided by the General Corporation Law of the State of Delaware. If, at the
time of filling any vacancy or newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery of the State of
Delaware, upon application of any stockholder or stockholders holding at least
ten percent of the total number of the shares at the time outstanding having the
right to vote for such directors, may summarily order an election to be held to
fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office.
Section 3. Duties. The business and affairs of the corporation shall be
managed by the board of directors.
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Section 4. Meetings. The board of directors may hold meetings, both
regular and special, either within or without the State of Delaware.
Section 5. Organizational Meeting. The first meeting of each newly
elected board of directors shall be held at such time and place as shall be
fixed by the vote of the stockholders at the annual meeting and no notice of
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present. In the event of
the failure of the stockholders to fix the time or place of such first meeting
of the newly elected board of directors, or in the event such meeting is not
held at the time and place so fixed by the stockholders, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 6. Regular Meetings. Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from time to
time be designated by the board. In the absence of such designation regular
meetings shall be held at the principal executive office of the corporation.
There shall be a regular meeting of the board of directors at or about the time
of the annual meeting of stockholders, for the purpose of organization, election
of officers, and the transaction of other business. Other regular meetings of
the board shall be held without call on such date
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and time as may be fixed by the board of directors; provided, however that
should any such day fall on a legal holiday, then said meeting shall be held at
the same time on the next following day which is not a legal holiday.
Section 7. Special Meetings; Notice. Special meetings of the board may
be held for any purpose or purposes and may be called at any time by the
chairman of the board of directors, the president and chief executive officer or
the chief operating officer, as appointed by the board, or, if all are absent or
unable or refuse to act, by a majority of the directors then in office. Notice
of the time and place of special meetings shall be delivered personally or by
telephone to each director, or sent by first-class mail or telegram or facsimile
transmission, charges prepaid, addressed to him at his address as it appears
upon the records of the corporation. In case such notice is mailed, it shall be
deposited in the United States mail at least four days prior to the time of the
holding of the meeting. In case such notice is telegraphed or sent by facsimile
transmission, it shall be delivered to a common carrier for transmission to the
director or actually transmitted by the person giving the notice by electronic
means to the director at least 48 hours prior to the time of the holding of the
meeting. In case such notice is delivered personally or by telephone as above
provided, it shall be so delivered at least two hours prior to the time of the
holding of the meeting. Any notice given personally or by telephone may be
communicated to either the director or to a person at the office of the director
whom
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the person giving the notice has reason to believe will promptly communicate it
to the director. Such deposit in the mail, delivery to a common carrier,
transmission by electronic means or delivery, personally or by telephone, as
above provided, shall be due, legal and personal notice to such directors. The
notice need not specify the place of the meeting if the meeting is to be held at
the principal executive office of the corporation, and need not specify the
purpose of the meeting.
Section 8. Quorum; Required Vote; Adjourned Meetings. At all meetings
of the board a majority of the total number of directors shall constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the board of directors, except as may be otherwise specifically provided in the
certificate of incorporation. A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of directors,
provided that any action taken is approved by at least a majority of the
required quorum for such meeting. If a quorum shall not be present at any
meeting of the board of directors, a majority of the directors present thereat
may adjourn the meeting from time to time until a quorum shall be present. No
notice of the adjourned meeting need be given if the time and place thereof are
announced at the meeting at which the adjournment is taken.
Section 9. Written Consent. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of
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directors or of any committee thereof may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of the
proceedings of the board or committee.
Section 10. Telephone Meetings. Unless otherwise restricted by the
certificate of incorporation or these by-laws, members of the board of
directors, or of any committee designated by the board of directors, may
participate in a meeting of the board of directors, or such committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 11. Committees. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
which director or directors may replace any absent or disqualified member or
members at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent
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provided in the resolution of the board of directors or in these by-laws, shall
have and may exercise all the powers and authority of the board of directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have such power or authority in reference to
amending the certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the by-laws of the corporation; and, unless the
resolution or by-laws expressly so provide, no such committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock.
Any such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the board of directors.
Each committee shall keep regular minutes of its meetings and report the same to
the board of directors when required.
Section 12. Compensation. Unless otherwise restricted by the
certificate of incorporation or these by-laws, the board of directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the board of directors
and may be paid a fixed sum for attendance at each meeting of the board of
directors or a stated salary as director. No such payment shall
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preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
Section 13. Removal. Any director or the entire board of directors may
be removed, but only for cause by vote of the holders of a majority of shares
entitled to vote at an election of directors.
Section 14. Nominations. Nominations for election to the board at a
meeting of shareholders may be made by the board or a nominating committee
appointed by the board, or by any shareholder of the corporation entitled to
vote for the election of directors at such meeting. Such nominations, other than
those made by or on behalf of the board or the nominating committee of the
board, shall be made by notification in writing, delivered or mailed by
first-class United States mail, postage prepaid, to the chairman of the board of
the corporation not less than 30 days nor more than 60 days prior to any meeting
of shareholders called for the election of directors; provided, however, that if
less than 35 days notice of the meeting is given to shareholders, such
nomination shall be mailed or delivered to the chairman of the board of the
corporation not later than the close of business on the seventh day following
the day on which the notice of meeting was mailed. Other than nominations made
by or on behalf of the board, every nomination for the board of directors at a
meeting of shareholders shall include the submission, filed with the secretary
of the
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corporation, of a statement setting forth the following information as to each
proposed nominee who is not an incumbent director:
(1) the name, age; residence address, and business address of such
proposed nominee;
(2) the current occupation and current employer of such proposed
nominee and the name of all corporations whose boards of directors such proposed
nominee serves or for whom he serves or acts as officer;
(3) a statement as to whether or not either he or any person or firm
with whom he has a relationship as partner, associate, employee or otherwise, is
a shareholder, director, officer, employee, accountant, consultant, adviser,
agent, broker, dealer, nominee, or attorney of or for any person, corporation,
partnership or other entity, or affiliate or subsidiary thereof, which is a
competitor of this corporation;
(4) the amount of stock of the corporation owned beneficially, directly
or indirectly, by such proposed nominee and by members of his family residing
with him and the names of the registered owners thereof; and
(5) a statement as to such proposed nominee describing any conviction
for a felony or misdemeanor (other than for minor traffic violations) that
occurred during the preceding 10 years. The chairman of the meeting may, in his
discretion, determine and declare to the meeting that a nomination not made in
accordance with the foregoing procedure shall be disregarded and of no effect.
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Section 15. Rights Agreement. Notwithstanding any of the foregoing, any
action stated in the First Amended and Restated Rights Agreement, dated June 17,
1988, to be taken by the Board of Directors after a Person has become an
Acquiring Person shall require the presence in office of Continuing Directors
and the concurrence of a majority of the Continuing Directors. Capitalized terms
in this paragraph shall have the meanings indicated in such Rights Agreement.
ARTICLE IV
Notices
Section 1. Manner. Whenever, under the provisions of the General
Corporation Law of the State of Delaware, the certificate of incorporation or
these by-laws, notice is required to be given to any director or stockholder, it
shall not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder at his address as it
appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given in
the manner provided in Article III, Section 7 of these by-laws.
Section 2. Waiver. Whenever any notice is required to be given under
the provisions of the General Corporation Law of the State of Delaware, the
certificate of incorporation or these by-laws, a waiver thereof in writing,
signed by the person or
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persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting, except when the person
attends such meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE V
Officers
Section 1. Required Officers. The board of directors at its meeting
held at or about the time of the annual meeting of stockholders shall choose a
president, one or more vice presidents, a secretary, one or more assistant
secretaries and a treasurer. Any number of offices may be held by the same
person, unless the certificate of incorporation or these by-laws otherwise
provide.
Section 2. Other Officers. The board of directors may appoint such
other officers and agents as it shall deem necessary, all of which officers and
agents shall hold their offices for such terms and shall exercise such powers
and perform such duties as shall be determined from time to time by the board.
Section 3. Salaries. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
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Section 4. Term; Removal. Each officer of the corporation shall hold
office until his successor is elected and qualified or until his earlier
resignation or removal. Any officer elected or appointed by the board of
directors may be removed at any time by the affirmative vote of a majority of
the board of directors. Any vacancy occurring in any office of the corporation
shall be filled by the board of directors.
Section 5. Chief Executive Officer. The chief executive officer of the
corporation shall preside at all meetings of the stockholders and, in the
absence of the chairman of the board, at all meetings of the board of directors.
Subject to the control of the board of directors, he shall have general and
active management of the business of the corporation and shall see that all
orders and resolutions of the board of directors are carried into effect. He
shall execute bonds, mortgages and other contracts requiring a seal under the
seal of the corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the board of directors to some other officer or
agent of the corporation. He shall have all of the powers and shall perform all
of the duties which are ordinarily inherent in the office of the chief executive
officer, and he shall have such further powers and shall perform such further
duties as may be prescribed for him by the board of directors.
Section 6. President. The president shall have all of the powers and
shall perform all of the duties which are ordinarily
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inherent in the office of the president, and he shall have such further powers
and shall perform such further duties as may be prescribed for him by the board
of directors.
Section 7. Chief Operating Officer. The chief operating officer shall
have all of the powers and shall perform all of the duties which are ordinarily
inherent in the office of the chief operating officer, and he shall have such
further powers and shall perform such further duties as may be prescribed for
him by the board of directors.
Section 8. Vice President. In the absence of the president or in the
event of his inability or refusal to act, the vice president (or in the event
there be more than one vice president, the vice presidents in the order
designated by the board of directors or, in the absence of any such designation,
then in the order of their election) shall perform the duties of the president
and, when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. The vice presidents shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
Section 9. Secretary. The secretary shall attend all meetings of the
board of directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the board of directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special
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meetings of the board of directors and committees of the board required by the
by-laws or by law to be given, and he shall perform such other duties as may be
prescribed by the board of directors or president, under whose supervision he
shall be. He shall keep or cause to be kept at the principal executive office of
the corporation or at the office of the corporation's transfer agent a record of
stockholders or a duplicate record of stockholders showing the names of the
stockholders and their addresses, the number of shares and classes of shares
held by each, the number and date of certificate issued for the same and the
number and date of cancellation of every certificate surrendered for
cancellation. He shall have custody of the corporate seal of the corporation and
he, or an assistant secretary, shall have authority to affix the same to any
instrument requiring it, and when so affixed it may be attested by his signature
or by the signature of such assistant secretary. The board of directors may give
general authority to any other officer to affix the seal of the corporation and
to attest the affixing by his signature.
Section 10. Assistant Secretary. The assistant secretary (or in the
event there be more than one assistant secretary, the assistant secretaries in
the order designated by the board of directors or, in the absence of any such
designation, then in the order of their election) shall, in the absence of the
secretary or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the secretary and
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shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
Section 11. Treasurer. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors. He shall disburse the funds of the corporation as may be ordered by
the board of directors, taking proper vouchers for such disbursements, and shall
render to the board of directors, at its regular meetings or when the board of
directors so requires, and to the president an account of all his transactions
as treasurer and of the financial condition of the corporation. If required by
the board of directors, he shall give the corporation a bond (which shall be
renewed every six years) in such sum and with such surety or sureties as shall
be satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 12. Assistant Treasurer. The assistant treasurer (or in the
event there shall be more than one assistant treasurer, the assistant treasurers
in the order designated by the board of directors or, in the absence of any such
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designation, then in the order of their election) shall, in the absence of the
treasurer or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
ARTICLE VI
Stock Certificates
Section 1. Required Signatures. Every holder of stock in the
corporation shall be entitled to have a certificate signed by, or in the name of
the corporation by, the president or a vice president and by the treasurer or an
assistant treasurer or the secretary or an assistant secretary of the
corporation, certifying the number of shares owned by such holder in the
corporation.
Section 2. Facsimile Signatures. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Partly Paid Shares. Certificates may be issued for partly
paid shares. Upon the face or back of the certificates issued to represent any
such partly paid shares the
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total amount of the consideration to be paid therefor and the amount paid
thereon shall be stated.
Section 4. Classes of Stock. If the corporation shall be authorized to
issue more than one class of stock or more than one series of any class, the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions on such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock; provided,
however, that, except as otherwise provided in section 202 of the General
Corporation Law of the State of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock a legend
reciting that the corporation will furnish without charge to each stockholder
who so requests a statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions on such
preferences and/or rights.
Section 5. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
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authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond sufficient to
indemnify it against any claim that may be made against the corporation on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
Section 6. Transfer. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 7. Record Date. In order that the corporation may determine the
stockholders who are entitled to receive notice of or to vote at any meeting of
stockholders or any adjournment thereof, to express consent to corporate action
in writing without a meeting, to receive payment of any dividend or other
distribution or allotment of any rights, or to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the board of directors may fix, in advance, a record date, which
shall not be more than 60 nor less than 10 days before the date of such meeting,
nor more than 60 days prior to any action. A
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determination of stockholders of record entitled to receive notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
Section 8. Record Owners. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner and to hold liable for
calls and assessments a person registered on its books as the owner of shares.
The corporation shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the General Corporation Law of the State of Delaware.
ARTICLE VII
Indemnification
Section 1. General. The corporation shall indemnify any person who was
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys'
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fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, to the
extent and under the circumstances permitted by the General Corporation Law of
the State of Delaware. Such indemnification (unless ordered by a court) shall be
made as authorized in a specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standards of conduct set forth in the General
Corporation Law of the State of Delaware. Such determination shall be made (i)
by the board of directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding or (ii) if such quorum
is not obtainable, or even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion or (iii) by the
stockholders.
Section 2. Non-Exclusivity. The foregoing right of indemnification
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
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<PAGE> 31
ARTICLE VIII
General Provisions
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to the General Corporation Law of the State of Delaware.
Dividends may be paid in cash, in property or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 3. Annual Statement. The board of directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
Section 4. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or
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<PAGE> 32
officers or such other person or persons as the board of directors may from time
to time designate.
Section 5. Fiscal Year. The fiscal year of the corporation shall end on
September 30 of each year.
Section 6. Seal. The corporate seal shall have inscribed thereon the
name of the corporation, the date of its organization and the words "Seal" or
"Incorporated" and "Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE IX
Amendments
Section 1. Procedure. These by-laws may be altered, amended or repealed
or new by-laws may be adopted, at a regular or special meeting or by written
consent, by the stockholders or by the board of directors when such power is
conferred upon the board of directors by the certificate of incorporation.
Section 2. Stockholder Amendments. If the power to adopt, amend or
repeal by-laws is conferred upon the board of directors by the certificate of
incorporation, it shall not divest or limit the power of stockholders to adopt,
amend or repeal by-laws.
-29-
<PAGE> 1
Exhibit 10.12
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of January 1, 1996, is
entered into by and between Tandem Computers Incorporated ("Employer") and Kurt
L. Friedrich ("Executive"), to amend the prior employment agreement previously
entered into between Employer and Executive on May 19, 1995 (the "Employment
Agreement").
Employer and Executive hereby agree that Section 2.01 of the Employment
Agreement shall be amended to read as follows:
"2.01 Period of Employment. The initial term of Executive's employment
pursuant to this Agreement will commence on May 19, 1995 (the "Commencement
Date") and, unless terminated at an earlier date in accordance with Section 5.01
of this Agreement, shall continue in effect until September 30, 1998 or as
extended to a later date under Section 5.03(a) or 5.03(e) of this Agreement. The
term of Executive's employment under the terms of this Agreement commencing on
the Commencement Date and ending pursuant to the terms hereof is hereinafter
referred to as the "Period of Employment." The initial Period of Employment
under this Agreement shall be subject to extension in twelve month increments as
follows. Prior to September 1 of each year during the Executive's Period of
Employment, Employer may elect (which election shall be made in writing), in its
sole discretion, to terminate Executive's employment on the third succeeding
September 30. If no such election is made, the term of Executive's employment
pursuant to the terms of this Agreement shall be automatically extended for an
additional twelve month period, under the terms and conditions in effect at the
time of such extension, or with such modifications as Employer and Executive may
then agree."
IN WITNESS WHEREOF, Employer and Executive have executed this Agreement
as of the date set forth in the first paragraph hereof.
EMPLOYER: TANDEM COMPUTERS INCORPORATED
By: /s/ THOMAS J. PERKINS
-----------------------------------------
Thomas J. Perkins
Chairman of the Board
EXECUTIVE: By: /s/ KURT L. FRIEDRICH
-----------------------------------------
Kurt L. Friedrich
Senior Vice President & General
Manager, Systems Development Group
<PAGE> 2
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of May 2,
1996, is entered into by and between Tandem Computers Incorporated ("Employer")
and Kurt Friedrich ("Executive"), to amend the employment agreement previously
entered into between Employer and Executive on May 19, 1995, as amended prior to
the date hereof (the "Employment Agreement").
Employer and Executive hereby agree that the Employment
Agreement shall be amended as follows:
1. Section 3(a) is amended to change Executive's title and position from
Senior Vice President and General Manager, Systems Development to
Senior Vice President and General Manager of NSK/NT Product Business
Unit and Chief Technology Officer.
2. Section 5.01(d) is amended to add the following provisions:
(A) Executive will accept the new title and position identified in
paragraph 1 above for a one year "trial period" through April
30, 1997. During this period the Chief Executive Officer of
Employer will determine whether to offer to retain Executive
in this position after April 30, 1997.
(B) Executive will be entitled to terminate employment for
"Good Reason" at any time between May 1 and July 31,
1997, due to the reduction which the new position
identified in paragraph 1 above will represent from
his current authorities, duties and responsibilities,
whether or not Employer offers to retain Executive in
this position after April 30, 1997. In such event,
Executive will be entitled to receive all payments and
benefits provided under Section 5.02(d).
3. Section 5.01(e) is amended to provide that Employer will
not terminate the employment of Executive without "Cause"
prior to May 1, 1997.
4. Section 5.02(d) (which applies in the event of termination of
employment by Executive for Good Reason or by Employer without Cause)
is amended to provide the following additional benefits:
(A) If Employer decides to terminate Executive's employment
without "Cause" prior to May 1, 1997, Employer will continue
to employ Executive and to pay Executive's full compensation
and benefits through April 30, 1997, and Executive's
termination of employment will become effective on April 30,
1997.
(B) Executive's rights under his outstanding stock options will be
determined under the terms of the applicable plans and
agreements, except that all of Executive's
<PAGE> 3
stock options which are vested at the time of his termination
of employment will remain outstanding and may be exercised at
any time on or before (i) the third anniversary of his
termination of employment or (ii) the original expiration date
of the applicable stock option, whichever occurs first.
(C) If Executive remains in this position after July 31, 1997,
Executive will no longer be entitled to terminate employment
for "Good Reason" as a result of the change in Executive's
title and position identified in paragraph 1 above.
(D) Executive may terminate employment for "Good Reason" due to
the change identified in paragraph 1 above at any time between
November 1, 1996 and January 31, 1997, and in such event will
be entitled to receive one-third (1/3) of the payments and
benefits provided under Section 5.02(d).
(E) Executive may terminate employment for "Good Reason" due to
the change identified in paragraph 1 above at any time between
February 1 and April 30, 1997, and in such event will be
entitled to receive two-thirds (2/3) of the payments and
benefits provided under Section 5.02(d).
(F) Executive may not terminate employment for "Good Reason" due
to the change identified in paragraph 1 above at any time
prior to November 1, 1996. In the event of any such
termination of employment by Executive prior to November 1,
1996, Executive will not be entitled to receive any of the
payments and benefits provided under Section 5.02(d).
(G) Executive will retain the right to terminate employment for
"Good Reason" in the future under Section 5.01(d) for reasons
other than the change in Executive's title and position
identified in paragraph 1 above.
IN WITNESS WHEREOF, Employer and Executive have executed this
Agreement as of the date set forth in the first paragraph hereof.
EMPLOYER: TANDEM COMPUTERS INCORPORATED
By: /s/ ROEL PIEPER
-----------------------------------
Roel Pieper
Chief Executive Officer
EXECUTIVE: /s/ KURT FRIEDRICH
-----------------------------------
Kurt Friedrich
2
<PAGE> 1
Exhibit 10.13
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of January 1, 1996, is
entered into by and between Tandem Computers Incorporated ("Employer") and
Gerald L. Peterson ("Executive"), to amend the prior employment agreement
previously entered into between Employer and Executive on May 19, 1995 (the
"Employment Agreement").
Employer and Executive hereby agree that Section 2.01 of the Employment
Agreement shall be amended to read as follows:
"2.01 Period of Employment. The initial term of Executive's employment
pursuant to this Agreement will commence on May 19, 1995 (the "Commencement
Date") and, unless terminated at an earlier date in accordance with Section 5.01
of this Agreement, shall continue in effect until September 30, 1998 or as
extended to a later date under Section 5.03(a) or 5.03(e) of this Agreement. The
term of Executive's employment under the terms of this Agreement commencing on
the Commencement Date and ending pursuant to the terms hereof is hereinafter
referred to as the "Period of Employment." The initial Period of Employment
under this Agreement shall be subject to extension in twelve month increments as
follows. Prior to September 1 of each year during the Executive's Period of
Employment, Employer may elect (which election shall be made in writing), in its
sole discretion, to terminate Executive's employment on the third succeeding
September 30. If no such election is made, the term of Executive's employment
pursuant to the terms of this Agreement shall be automatically extended for an
additional twelve month period, under the terms and conditions in effect at the
time of such extension, or with such modifications as Employer and Executive may
then agree."
IN WITNESS WHEREOF, Employer and Executive have executed this Agreement
as of the date set forth in the first paragraph hereof.
EMPLOYER: TANDEM COMPUTERS INCORPORATED
By: /s/ THOMAS J. PERKINS
________________________________
Thomas J. Perkins
Chairman of the Board
EXECUTIVE: By: /s/ GERALD L. PETERSON
________________________________
Gerald L. Peterson
Senior Vice President &
General Manager,
Sales & Support Group
<PAGE> 1
Exhibit 10.14
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of January 1, 1996, is
entered into by and between Tandem Computers Incorporated ("Employer") and David
J. Rynne ("Executive"), to amend the prior employment agreement previously
entered into between Employer and Executive on May 19, 1995 (the "Employment
Agreement").
Employer and Executive hereby agree that Section 2.01 of the Employment
Agreement shall be amended to read as follows:
"2.01 Period of Employment. The initial term of Executive's employment
pursuant to this Agreement will commence on May 19, 1995 (the "Commencement
Date") and, unless terminated at an earlier date in accordance with Section 5.01
of this Agreement, shall continue in effect until September 30, 1998 or as
extended to a later date under Section 5.03(a) or 5.03(e) of this Agreement. The
term of Executive's employment under the terms of this Agreement commencing on
the Commencement Date and ending pursuant to the terms hereof is hereinafter
referred to as the "Period of Employment." The initial Period of Employment
under this Agreement shall be subject to extension in twelve month increments as
follows. Prior to September 1 of each year during the Executive's Period of
Employment, Employer may elect (which election shall be made in writing), in its
sole discretion, to terminate Executive's employment on the third succeeding
September 30. If no such election is made, the term of Executive's employment
pursuant to the terms of this Agreement shall be automatically extended for an
additional twelve month period, under the terms and conditions in effect at the
time of such extension, or with such modifications as Employer and Executive may
then agree."
IN WITNESS WHEREOF, Employer and Executive have executed this Agreement
as of the date set forth in the first paragraph hereof.
EMPLOYER: TANDEM COMPUTERS INCORPORATED
By: /s/ THOMAS J. PERKINS
_________________________________
Thomas J. Perkins
Chairman of the Board
EXECUTIVE: By: /s/ DAVID J. RYNNE
_________________________________
David J. Rynne
Senior Vice President & Chief
Financial Officer
<PAGE> 1
Exhibit 10.15
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of January 8, 1996, is entered into
by and between Tandem Computers Incorporated ("Employer") and Roel Pieper
("Executive"), and supersedes and replaces any prior employment agreement
previously entered into between Employer or any subsidiary thereof and
Executive.
In consideration of the respective undertakings of Employer
and Executive set forth below, Employer and Executive agree as follows:
1. Employment. Employer hereby employs Executive, and
Executive accepts such employment and agrees to perform services
for Employer, for the period and upon the other terms and
conditions set forth in this Agreement.
2. Term of Employment.
2.01 Period of Employment. The initial term of Executive's
employment pursuant to this Agreement will commence on January 8, 1996 (the
"Commencement Date") and, unless terminated at an earlier date in accordance
with Section 5.01 of this Agreement, shall continue in effect until September
30, 1998 or as extended to a later date under Section 5.03(a) or 5.03(e) of this
Agreement. The term of Executive's employment under the terms of this Agreement
commencing on the Commencement Date and ending pursuant to the terms hereof is
hereinafter referred to as the "Period of Employment." The initial Period of
Employment under this Agreement shall be subject to extension in twelve month
increments as follows. Prior to September 1 of each year during the Executive's
Period of Employment, Employer may elect (which election shall be made in
writing), in its sole discretion, to terminate Executive's employment on the
third succeeding September 30. If no such election is made, the term of
Executive's employment pursuant to the terms of this Agreement shall be
automatically extended for an additional twelve month period, under the terms
and conditions in effect at the time of such extension, or with such
modifications as Employer and Executive may then agree.
2.02 Expiration of Period of Employment. Executive may
continue employment with Employer after the expiration of the Period of
Employment, in which case Executive's employment relationship with Employer will
be governed by such other terms as Executive and Employer may agree or as may
apply under applicable law, and Executive's only rights continuing under this
Agreement shall be those rights that have vested during the Period of Employment
or otherwise continue after the Period of Employment under Section 5.03 or other
express terms of this Agreement.
<PAGE> 2
3. Position and Duties.
(a) During the Period of Employment, Executive agrees to perform
such duties and executive functions as Employer shall assign
to him from time to time and shall have the title of President
and Chief Executive Officer. Executive shall devote his best
efforts and (except as provided in Section 5.03(e) hereof)
full-time attention to the performance of his duties.
(b) Except upon the prior written consent of Employer,
Executive, during the Period of Employment, shall not
(i) accept any other employment; or (ii) engage,
directly or indirectly, in any other business,
commercial or professional activity (whether or not
pursued for pecuniary advantage) that is or may be
competitive with Employer, that might create a conflict
of interest with Employer, or that otherwise might
interfere with the business of Employer, or any
affiliate of Employer.
4. Compensation.
4.01 Base Salary. Employer will pay to Executive during the
Period of Employment an annual base salary to be paid in substantially equal
installments in accordance with Employer's standard payroll procedures and
policies. The initial annual base salary will be at the rate currently being
paid to Executive, and the annual base salary may be increased from time to time
in the sole discretion of Employer (and may not be decreased except pursuant to
a reduction comparable to reductions generally applicable to similarly situated
employees of Employer imposed as part of a company wide cost-savings
initiative).
4.02 Annual Bonus. During the Period of Employment, Executive
will be entitled to participate in Employer's Targeted Income Plan, or any other
bonus plan or program made generally available to Employer's senior executives
(the "Plan"). The award of an annual bonus shall be subject to the terms and
provisions of the Plan, which may be modified from time to time, and the
Executive's annual incentive target bonus may be increased in the sole
discretion of Employer (and may not be decreased except pursuant to a reduction
comparable to reductions generally applicable to similarly situated employees of
Employer imposed as part of a company wide cost-savings initiative).
4.03 Stock Options. During the Period of Employment,
Executive will be eligible to receive grants of Employer's stock
options or other stock incentive awards under programs which are
made generally available to Employer's senior executives from
time to time. Such grants are highly discretionary and will be
2
<PAGE> 3
subject to the terms of the applicable plans and agreements adopted by Employer
from time to time.
4.04 Participation in Other Benefit Plans. During the Period
of Employment, Executive will be entitled to participate in Employer's
retirement plans, medical and dental plans, disability plans, life insurance
plans, and other Employer benefits not described elsewhere in this Section 4
which are made generally available to Employer's senior executives from time to
time to the extent that Executive's age, position and other factors qualify him
for such benefits.
4.05 Fringe Benefits and Perquisites; Vacation and Sick Leave.
During the Period of Employment, Employer will provide Executive with such
fringe benefits, perquisites, vacation and sick leave as Employer from time to
time makes generally available to its senior executives.
5. Termination and Change in Control.
5.01 Grounds for Termination. The Period of Employment
will terminate prior to the expiration of the term set forth in
Section 2 of this Agreement in the event that:
(a) Executive dies.
(b) Executive becomes permanently disabled and qualifies for
payments under Employer's disability plans for a period
covering 90 consecutive days.
(c) Employer terminates the Period of Employment for Cause.
"Cause" means termination upon (i) willful and
substantial failure by Executive to perform his duties
with Employer (other than due to disability);
(ii) willful engaging by Executive in conduct which is
demonstrably and materially injurious to Employer or
that demonstrates gross unfitness for service;
(iii) Executive's conviction of a felony which impairs
his ability substantially to perform his duties with
Employer or other felony involving dishonesty or breach
of trust; or (iv) any material breach by Executive of
the terms of this Agreement. Executive will not be
subject to termination for "Cause" without
(A) reasonable written notice to Executive setting
forth the reasons for Employer's intention to terminate
Executive and (B) an opportunity for Executive to cure
any of the actions or omissions forming the basis for
such intended termination, if possible, within 15 days
after receipt of such written notice.
(d) Executive terminates the Period of Employment for Good
Reason. "Good Reason" means termination by Executive
3
<PAGE> 4
due to (i) a material reduction in Executive's position
(status, offices, titles, or reporting requirements),
authorities, duties or responsibilities; (ii) a reduction in
Executive's annual base salary or target annual bonus, other
than a reduction comparable to reductions generally applicable
to similarly situated employees of Employer imposed as part of
a company wide cost-savings initiative; (iii) a requirement
for Executive to move his principal office in excess of 30
miles from the present location of Executive's principal
office; or (iv) any material breach by Employer of the terms
of this Agreement. Executive may not terminate his employment
for "Good Reason" without (A) reasonable written notice to
Employer setting forth the reasons for Executive's intention
to terminate employment and (B) an opportunity for Employer to
cure any of the actions or omissions forming the basis for
such intended termination, if possible, within 15 days after
receipt of such written notice.
(e) Employer terminates the Period of Employment without
Cause, other than pursuant to Section 5.01(a) or (b)
above.
(f) Executive voluntarily terminates the Period of
Employment without Good Reason, other than pursuant to
Section 5.01(a) or (b) above.
5.02 Effect of Termination.
(a) In the event of termination of the Period of Employment
pursuant to the provisions of Section 5.01(a) above,
Executive's estate will be entitled to be paid the
annual base salary otherwise payable to Executive
pursuant to Section 4.01 of this Agreement only through
the date of termination, and Employer will continue to
provide Executive with the benefits described in
Sections 4.04 and 4.05 above through the date of
termination. In addition, Executive's beneficiaries
will be entitled to any benefits provided under
Employer's life insurance plans.
(b) In the event of termination of the Period of Employment
pursuant to the provisions of Section 5.01(b) above,
Executive will be entitled to be paid the annual base
salary otherwise payable to Executive pursuant to
Section 4.01 of this Agreement only through the date of
termination, and Employer will continue to provide
Executive with the benefits described in Sections 4.04
and 4.05 above through the date of termination.
Executive will also be entitled to benefits in
4
<PAGE> 5
accordance with the terms and conditions of Employer's
disability plans.
(c) In the event of termination of the Period of Employment
pursuant to the provisions of Section 5.01(c) or (f)
above, Employer will have no further obligations
hereunder, except that (i) Employer will pay Executive
his annual base salary and continue to provide
Executive with the benefits described in Sections 4.04
and 4.05 above through the date of termination and
shall remain obligated under Sections 5.03(h) and the
first and third sentences of Section 7.06(a), and
(ii) in the event of a termination pursuant to Section
5.01(f) because Executive does not accept Employer's
offer under clause (A) of Section 5.03(e)(ii), Employer
shall remain obligated under Section 5.03(e)(v) and
(viii). Executive will not be paid any annual bonus
pursuant to Section 4.02 of this Agreement for the
fiscal year in which the termination occurs or any
subsequent fiscal year, unless otherwise provided in
Section 5.03(e).
(d) In the event of termination of the Period of Employment
pursuant to the provisions of Section 5.01(d) or (e)
above, Employer will (i) pay Executive his annual base
salary through the date of termination at the rate in
effect at the time notice of termination is given;
(ii) pay Executive a pro-rated annual bonus for the
fiscal year in which termination occurs for the portion
of the fiscal year prior to the date of termination,
based on Employer's performance through the end of the
fiscal quarter in which the termination occurs; (iii)
(except as provided in Section 5.03(f)) pay to
Executive, not later than 30 days following the date of
termination, a lump sum payment equal to three times
the sum of (A) Executive's annual base salary at the
rate in effect at the time notice of termination is
given plus (B) Executive's annual incentive target
bonus under the Plan at the time notice of termination
is given as if such bonus is paid at 100% of the
potential payout under such Plan; (iv) continue to
provide for a period of three years from the date of
termination the benefits described in Section 4.04
(with disability benefits to be calculated as of the
date of termination) to which Executive was entitled on
the date of termination; (v) continue to provide for a
period of three years from the date of termination the
fringe benefits and perquisites described in Section
4.05 to which Executive was entitled on the date of
termination; (vi) (except as provided in Section
5.03(e)) make a 100% vested Employer contribution in
the amount of $750,000 on behalf of Executive to
5
<PAGE> 6
Employer's Deferred Compensation Plan; (vii) pay for
individual outplacement counseling services to Executive up to
a maximum of $50,000; and (viii) extend any Employer loan
guarantees and renew any Employer loans to Executive for a
period of three years from the date of termination.
(e) Notwithstanding any other provision of this Agreement,
Employer shall have the right in its sole discretion at
any time, upon notice to Executive, to terminate
Executive's employment without Cause as provided in
Section 5.01(e). In the event of any such termination,
Employer may condition making payment of the amounts
contemplated to be paid under this Agreement upon
Executive's execution and delivery of a release and
settlement agreement in favor of Employer of all claims
by Executive for payments under this Agreement or
otherwise arising out of Executive's employment with
Employer, except for any claims which Executive may
have based on race, sex or age discrimination. Any
decision of Employer to terminate Executive's
employment without Cause shall not be subject to
arbitration under this Agreement, nor may a termination
without Cause be challenged for any reason in any court
of law or before any federal or state administrative
agency or in any other legal proceeding; provided that
nothing in this paragraph (e) shall preclude
arbitration of any claim for failure to pay amounts
owed to Executive as expressly provided herein.
5.03 Special Provisions For Change In Control. The following
special provisions will apply in connection with a Change in Control which is
publicly announced during the Period of Employment. As used in this Agreement,
"Change in Control" shall have the meaning given to it in Section 7.12. Unless
otherwise expressly provided, the benefits under this Section 5.03 will be in
addition to all other benefits to which Executive may be entitled under other
provisions of this Agreement.
(a) When Employer publicly announces during the Period of
Employment execution by Employer of a letter of intent
or definitive agreement to consummate a transaction
that would constitute a Change in Control, Employer
will pay to Executive a special incentive bonus in the
amount of $750,000. The period following such
announcement until the Change in Control occurs or the
transaction is abandoned shall be included within the
Period of Employment for all purposes of this
Agreement, and the Period of Employment shall thereby
be extended to the expiration of such period.
6
<PAGE> 7
(b) Upon the Change in Control contemplated by the
announcement described in Section 5.03(a), if Executive
has remained in Employer's employment through the
Change in Control or Executive's employment is
terminated after the announcement described in
Section 5.03(a) either by Employer without Cause or by
Executive for Good Reason, Employer will pay to
Executive a special extraordinary efforts bonus equal
to one times the sum of (A) Executive's annual base
salary at the rate in effect immediately prior to the
Change in Control plus (B) Executive's annual incentive
target bonus under the Plan at the time of the Change
in Control as if such bonus is paid at 100% of the
potential payout under such Plan to compensate
Executive for special efforts to accomplish the
successful consummation of the Change in Control
transaction.
(c) Upon the Change in Control aforementioned in Section
5.03(b), if Executive has remained in Employer's
employment through the Change in Control or Executive's
employment is terminated after the announcement
described in Section 503(a) either by Employer without
Cause or by Executive for Good Reason, Employer shall
use its best efforts to cause all stock options then
held by Executive which have not yet vested to be
assumed by the acquiring company, or to cause stock
options with similar terms and conditions in the
acquiring company to be substituted therefor, and, in
either case, Executive shall continue to vest in such
stock options in the acquiring company in accordance
with their terms during additional employment and
consulting periods described in paragraph (e) below and
during such other periods as may apply pursuant to the
terms of such stock options. The time to exercise any
stock options in the acquiring company shall not
terminate before 90 days following the end of the
additional employment and consulting periods described
in paragraph (e) below.
(d) Upon the Change in Control aforementioned in Section
5.03(b), if Executive has remained in Employer's
employment through the Change in Control or Executive's
employment is terminated after the announcement
described in Section 5.03(a) either by Employer without
Cause or by Executive for Good Reason, Employer will
pay to Executive the full (instead of pro-rated) annual
bonus which would be payable to Executive for the
entire fiscal year in which the Change in Control
occurs, based on the assumption that Employer would
have continued to perform for the full fiscal year at
the same level of performance which it had achieved
7
<PAGE> 8
through the date of the Change in Control. All special
payments which are made and expenses which are incurred on
account of the Change in Control will be disregarded in
measuring Employer's performance. Upon receipt of such
payment, Executive shall not thereafter be entitled to receive
any payment pursuant to Section 5.02(d)(ii).
(e) (i) Employer agrees to employ Executive, and Employee
hereby accepts employment, as a full-time employee for
the first six months following the Change in Control
aforementioned in Section 5.03(b) and to pay Executive
(I) a monthly base salary at twice the monthly rate of
base salary in effect immediately prior to the Change
in Control and (II) a bonus equal to Executive's annual
incentive target bonus under the Plan at the time of
the Change in Control (for the entire fiscal year in
which the Change in Control occurs) as if such bonus is
paid at 100% of the potential payout under such Plan.
(ii) Employer further agrees to offer to retain Executive
during the second six months following the Change in Control
either:
(A) as a full-time employee, in which event Employer will
pay Executive seventy-five percent (75%) of the
monthly base salary and bonus which is payable to
Executive under the preceding sentence during the
first six months following the Change in Control, or
(B) as a part-time consultant or employee, in which event
Employer will pay Executive fifty percent (50%) of
the monthly base salary and bonus which is payable to
Executive under the preceding sentence during the
first six months following the Change in Control.
(iii) If Employer does not offer to retain Executive as a
full-time employee pursuant to subparagraph (ii)(A) above,
such action by Employer shall be deemed to be a termination of
Executive's employment by Employer without Cause for purposes
of this Agreement, including Section 5.03(f) below; provided,
however, that nothing in this Section 5.03(e) shall affect or
interfere with Employer's right to terminate Executive for
Cause during Executive's full-time employment in accordance
with the provisions of Section 5.01(c).
(iv) If Employer does offer to retain Executive as a full-time
employee pursuant to subparagraph (ii)(A) above, and Executive
accepts such offer and is employed
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as a full-time employee for such second six-month period, the
Period of Employment will expire on the first anniversary of
the Change in Control. Executive's employment with Employer
shall continue thereafter at the level of monthly base salary
and bonus which were in effect immediately prior to the Change
in Control, or upon such other terms as Employer and Executive
may agree, until terminated for any reason.
(v) If Employer does offer to retain Executive as a full-time
employee pursuant to subparagraph (ii)(A) above, and Executive
does not accept such offer, Executive may elect to be a
part-time employee or consultant during the second six months
following the Change in Control on the terms described in
subparagraph (ii)(B) above. If Executive elects such position
as a part-time employee or consultant, his employment with
Employer shall terminate upon the expiration of such second
six-month period. Such election by Executive shall be deemed
to be a voluntary termination of employment by Executive
without Good Reason at the end of such second six month period
for purposes of this Agreement, including Section 5.03(f)
below; provided, however, that nothing in this Section 5.03(e)
shall affect or interfere with Executive's right to terminate
employment for Good Reason during Executive's full-time
employment in accordance with the provisions of Section
5.01(d).
(vi) The Period of Employment shall be extended to the
expiration of both such six month periods described in
subparagraphs (e)(i) and (ii) above, unless and until
Executive declines Employer's offer of full or part-time
employment or consultancy as described in subparagraphs (e)(i)
and (ii) above, provided, that the compensation and bonus
payments described in subparagraphs (e)(i) and (ii) above
shall be in lieu of all amounts otherwise owing pursuant to
Sections 4.01 or 4.02 hereof with respect to such periods.
(vii) If Executive is employed as a full-time employee for the
first six months and retained as a full or part-time employee
or consultant for the second six months after the Change in
Control under the terms described above in this paragraph (e),
and Employer performs its obligations under this paragraph
(e), Executive shall not be entitled to receive any
contribution or payment pursuant to Section 5.02(d)(vi).
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(viii) Upon any breach of Employer's obligations under this
paragraph (e) (which breach continues following written notice
by Executive and the expiration of a reasonable opportunity
for cure), Executive shall be entitled to receive the payment
or contribution specified in Section 5.02(d)(vi), in addition
to the amounts provided in Section 5.03(f) below to the extent
applicable.
(f) In the event of termination of Executive's employment
by Employer without Cause (other than due to
Executive's death or permanent disability) or by
Executive for Good Reason at any time within 36 months
after the Change in Control aforementioned in Section
5.03(b), Employer will pay to Executive, not later than
30 days following the date of termination, a lump sum
payment equal to two and one-half times the sum of
(A) Executive's annual base salary at the rate in
effect immediately prior to the Change in Control plus
(B) Executive's annual incentive target bonus under the
Plan at the time of the Change in Control as if such
bonus is paid at 100% of the potential payout under
such Plan. Upon receipt of such payment, Executive
shall not be entitled to receive any payment pursuant
to Section 5.02(d)(iii).
(g) In the event of termination of Executive's employment
by Employer without Cause (other than due to
Executive's death or permanent disability) or by
Executive for Good Reason any time within 36 months
after the Change in Control aforementioned in
Section 5.03(b), Employer will continue to provide the
benefits described in Sections 5.02(d)(iv) and (v) for
a period of three years from the date of termination
and will pay for individual outplacement counseling
services described in Section 5.02(d)(vii). If
Employer is unable for any reason to continue
Executive's coverage under its medical benefits plan,
Employer shall provide equivalent benefits coverage
through insurance.
(h) In the event a Change in Control occurs and Executive
becomes entitled to payments under this Agreement,
Employer shall cause its independent auditors promptly
to review, at Employer's sole expense, the
applicability to such payments of Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code").
If such auditors shall determine that any payment or
distribution of any type by Employer to Executive or
for his benefit, whether paid or payable or distributed
or distributable pursuant to the terms of this
Agreement or otherwise (the "Total Payments"), would be
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subject to the excise tax imposed by Section 4999 of the Code,
or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest and
penalties, are collectively referred to as the "Excise Tax"),
then Executive shall be entitled to receive an additional cash
payment from Employer (a "Gross-Up Payment") within 30 days of
such determination equal to an amount such that after payment
by Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax
and employment taxes imposed upon the Gross-Up Payment,
Executive would retain an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Total Payments; provided,
however, that Executive will be entitled to receive a Gross-Up
Payment only if the amount of the payment defined in Section
280G(b)(2) of the Code exceeds the sum of (A) $100,000 plus
(B) 2.99 times the Executive's "base amount" as defined in
Section 280G(b)(3) of the Code, and provided further, that if
Executive is not entitled to receive a Gross-Up Payment,
Executive will receive only an amount of Total Payments that
would not include any payment defined in Section 280G(b)(1) of
the Code. For purposes of the foregoing determination,
Executive's income tax rate shall be deemed to be the highest
statutory marginal Federal and California income tax rates (on
a combined basis) applicable to individuals which are then in
effect. Employer's independent auditors shall make their
determination based upon a substantial authority standard
under Section 6662 of the Code. The intent of the parties is
that Employer shall be solely responsible for, and shall pay,
any Excise Tax on the Total Payments and Gross-up Payment and
any income and employment taxes (including, without
limitation, penalties and interest) imposed on any Gross-Up
Payment, as well as any loss of tax deduction caused by the
Gross-Up Payment. An example of the calculation of the
Gross-Up Payment is set forth in Appendix A. If no
determination by Employer's auditors is made prior to the time
a tax return reflecting any portion of the Total Payments is
required to be filed by Executive, Executive will be entitled
to receive a Gross-Up Payment calculated on the basis of the
Total Payments reported by Executive in such tax return,
within 30 days of the filing of such tax return. In all
events, if any tax authority determines that a greater Excise
Tax should be imposed upon the Total Payments than is
determined by Employer's independent auditors or reflected in
Executive's tax returns, Executive shall be entitled to
receive the full Gross-Up Payment calculated on the basis of
the amount of Excise Tax
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determined to be payable by such tax authority from Employer
within 30 days of such determination.
6. Taxes. All payments to be made to Executive under this
Agreement will be net of required withholding of federal, state
and local income and employment taxes.
7. Miscellaneous.
7.01 Governing Law. This Agreement is made under and
shall be governed by and construed in accordance with the laws of
the State of California.
7.02 Successors. This Agreement shall be binding upon and
inure to the benefit of Executive and Executive's heirs and estate and of
Employer and its successors. Employer will require any successor (whether by
purchase, merger, consolidation, or otherwise) to all or substantially all of
the business and/or assets of Employer to expressly assume this Agreement.
Failure of Employer to obtain such assumption of this Agreement prior to the
consummation of any such succession shall be a breach of this Agreement. In any
case where a successor assumes Employer's obligations under this Agreement by
operation of law, the requirements imposed in this Section 7.02 will be
satisfied if the successor acknowledges to Executive in writing that it shall
assume or has assumed Employer's obligations under this Agreement by operation
of law within 30 days of receipt of a written notice from Executive requesting
such acknowledgment.
7.03 Amendments. No amendment or modification of this
Agreement will be deemed effective unless made in writing and
signed by each party hereto.
7.04 No Waiver. No term or condition of this Agreement will be
deemed to have been waived, nor will there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver will not be deemed a continuing waiver unless specifically stated, will
operate only as to the specific term or condition waived and will not constitute
a waiver of such term or condition for the future or as to any act other than
that specifically waived.
7.05 Assignment. This Agreement is not assignable, in
whole or in part, by any party without the written consent of the
other party.
7.06 Legal and Accounting Fees.
(a) Employer will pay legal and accounting fees charged by
Munger, Tolles & Olson and Price Waterhouse in
connection with entering into this Agreement. In
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addition, upon Executive's request, Employer will also pay or
reimburse Executive for the cost, not to exceed $15,000, of
professional accounting and tax services in connection with
the receipt of payments under Section 5.03 of this Agreement
unless the Period of Employment terminated under Section 5.01
(c) or (f). Employer will make a tax gross-up payment to
Executive, if necessary, to offset any taxable income which is
reported for or realized by Executive with respect to these
legal and accounting fees.
(b) Each party will bear its own legal and accounting fees in
connection with any claim or dispute arising out of or
relating to this Agreement.
7.07 Severability. To the extent that any provision of this
Agreement shall be determined to be invalid or unenforceable, the invalid or
unenforceable portion of such provision will be deleted from this Agreement, and
the validity and enforceability of the remainder of such provision and of this
Agreement will not be affected.
7.08 Notices. All notices under this Agreement will be in
writing and will be deemed effective when delivered in person (in Employer's
case, to its Secretary) or twenty-four (24) hours after deposit thereof in the
U.S. mails, postage prepaid, for delivery as registered or certified mail --
addressed, in the case of Executive, to him at his last residential address
known by Employer and, in the case of Employer, to its corporate headquarters,
attention of its Secretary, or to such other address as Executive or Employer
may designate in writing at any time or from time to time to the other party. In
lieu of notice by deposit in the U.S. mails, a party may give notice by
telegram, telex or telecopy, in which case such notice will be deemed effective
upon receipt.
7.09 Counterparts. This Agreement may be executed by the
parties hereto in counterparts, each of which will be deemed to be an original,
but all such counterparts will together constitute one and the same instrument.
7.10 Headings. The headings of sections herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
7.11 Arbitration.
(a) All disputes between Executive (and his attorneys, successors,
and assigns) and Employer (and its affiliates, shareholders,
directors, officers, employees, agents, successors, attorneys,
and assigns)
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of any kind whatsoever, including, without limitation, all
disputes relating in any manner to the employment or
termination of Executive and all disputes arising under this
Agreement, but excluding any claims by Executive based on
race, sex or age discrimination ("Arbitrable Claims") shall be
resolved by arbitration. All persons and entities specified in
the preceding sentence (other than Employer and Executive)
shall be considered third-party beneficiaries of the rights
and obligations created by this Section on Arbitration.
Arbitration shall be final and binding upon the parties and
shall be the exclusive remedy for all Arbitrable Claims. THE
PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY
IN REGARD TO ARBITRABLE CLAIMS.
(b) Arbitration of Arbitrable Claims shall be in accordance
with the Employment Dispute Resolution Rules of the
American Arbitration Association ("AAA Employment
Rules"), except as provided otherwise in this
Agreement. The arbitrator shall be selected from a
source provided by the Judicial Arbitration and
Mediation Service (J.A.M.S.). In any arbitration, the
burden of proof shall be allocated as provided by
applicable law. Either party may bring an action in
court to compel arbitration under this Agreement and to
enforce an arbitration award. Otherwise, neither party
shall initiate or prosecute any lawsuit or
administrative action in any way related to any
Arbitrable Claim. All arbitration hearings under this
Agreement shall be conducted in San Francisco,
California. The Federal Arbitration Act shall govern
the interpretation and enforcement of this Section
7.11. The fees of the arbitrator shall be split
between both parties equally.
(c) All proceedings and all documents prepared in connection with
any Arbitrable Claim shall be confidential and, unless
otherwise required by law, the subject matter thereof shall
not be disclosed to any person other than the parties to the
proceedings, their counsel, witnesses and experts, the
arbitrator, and, if involved, the court and court staff.
(d) The rights and obligations of Executive and Employer set forth
in this Section 7.11 with respect to arbitration shall survive
the termination of Executive's employment and the expiration
of this Agreement.
7.12 Change in Control. A "Change in Control" shall be deemed
to have occurred upon: (i) the acquisition by any Person, other than Employer or
one or more Persons controlling,
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controlled by or under common control with Employer, of beneficial ownership (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of eighty-five percent (85%) or more of Employer's outstanding voting
securities, or (ii) a change in the composition of the Board of Directors of
Employer (the "Board") over any period of thirty-six (36) consecutive months or
less such that a majority of the Board members (determined by rounding up to the
next whole number) cease to be comprised of individuals who either (A) were
Continuing Directors at the start of such period or (B) were elected or
nominated for election as Board members during such period by at least a
majority of the Continuing Directors in office at the time such election or
nomination was approved by the Board.
The 85% test in subparagraph (i) of the Change in Control
definition shall be measured at the time the transaction resulting in the Change
in Control first commences, and there shall be excluded from such calculation,
to the extent provided pursuant to Section 203 (or any successor provision) of
the Delaware General Corporation Law, shares owned by (i) persons who are both
officers and directors of Employer and (ii) employee stock plans in which
employee-participants do not have the right to determine confidentially whether
shares held subject to the plan are to be tendered in a tender or exchange
offer.
"Continuing Director" shall mean any member of the Board who
has served continuously as such Board member from and before the commencement of
the transaction resulting in the Change in Control.
"Person" shall mean any individual, firm, partnership,
corporation or other entity and shall include any successor of such entity and
all Affiliates, Associates and Subsidiaries (as such terms are defined in Rule
12b-2 of the Securities Exchange Act of 1934, as amended) of such entity.
IN WITNESS WHEREOF, Employer and Executive have executed this
Agreement as of the date set forth in the first paragraph hereof.
EMPLOYER: TANDEM COMPUTERS INCORPORATED
By /s/ THOMAS J. PERKINS
------------------------
Its Chairman of the Board
-----------------------
EXECUTIVE: /s/ ROEL PIEPER
--------------------------
Roel Pieper
15
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Exhibit 10.16
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of January
10, 1996, is entered into by and between Tandem Computers Incorporated
("Employer") and James G. Treybig ("Executive"), to amend the prior employment
agreement previously entered into between Employer and Executive on May 19, 1995
(the "Employment Agreement"). It supersedes and replaces in its entirety the
Amendment to Employment Agreement previously entered into between Employer and
Executive on December 11, 1995.
In consideration of the respective undertakings of Employer
and Executive set forth below, Employer and Executive agree as follows:
1. As previously agreed, Executive has continued to serve as
President and Chief Executive Officer of Employer until his successor was
appointed and assumed office. It is hereby agreed that Executive will retire
from employment with Employer on January 10, 1996 (the "Transition Date"). It is
hereby agreed that, unless otherwise expressly provided herein, Executive shall
receive the same payments and benefits which he would be entitled to receive
under the Employment Agreement if he terminated the Period of Employment of
Executive for Good Reason (as such terms are used in the Employment Agreement)
on June 30, 1996.
2. The following payments and benefits shall be due to
Executive pursuant to Section 5.02(d) of the Employment Agreement:
(i) Pursuant to Section 5.02(d)(i) of the
Employment Agreement, Executive will receive a lump sum payment within seven
days of the Transition Date in the amount of $310,155 in lieu of payment of his
annual base salary at the current rate through June 30, 1996.
(ii) Pursuant to Section 5.02(d)(ii) of the Employment
Agreement, Executive has received any annual bonus to which he was entitled
under the Employer's Senior Executive Incentive Plan or other applicable bonus
plan or program for the fiscal year ended September 30, 1995, and Executive
shall be entitled to receive three-fourths of the annual bonus which would be
payable to him for the fiscal year ended September 30, 1996, if he had remained
in employment with Employer through the end of such fiscal year. Any such bonus
shall be paid to him when bonuses are paid to other executives for the fiscal
year ended September 30, 1996.
(iii) In satisfaction of Section 5.02(d)(iii) of the Employment
Agreement, Executive will receive a lump sum
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<PAGE> 2
payment in the amount of $2,977,488 within seven days of the Transition Date.
(iv) Pursuant to Section 5.02(d)(iv) of the Employment
Agreement, Executive will continue to receive the benefits described in
Section 4.04 of the Employment Agreement for three years following June 30,
1996.
(v) Pursuant to Section 5.02(d)(v) of the Employment
Agreement, Executive will continue to receive the fringe benefits and
perquisites described in Section 4.05 of the Employment Agreement for three
years following June 30, 1996.
(vi) Pursuant to Section 5.02(d)(vi) of the Employment
Agreement, Executive will receive a lump sum payment in the amount of
$1,500,000 within seven days of the Transition Date, in lieu of a 100% vested
Employer contribution on behalf of Executive to Employer's Deferred Compensation
Plan in this amount.
(vii) In satisfaction of Section 5.02(d)(vii) of the
Employment Agreement, Employer will make a lump sum payment of $50,000 to
Executive within seven days of the Transition Date.
(viii) Pursuant to Section 5.02(d)(viii) of the Employment
Agreement, Employer will extend all Employer loan guarantees and renew any
Employer loans to Executive for a period of three years following June 30, 1996.
3. (i) Executive has or shall be entitled to receive the same
compensation (including base salary, annual bonus, stock options and other
benefits) which is currently provided under Section 4 of the Employment
Agreement until the Transition Date.
(ii) Following the Transition Date Executive
will not be entitled to receive any further compensation or benefits, except as
provided in Section 2 hereinabove.
4. Executive's rights under his outstanding stock options will
be determined under the terms of the applicable plans and agreements based on
full credit for employment as if Executive had remained in employment with
Employer through June 30, 1996. All of Executive's unvested stock options which
would have or may have by their terms vested on or before June 30, 1996, will
vest on the Transition Date and will remain outstanding and may be exercised at
any time on or before (i) three years following June 30, 1996 or (ii) the
original expiration date of the applicable stock option, whichever occurs first.
5. Pursuant to Section 5.02(e) of the Employment Agreement,
Executive will execute and deliver a release and
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settlement agreement in favor of Employer in a form satisfactory to Employer
within seven days of the Transition Date.
6. Except as provided below, the special provisions contained
in Section 5.03 of the Employment Agreement which apply in connection with a
Change in Control will continue to apply if a Change in Control of Employer is
publicly announced on or before June 30, 1996. In particular, Section 5.03(a)
will apply if a Change in Control of Employer is publicly announced on or before
June 30, 1996. However, it is agreed that Section 5.03(b) will no longer apply
to Executive. It is further agreed that Sections 5.03(e), (f) and (g) will not
apply to Executive due to the payments which are to be made to Executive
pursuant to Sections 2(iii), (iv), (v), (vi) and (vii) hereinabove. Further, it
is agreed that Section 5.03(h) will apply to Executive after June 30, 1996, and
Executive shall be entitled to receive a full "Gross-Up Payment" thereunder, in
the event that any payments which are made to Executive by Employer are subject
to an Excise Tax (as defined therein).
7. Employer will pay legal fees charged by Munger, Tolles &
Olson in connection with entering into this Amendment to Employment Agreement.
Employer will make a tax gross up payment to Executive, if necessary, to offset
any taxable income which is reportable for or realized by Executive with respect
to these legal fees.
8. Executive agrees that he will not within one year of the
Transition Date be or become (i) interested or engaged in any manner, directly
or indirectly, either alone or with any person, firm or corporation now existing
or hereafter created, in any business which is or may be engaged primarily in
the design, development, manufacture, production, marketing, sale or servicing
of fault-tolerant computers or (ii) directly or indirectly a stockholder or
officer, director or employee of, or in any manner associate with, or aid or
abet or give information or financial assistance to, any such business. This
non-competition provision shall not be deemed to prohibit Executive's purchase
or ownership, as a passive investment, of not more than one percent (1%) of the
issued and outstanding stock of a corporation listed on a national securities
exchange or traded in the over-the-counter market. Executive further agrees that
within one year of the Transition Date, he will not induce or attempt to induce
any person who at the time of such inducement is a Senior Vice President of the
Tandem Development Group, a person who reports directly to such Senior Vice
President, a technical Director in such Group, a Senior Vice President for Sales
and Support, a Marketing, Sales or Support Vice President, or a technical
Director who reports to the Senior Vice President for Tandem Sales and Support.
The validity, enforceability and interpretation of this Section 8 shall be
determined in accordance with the laws of the state in which the principal
office of the competing business is or is proposed to be located.
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9. Except as otherwise expressly provided in this Amendment to
Employment Agreement, all provisions of the Employment Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, Employer and Executive have executed this
Amendment to Employment Agreement as of the date set forth in the first
paragraph hereof.
EMPLOYER: TANDEM COMPUTERS INCORPORATED
By: /s/ THOMAS J. PERKINS
----------------------------------
Its Chairman of the Board
EXECUTIVE: /s/ JAMES G. TREYBIG
----------------------------------
James G. Treybig
4
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Exhibit 10.17
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of February 21, 1996, is entered into
by and between Tandem Computers Incorporated ("Employer") and John T. Losier
("Executive"), and supersedes and replaces any prior employment agreement
previously entered into between Employer or any subsidiary thereof and
Executive.
In consideration of the respective undertakings of Employer
and Executive set forth below, Employer and Executive agree as follows:
1. Employment. Employer hereby employs Executive, and
Executive accepts such employment and agrees to perform services for Employer,
for the period and upon the other terms and conditions set forth in this
Agreement.
2. Term of Employment.
2.01 Period of Employment. The initial term of Executive's
employment pursuant to this Agreement will commence on March 1, 1996 (the
"Commencement Date") and, unless terminated at an earlier date in accordance
with Section 5.01 of this Agreement, shall continue in effect until September
30, 1998 or as extended to a later date under Section 5.03(a) or 5.03(e) of this
Agreement. The term of Executive's employment under the terms of this Agreement
commencing on the Commencement Date and ending pursuant to the terms hereof is
hereinafter referred to as the "Period of Employment." The initial Period of
Employment under this Agreement shall be subject to possible extension in twelve
month increments in the sole discretion of Employer as follows. Prior to
September 1 of each year during the Executive's Period of Employment, Employer
may elect (which election shall be made in writing), in its sole discretion, to
terminate Executive's employment on the third succeeding September 30. If no
such election is made, the term of Executive's employment pursuant to the terms
of this Agreement shall be automatically extended for an additional twelve month
period, under the terms and conditions in effect at the time of such extension,
or with such modifications as Employer and Executive may then agree.
2.02 Expiration of Employment. Executive may continue
employment with Employer after the expiration of the Period of Employment in
which case Executive's employment relationship with Employer will be governed by
such other terms as Executive and Employer may agree or as may apply under
applicable law, and Executive's only rights continuing under this Agreement
shall be those rights that have vested during the Period of Employment or
otherwise continue after the Period of Employment under Section 5.03 or other
express terms of this Agreement.
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3. Position and Duties.
(a) During the Period of Employment, Executive agrees to
perform such duties and executive functions as
Employer shall assign to him from time to time and
shall have the title of Senior Vice President and
General Manager of Worldwide Sales. Executive shall
devote his best efforts and (except as provided in
Section 5.03(e) hereof) full-time attention to the
performance of his duties.
(b) Except upon the prior written consent of Employer,
Executive, during the Period of Employment, shall not
(i) accept any other employment; or (ii) engage,
directly or indirectly, in any other business,
commercial or professional activity (whether or not
pursued for pecuniary advantage) that is or may be
competitive with Employer, that might create a
conflict of interest with Employer, or that otherwise
might interfere with the business of Employer, or any
affiliate of Employer.
4. Compensation.
4.01 Base Salary. Employer will pay to Executive during the
Period of Employment an annual base salary to be paid in substantially equal
installments in accordance with Employer's standard payroll procedures and
policies. The initial annual base salary will be at the rate currently being
paid to Executive, and the annual base salary may be increased from time to time
in the sole discretion of Employer (and may not be decreased except pursuant to
a reduction comparable to reductions generally applicable to similarly situated
employees of Employer imposed as part of a company wide cost-savings
initiative).
4.02 Annual Bonus. During the Period of Employment, Executive
will be entitled to participate in Employer's Targeted Income Plan, or any other
bonus plan or program made generally available to Employer's senior executives
(the "Plan"). The award of an annual bonus shall be subject to the terms and
provisions of the Plan, which may be modified from time to time, and the
Executive's annual incentive target bonus may be increased in the sole
discretion of Employer (and may not be decreased except pursuant to a reduction
comparable to reductions generally applicable to similarly situated employees of
Employer imposed as part of a company wide cost-savings initiative).
4.03 Stock Options. During the Period of Employment, Executive
will be eligible to receive grants of Employer's stock options or other stock
incentive awards under programs which are made generally available to Employer's
senior executives from time to time. Such grants are highly discretionary and
will be subject to the terms of the applicable plans and agreements adopted by
Employer from time to time.
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4.04 Participation in Other Benefit Plans. During the Period
of Employment, Executive will be entitled to participate in Employer's
retirement plans, medical and dental plans, disability plans, life insurance
plans, and other Employer benefits not described elsewhere in this Section 4
which are made generally available to Employer's senior executives from time to
time to the extent that Executive's age, position and other factors qualify him
for such benefits.
4.05 Fringe Benefits and Perquisites: Vacation and Sick Leave.
During the Period of Employment, Employer will provide Executive with such
fringe benefits, perquisites, vacation and sick leave as Employer from time to
time makes generally available to its senior executives.
5. Termination and Change in Control.
5.01 Grounds for Termination. The Period of Employment will
terminate prior to the expiration of the term set forth in Section 2 of this
Agreement in the event that:
(a) Executive dies.
(b) Executive becomes permanently disabled and qualifies
for payments under Employer's disability plans for a
period covering 90 consecutive days.
(c) Employer terminates the Period of Employment for
Cause. "Cause" means termination upon (i) willful and
substantial failure by Executive to perform his
duties with Employer (other than due to disability);
(ii) willful engaging by Executive in conduct which
is demonstrably and materially injurious to Employer
or that demonstrates gross unfitness for service;
(iii) Executive's conviction of a felony which
impairs his ability substantially to perform his
duties with Employer or other felony involving
dishonesty or breach of trust; or (iv) any material
breach by Executive of the terms of this Agreement.
Executive will not be subject to termination for
"Cause" without (A) reasonable written notice to
Executive setting forth the reasons for Employer's
intention to terminate Executive and (B) an
opportunity for Executive to cure any of the actions
or omissions forming the basis for such intended
termination, if possible, within 15 days after
receipt of such written notice.
(d) Executive terminates the Period of Employment for
Good Reason. "Good Reason" means termination by
Executive due to (i) a material reduction in
Executive's position (status, offices, titles, or
reporting requirements) , authorities, duties or
responsibilities; (ii) a reduction in Executive's
annual base salary or target annual bonus, other than
a reduction comparable to
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<PAGE> 4
reductions generally applicable to similarly situated
employees of Employer imposed as part of a company
wide cost-savings initiative; (iii) a requirement for
Executive to move his principal office in excess of
30 miles from the present location of Executive's
principal office; or (iv) any material breach by
Employer of the terms of this Agreement. Executive
may not terminate his employment for "Good Reason"
without (A) reasonable written notice to Employer
setting forth the reasons for Executive's intention
to terminate employment and (B) an opportunity for
Employer to cure any of the actions or omissions
forming the basis for such intended termination, if
possible, within 15 days after receipt of such
written notice.
(e) Employer terminates the Period of Employment without
Cause, other than pursuant to Section 5.01(a) or (b)
above.
(f) Executive voluntarily terminates the Period of
Employment without Good Reason, other than pursuant
to Section 5.01(a) or (b) above.
5.02 Effect of Termination.
(a) In the event of termination of the Period of
Employment pursuant to the provisions of Section
5.01(a) above, Executive's estate will be entitled to
be paid the annual base salary otherwise payable to
Executive pursuant to Section 4.01 of this Agreement
only through the date of termination, and Employer
will continue to provide Executive with the benefits
described in Sections 4.04 and 4.05 above through the
date of termination. In addition, Executive's
beneficiaries will be entitled to any benefits
provided under Employer's life insurance plans.
(b) In the event of termination of the Period of
Employment pursuant to the provisions of Section
5.01(b) above, Executive will be entitled to be paid
the annual base salary otherwise payable to Executive
pursuant to Section 4.01 of this Agreement only
through the date of termination, and Employer will
continue to provide Executive with the benefits
described in Sections 4.04 and 4.05 above through the
date of termination. Executive will also be entitled
to benefits in accordance with the terms and
conditions of Employer's disability plans.
(c) In the event of termination of the Period of
Employment pursuant to the provisions of Section
5.0l(c) or (f) above, Employer will have no further
obligations
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<PAGE> 5
hereunder, except that (i) Employer will pay
Executive his annual base salary and continue to
provide Executive with the benefits described in
Sections 4.04 and 4.05 above through the date of
termination and shall remain obligated under Sections
5.03(h) and the first and third sentences of Section
7.06(a), and (ii) in the event of a termination
pursuant to Section 5.01(f) because Executive does
not accept Employer's offer under clause (A) of
Section 5.03(e)(ii), Employer shall remain obligated
under Section 5.03(c)(v) and (viii). Executive will
not be paid any annual bonus pursuant to Section 4.02
of this Agreement for the fiscal year in which the
termination occurs or any subsequent fiscal year,
unless otherwise provided in section 5.03(e).
(d) In the event of termination of the Period of
Employment pursuant to the provisions of Section
5.01(d) or (e) above, Employer will (i) pay Executive
his annual base salary through the date of
termination at the rate in effect at the time notice
of termination is given; (ii) pay Executive a
pro-rated annual bonus for the fiscal year in which
termination occurs for the portion of the fiscal year
prior to the date of termination, based on Employer's
performance through the end of the fiscal quarter in
which the termination occurs; (iii) (except as
provided in section 5.03(f)) pay to Executive, not
later than 30 days following the date of termination,
a lump sum payment equal to three times the sum of
(A) Executive's annual base salary at the rate in
effect at the time notice of termination is given
plus (B) Executive's annual incentive target bonus
under the Plan at the time notice of termination is
given as if such bonus in paid at 100% of the
potential payout under such Plan; (iv) continue to
provide for a period of three years from the date of
termination the benefits described in Section 4.04
(with disability benefits to be calculated as of the
date of termination) to which Executive was entitled
on the date of termination; (v) continue to provide
for a period of three years from the date of
termination the fringe benefits and perquisites
described in Section 4.05 to which Executive was
entitled on the date of termination; (vi) (except as
provided in section 5.03(e)) make a lump sum payment
to Executive in the amount of $500,000.00 or, in the
alternative, if Executive elects in writing within
thirty (30) days from commencement of employment, a
$500,000.00 one hundred percent (100%) vested
Employer contribution to the Tandem Computers
Incorporated Deferred Compensation Plan; (vii) pay
for individual outplacement counseling services to
Executive up to a maximum of $50,000; and
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<PAGE> 6
(viii) extend any Employer loan guarantees and renew
any Employer loans to Executive for a period of three
years from the date of termination.
(e) Notwithstanding any other provision of this
Agreement, Employer shall have the right in its sole
discretion at any time, upon notice to Executive, to
terminate Executive's employment without Cause as
provided in Section 5.01(e). In the event of any such
termination, Employer may condition making payment of
the amounts contemplated to be paid under this
Agreement upon Executive's execution and delivery of
a release and settlement agreement in favor of
Employer of all claims by Executive for payments
under this Agreement or otherwise arising out of
Executive's employment with Employer, except for any
claims which Executive may have based on race, sex or
age discrimination. Any decision of Employer to
terminate Executive's employment without Cause shall
not be subject to arbitration under this Agreement,
nor may a termination without Cause be challenged for
any reason in any court of law or before any federal
or state administrative agency or in any other legal
proceeding; provided that nothing in this paragraph
(e) shall preclude arbitration of any claim for
failure to pay amounts owed to Executive as expressly
provided herein.
5.03 Provisions For Change In Control. The following special
provisions will apply in connection with a Change in Control which is publicly
announced during the Period of Employment. As used in this Agreement, "Change in
Control" shall have the meaning given to it in Section 7.12. Unless otherwise
expressly provided, the benefits under this Section 5.03 will be in addition to
all other benefits to which Executive may be entitled under other provisions of
this Agreement.
(a) When Employer publicly announces during the Period of
Employment execution by Employer of a letter of
intent or definitive agreement to consummate a
transaction that would constitute a Change in
control, Employer will pay to Executive a special
incentive bonus in the amount of $300,000.00. The
period following such announcement until the Change
in Control occurs or the transaction is abandoned
shall be included within the period of Employment for
all purposes of this Agreement, and the Period of
Employment shall thereby be extended to the
expiration of such period.
(b) Upon the change in Control contemplated by the
announcement described in Section 5.03(a), if
Executive has remained in Employer's employment
through the Change in Control or Executive's
employment is terminated after the announcement
described in Section
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<PAGE> 7
5.03(a) either by Employer without Cause or by
Executive for Good Reason, Employer will pay to
Executive a special extraordinary efforts bonus for
special efforts to accomplish the successful
consummation of the Change in Control transaction.
(c) Upon the Change in Control aforementioned in Section
5.03(b), if Executive has remained in Employer's
employment through the Change in Control or
Executive's employment is terminated after the
announcement described in Section 503(a) either by
Employer without Cause or by Executive for Good
Reason, Employer shall use its best efforts to cause
all stock options then held by Executive which have
not yet vested to be assumed by the acquiring
company, or to cause stock options with similar terms
and conditions in the acquiring company to be
substituted therefor, and, in either case, Executive
shall continue to vest in such stock options in the
acquiring company in accordance with their terms
during additional employment and consulting periods
described in paragraph (e) below and during such
other periods as may apply pursuant to the terms of
such stock options. The time to exercise any stock
options in the acquiring company shall not terminate
before 90 days following the end of the additional
employment and consulting periods described in
paragraph (e) below.
(d) Upon the Change in Control aforementioned in Section
5.03(b), if Executive has remained in Employer's
employment through the Change in Control or
Executive's employment is terminated after the
announcement described in Section 5.03(a) either by
Employer without Cause or by Executive for Good
Reason, Employer will pay to Executive the full
(instead of pro-rated) annual bonus which would be
payable to Executive for the entire fiscal year in
which the Change in Control occurs, based on the
assumption that Employer would have continued to
perform for the full fiscal year at the same level of
performance which it had achieved through the date of
the Change in Control. All special payments which are
made and expenses which are incurred on account of
the Change in Control will be disregarded in
measuring Employer's performance. Upon receipt of
such payment, Executive shall not thereafter be
entitled to receive any payment pursuant to Section
5.02 (d) (ii).
(e) (i) Employer agrees to employ Executive, and
Employee hereby accepts employment, as a
full-time employee for the first six months
following the Change in Control
aforementioned in Section 3.03(b) and to
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<PAGE> 8
pay Executive (I) a monthly base salary at
twice the monthly rate of base salary in
effect immediately prior to the change in
Control and (II) a bonus equal to
Executive's annual incentive target bonus
under the Plan at the time of the Change in
Control (for the entire fiscal year in which
the change in control occurs) as if such
bonus is paid at 100% of the potential
payout under such Plan.
(ii) Employer further agrees to offer to retain
Executive during the second six months
following the Change in Control either:
(A) as a full-time employee, in which
event Employer will pay Executive
seventy-five percent (75%) of the
monthly base salary and bonus which
is payable to Executive under the
preceding sentence during the first
six months following the Change in
Control, or
(B) as a part-time consultant or
employee, in which event Employer
will pay Executive fifty percent
(50%) of the monthly base salary
and bonus which is payable to
Executive under the preceding
sentence during the first six
months following the Change in
Control.
(iii) If Employer does not offer to retain
Executive as a full-time employee pursuant
to subparagraph (ii)(A) above, such action
by Employer shall be deemed to be a
termination of Executive's employment by
Employer without Cause for purposes of this
Agreement, including Section 5.03(f) below;
provided, however, that nothing in this
Section 5.03(e) shall affect or interfere
with Employer's right to terminate Executive
for Cause during Executive's full-time
employment in accordance with the provisions
of Section 5.01(c).
(iv) If Employer does offer to retain Executive
as a full-time employee pursuant to
subparagraph (ii)(A) above, and Executive
accepts such offer and is employed as a
full-time employee for such second six-month
period, the Period of Employment will expire
on the first anniversary of the Change in
Control. Executive's employment with
Employer shall continue thereafter at the
level of monthly base salary and bonus which
were in effect immediately prior to the
Change in Control, or upon such other terms
as Employer and Executive may agree, until
terminated for any reason.
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<PAGE> 9
(v) If Employer does offer to retain Executive
as a full-time employee pursuant to
subparagraph (ii)(A) above, and Executive
does not accept such offer, Executive may
elect to be a part-time employee or
consultant during the second six months
following the Change in Control on the terms
described in subparagraph (ii)(B) above. If
Executive elects such position as a
part-time employee or consultant, his
employment with Employer sha11 terminate
upon the expiration of such second six-month
period. Such election by Executive shall be
deemed to be a voluntary termination of
employment by Executive without good Reason
at the end of such second six month period
for purposes of this Agreement, including
section 5.03(f) below; provided, however,
that nothing in this section 5.03(e) shall
affect or interfere with Executive's right
to terminate employment for Good Reason
during Executive's full-time employment in
accordance with the provisions of Section
5.01(d).
(vi) The Period of Employment shall be extended
to the expiration of both such six month
periods described in subparagraphs (e)(i)
and (ii) above, unless and until Executive
declines Employer's offer of full or
part-time employment or consultancy as
described in subparagraphs (e)(i) and (ii)
above, provided, that the compensation and
bonus payments described in subparagraphs
(e)(i) and (ii) above shall be in lieu of
all amounts otherwise owing pursuant to
Sections 4.01 or 4.02 hereof with respect to
such periods.
(vii) If Executive is employed as a full-time
employee for the first six months and
retained as a full or part-time employee or
consultant for the second six months after
the Change in Control under the terms
described above in this paragraph (e), and
Employer performs its obligations under this
paragraph (e), Executive shall not be
entitled to receive any contribution or
payment pursuant to Section 5.02(d)(vi).
(viii) Upon any breach of Employer's obligations
under this paragraph (e) (which breach
continues following written notice by
Executive and the expiration of a reasonable
opportunity for cure), Executive shall be
entitled to receive the payment or
contribution specified in Section
5.02(d)(vi), in addition to the amounts
provided in section 5.03(f) below to the
extent applicable.
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<PAGE> 10
(f) In the event of termination of Executive's employment
by Employer without Cause (other than due to
Executive's death or permanent disability) or by
Executive for Good Reason at any time within 36
months after the Change in Control aforementioned in
Section 5.03(b), Employer will pay to Executive, not
later than 30 days following the date of termination,
a lump sum Payment equal to two and one-half times
the sum of (A) Executive's annual base salary at the
rate in effect immediately prior to the Change in
Control plus (B) Executive's annual incentive target
bonus under the Plan at the time of the Change in
Control as if such bonus is paid at 100% of the
potential payout under such Plan. Upon receipt of
such payment, Executive shall not be entitled to
receive any payment pursuant to Section 5.02(d)(iii).
(g) In the event of termination of Executive's employment
by Employer without Cause (other than due to
Executive's death or permanent disability) or by
Executive for Good Reason any time within 36 months
after the Change in Control aforementioned in Section
5.03(b), Employer will continue to provide the
benefits described in Sections 5.02(d)(iv) and (v)
for a period of three years from the date of
termination and will pay for individual outplacement
counseling services described in Section
5.02(d)(vii). If Employer is unable for any reason to
continue Executive's coverage under its medical
benefits plan, Employer shall provide equivalent
benefits coverage through insurance.
(h) In the event a Change in Control occurs and Executive
becomes entitled to payments under this Agreement,
Employer shall cause its independent auditors
promptly to review, at Employer's sole expense, the
applicability to such payments of Section 4999 of the
Internal Revenue Code of 1986, as amended (the
"Code"). If such auditors shall determine that any
payment or distribution of any type by Employer to
Executive or for his benefit, whether paid or payable
or distributed or distributable pursuant to the terms
of this Agreement or otherwise (the "Total
Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code, or any interest
or penalties with respect to such excise tax (such
excise tax, together with any such interest and
penalties are collectively referred to as the "Excise
Tax"), then Executive shall be entitled to receive an
additional cash payment from Employer (a "Gross-Up
Payment") within 30 days of such determination equal
to an amount such that after payment by Executive of
all taxes (including any interest or penalties
imposed with respect to such taxes), including any
Excise Tax and employment taxes imposed upon the
Gross-Up Payment, Executive would retain an amount of
the Gross-Up Payment equal to the Excise Tax imposed
upon the Total Payments; provided, however, that
Executive will
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<PAGE> 11
be entitled to receive a Gross-Up Payment only if the
amount of the payment defined in Section 28OG(b)(2)
of the Code exceeds the sum of (A) $100,000 plus (B)
2.99 times the Executive's "base amount" as defined
in Section 28OG(b)(3) of the Code, and provided
further, that if Executive is not entitled to receive
a Gross-Up payment, Executive will receive only an
amount of Total Payments that would not include any
payment defined in Section 28OG(b)(1) of the Code.
For purposes of the foregoing determination,
Executive's income tax rate shall be deemed to be the
highest statutory marginal Federal and California
income tax rates (on a combined basis) applicable to
individuals which are then in effect. Employer's
independent auditors shall make their determination
based upon a substantial authority standard under
Section 6662 of the Code. The intent of the parties
is that Employer shall be solely responsible for, and
shall pay, any Excise Tax on the Total Payments and
Gross-up Payment and any income and employment taxes
(including, without limitation, penalties and
interest) imposed on any Gross-Up Payment, as well as
any loss of tax deduction caused by the Gross-Up
Payment. An example of the calculation of the
Gross-Up Payment is set forth in Appendix A. If no
determination by Employer's auditors is made prior to
the time a tax return reflecting any portion of the
Total Payments is required to be filed by Executive,
Executive will be entitled to receive a Gross-Up
Payment calculated on the basis of the Total Payments
reported by Executive in such tax return, within 30
days of the filing of such tax return. In all events,
if any tax authority determines that a greater Excise
Tax should be imposed upon the Total Payments than is
determined by Employer's independent auditors or
reflected in Executive's tax returns, Executive shall
be entitled to receive the full Gross-Up Payment
calculated on the basis of the amount of Excise Tax
determined to be payable by such tax authority from
Employer within 30 days of such determination.
6. Taxes. All payments to be made to Executive under this Agreement
will be net of required withholding of federal, state income and employment
taxes.
7. Miscellaneous.
7.01 Governing Law. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of
California.
7.02 Successors. This Agreement shall be binding upon and
inure to the benefit of Executive and Executive's heirs and estate and of
Employer and its successors. Employer will require any successor (whether by
purchase, merger, consolidation, or otherwise) to all or substantially all of
the business and/or assets of Employer to expressly assume this
11
<PAGE> 12
Agreement. Failure of Employer to obtain such assumption of this Agreement prior
to the consummation of any such succession shall be a breach of this Agreement.
In any case where a successor assumes Employer's obligations under this
Agreement by operation of law, the requirements imposed in thus Section 7.02
will be satisfied if the successor acknowledges to Executive in writing that it
shall assume or has assumed Employer's obligations under this Agreement by
operation of law within 30 days of receipt of a written notice from Executive
requesting such acknowledgment.
7.03 Amendments. No amendment or modification of this
Agreement will be deemed effective unless made in writing and signed by each
party hereto.
7.04 No Waiver. No term or condition of this Agreement will be
deemed to have been waived, nor will there by any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver will not be deemed a continuing waiver unless specifically stated, will
operate only as to the specific term or condition waived and will not constitute
a waiver of such term or condition for the future or as to any act other than
that specifically waived.
7.05 Assignment. This Agreement is not assignable, in whole or
in part, by any party without the written consent of the other party.
7.06 Legal and Accounting Fees.
(a) Employer will pay legal and accounting fees
charged by Munger, Tolles & Olson and Price
Waterhouse in connection with entering into
this Agreement. In addition, upon
Executive's request, Employer will also pay
or reimburse Executive for the cost, not to
exceed $15,000, of professional accounting
and tax services in connection with the
receipt of payments under Section 5.03 of
this Agreement unless the Period of
Employment terminated under Section 5.01(c)
or (f). Employer will make a tax gross-up
payment to Executive, if necessary, to
offset any taxable income which is reported
for or realized by Executive with respect to
these legal and accounting fees.
(b) Each party will bear its own legal and
accounting fees in connection with any claim
or dispute arising out of or relating to
this Agreement.
7.07 Severability. To the extent that any provision of this
Agreement shall be determined to be invalid or unenforceable, the invalid or
unenforceable portion of such provision will be deleted from this Agreement, and
the validity and enforceability of the remainder of such provision and of this
Agreement will not be affected.
7.08 Notices. All notices under this Agreement will be in
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<PAGE> 13
writing and will be deemed effective when delivered in person (in Employer's
case, to its Secretary) or twenty four (24) hours after deposit thereof in the
U.S. mails, postage prepaid, for delivery as registered or certified mail --
addressed, in the case of Executive, to him at his last residential address
known by Employer and, in the case of Employer, to its corporate headquarters,
attention to its Secretary, or to such other address as Executive or Employer
may designate in writing at any time or from time to time to the other party. In
lieu of notice by deposit in the U.S. mails, a party may give notice by
telegram, telex or telecopy, in which case such notice will be deemed effective
upon receipt.
7.09 Counterparts. This Agreement may be executed by the
parties hereto in counterparts, each of which will be deemed to be an original,
but all such counterparts will together constitute one and the same instrument.
7.10 Headings. The headings of sections herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
7.11 Arbitration.
(a) All disputes between Executive (and his
attorneys, successors, and assigns) and
Employer (and its employees, agents,
successors, attorneys and assigns) of any
kind whatsoever, including, without
limitation, all disputes relating in any
manner to the employment or termination of
Executive and all disputes arising under
this Agreement, but excluding any claims by
Executive based on race, sex or age
discrimination ("Arbitrable Claims") shall
be resolved by arbitration. All persons and
entities specified in the preceding sentence
(other than Employer and Executive) shall be
considered third party beneficiaries of the
rights and obligations created by this
Section on Arbitration. Arbitration shall be
final and binding upon the parties and shall
be the exclusive remedy for all Arbitrable
Claims. THE PARTIES HEREBY WAIVE ANY RIGHTS
THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO
ARBITRABLE CLAIMS.
(b) Arbitration of Arbitrable Claims shall be in
accordance with the Employment Dispute
Resolution Rules of the American Arbitration
Association ("AAA Employment Rules"), except
as provided otherwise in this Agreement. The
arbitrator shall be selected from a source
provided by the Judicial Arbitration and
Mediation Service ("J.A.M.S."). In any
arbitration, the burden of proof shall be
allocated as provided by applicable law.
Either party may bring an action in court to
compel arbitration under this Agreement and
to enforce an arbitration award. Otherwise,
neither party shall initiate or prosecute
any lawsuit or administrative action in any
way related to any
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<PAGE> 14
Arbitrable Claim. All arbitration hearings under this Agreement shall
be conducted in San Francisco, California. The Federal Arbitration Act
shall govern the interpretation and enforcement of this Section 7.11.
The fees of the arbitrator shall be split between both parties equally.
(c) All proceedings and all documents prepared in
connection with any Arbitrable Claim shall be
confidential and, unless otherwise required by law,
the subject matter thereof shall not be disclosed to
any person other than the parties to the proceedings,
their counsel, witnesses and experts, the arbitrator,
and, if involved, the court and court staff.
(d) The rights and obligations of Executive and Employer
set forth in this Section 7.11 with respect to
arbitration shall survive the termination of
Executive's employment and the expiration of this
Agreement.
7.12 Change in Control. A "Change in Control" shall be deemed to have
occurred upon: (i) the acquisition by any Person, other than Employer or one or
more Persons controlling, controlled by or under common control with Employer,
of beneficial ownership (as determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of eighty-five percent (85%) or
more of Employer's outstanding voting securities, or (ii) a change in the
composition of the Board of Directors of Employer (the "Board") over any period
of thirty-six (36) consecutive months or less such that a majority of the Board
members (determined by rounding up to the next whole number) cease to be
comprised of individuals who either (A) were Continuing Directors at the start
of such period or (B) were elected or nominated for election as Board members
during such period by at least a majority of the Continuing Directors in office
at the time such election or nomination was approved by the Board.
The 85% test in subparagraph (i) of the Change in Control definition
shall be measured at the time the transaction resulting in the Change in Control
first commences, and there shall be excluded from such calculation, to the
extent provided pursuant to Section 203 (or any successor provision) of the
Delaware General Corporation Law, shares owned by (i) persons who are both
officers and directors of Employer and (ii) employee stock plans in which
employee participants do not have the right to determine confidentiality whether
shares held subject to the plan are to be tendered in a tender or exchange
offer.
"Continuing Director" shall mean any member of the Board who has served
continually as such Board member from and before the commencement of the
transaction resulting in the Change of Control.
"Person" shall mean any individual firm, partnership, corporation or
other entity and shall include any successor of such entity and all
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<PAGE> 15
Affiliates, Associates and Subsidiaries (as such terms are defined in Rule 12b-2
of the Securities Exchange Act of 1934, as amended) of such entity.
IN WITNESS WHEREOF, Employer and Executive have executed this Agreement
as of the date set forth in the first paragraph above.
EMPLOYER: TANDEM COMPUTERS INCORPORATED
By /s/ ROEL PIEPER
---------------------------------
Its Chief Executive Officer
---------------------------------
EXECUTIVE: /s/ JOHN LOSIER
------------------------------------
John Losier
15
<PAGE> 1
Exhibit 10.18
TANDEM COMPUTERS INCORPORATED
1997 STOCK PLAN
1. Establishment, Purpose, and Definitions.
(a) There is hereby adopted the 1997 Stock Plan (the "Plan") of TANDEM
COMPUTERS INCORPORATED (the "Company").
(b) The purpose of the Plan is to provide a means whereby eligible
individuals (as defined in paragraph 4, below) can acquire common
stock of the Company (the "Stock"). The Plan provides employees
(including officers and directors who are employees) of the
Company and of Subsidiaries an opportunity to purchase shares of
Stock pursuant to options which may qualify as incentive stock
options under Section 422 of the Internal Revenue Code, as amended
(referred to as "incentive stock options"), and employees
(including officers and directors who are employees), directors
who are not employees ("Non-Employee Directors"), independent
contractors, and consultants of the Company and of Affiliates an
opportunity to purchase shares of Stock pursuant to options which
are not described in Section 422 or 423 of the Internal Revenue
Code (referred to as "nonqualified stock options"). The Plan also
provides for the transfer or sale of Stock to eligible individuals
in connection with the performance of services for the Company or
Affiliates.
(c) The term "Subsidiary" as used in the Plan means any corporation at
least 50 percent of the voting stock of which is owned, directly
or indirectly, by the Company. The term "Affiliates" refers to
Subsidiaries and any entity which has a business relationship with
the Company. The terms "Subsidiaries" and "Affiliates" include
entities which become Subsidiaries or Affiliates after the
adoption of the Plan.
2. Administration of the Plan.
(a) The Plan shall be administered by the Committee. The Committee
shall consist exclusively of two or more directors of the Company,
who shall be appointed by the Board. In addition, the compensation
of the Committee shall satisfy:
(i) Such requirements as the Securities and Exchange
Commission may establish for administrators acting under plans
intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act; and
(ii) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to
qualify for exemption under section 162(m)(4)(C) of the Code.
The Board may also appoint one or more separate committees of the
Board, each composed of one or more directors of the Company who
need not satisfy the foregoing requirements, who may administer
the Plan with respect to Employees and Consultants who are not
considered officers or directors of the Company under section 16
of the Exchange Act, may grant Awards under the Plan to such
Employees and Consultants and
<PAGE> 2
may determine all terms of such Awards.
(b) The Committee shall determine which eligible individuals (as
defined in paragraph 4, below) shall be granted options under
the Plan, the timing of such grants, the terms thereof
(including any restrictions on the Stock), and the number of
shares for which an option or options shall be granted to an
optionee. The Committee may establish a standard schedule of
options to be granted automatically on an eligible
individual's date of hire and date of promotion.
(c) The Committee may amend the terms of any outstanding option
granted under this Plan, but any amendment which would
adversely affect the optionee's rights under an outstanding
option shall not be made without the optionee's written
consent. The Committee may cancel any outstanding stock option
or accept any outstanding stock option in exchange for a new
option.
(d) The Committee shall also determine which eligible individuals
(as defined in paragraph 4, below) shall be issued Stock under
the Plan, the timing of such grants, the terms thereof
(including any restrictions), and the number of shares to be
granted. The Stock shall be issued for such consideration as
the Committee deems appropriate, including past services;
provided, however, that such consideration shall have a fair
market value at least equal to fifty percent (50%) of the fair
market value of the Stock on the date of issuance. Stock
issued subject to restrictions shall be evidenced by a written
agreement (the "Restricted Stock Agreement"). The Committee
may amend any Restricted Stock Agreement, but any amendment
which would adversely affect the individual's rights to the
Stock shall not be made without his or her written consent.
(e) The Committee shall have the sole authority, in its absolute
discretion, to adopt, amend and rescind such rules and
regulations as, in its opinion, may be advisable in the
administration of the Plan, to construe and interpret the
Plan, the rules and the regulations, and the instruments
evidencing options or Stock granted under the Plan and to make
all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determinations and
interpretations of the Committee shall be binding on all
optionees.
(f) Notwithstanding the foregoing, the Committee shall have no
discretion as to certain grants to Non-Employee Directors
pursuant to paragraph 7 below, including the Non- Employee
Directors to whom options are to be granted, the timing of
such grants, the number of shares subject to any such option,
and the exercise price of any such option, which, in each
case, shall be as provided pursuant to paragraph 7.
3. Stock Subject to the Plan.
(a) The number of shares of Stock available for the grant of
options or the issuance of Stock under the Plan to eligible
individuals shall be equal to the sum of (i) 1,115,000 shares
plus (ii) the number of shares remaining available for
issuance under the Tandem Computers Incorporated 1989 Stock
Plan (the "Prior Plan") as of January 28, 1997. If an option
granted under this Plan or the Prior Plan for any reason
ceases to be exercisable in whole or in part (including
options cancelled in exchange for new grants), the shares
which were subject to such option but as to which the option
had not been exercised shall continue to
2
<PAGE> 3
be available under this Plan. Shares of Stock repurchased by
the Company pursuant to repurchase rights retained under this
Plan or the Prior Plan and shares of Stock withheld by the
Company under paragraph 12 to satisfy applicable tax
obligations shall not be available for subsequent option
grants or Stock issuances under this Plan.
(b) In the event of a subdivision of the outstanding shares of
Stock, a declaration of a dividend of more than two percent
payable in shares of Stock, a declaration of a dividend
payable in a form other than shares of Stock in an amount that
has a material effect of the price of shares of Stock, a
combination or consolidation of the outstanding shares of
Stock (by reclassification or otherwise) into a lesser number
of shares of Stock, a recapitalization, a spin-off or a
similar occurrence, the Committee shall make such adjustments
as it, in its sole discretion, deems appropriate in one or
more of the (i) the number of shares of Stock available for
future grants under paragraph 3(a), above, (ii) the limitation
set forth in paragraph 6(e), below, (iii) the number of shares
of Stock covered by each outstanding option, (iv) the exercise
price under each outstanding option and (v) the number of
options to be granted to Non-Employee Directors under
paragraph 7, below. Except as provided in this paragraph 3(b),
a participant shall have no rights by reason of any issue by
the Company of stock of any class or securities convertible
into stock of any class, any subdivision or consolidation of
shares of Stock of any class, the payment of any stock
dividend or any other increase or decrease in the number of
shares of Stock of any class.
(c) In the event that the Company is a party to a merger or other
reorganization, outstanding options and shares subject to a
Restricted Stock Agreement shall be subject to the agreement
of merger or reorganization. Such agreement may provide,
without limitation, for the assumption of outstanding grants
by the surviving corporation or its parent, for their
continuation by the Company (if the Company is a surviving
corporation), for accelerated vesting and accelerated
expiration, or for settlement in cash.
4. Eligible Individuals.
Individuals who shall be eligible to have granted to them the options
or Stock provided for by the Plan shall be such employees (including
officers and directors who are bona fide employees), Non-Employee
Directors, independent contractors, and consultants of the Company or
an Affiliate as the Committee, in its discretion, shall designate from
time to time. Only employees of the Company or a Subsidiary shall be
eligible to receive incentive stock options.
5. The Option Price.
(a) The exercise price of the Stock covered by each incentive
stock option shall be not less than the per share fair market
value of such Stock on the date the option is granted. The
exercise price of the Stock covered by each nonqualified stock
option shall be as determined by the Committee, but in no
event shall such price be less than fifty percent (50%) of the
per share fair market value of the Stock on the date the
option is granted. Notwithstanding the foregoing, in the case
of an incentive stock option granted to a person possessing
more than ten percent of the combined voting power of the
Company or a Subsidiary, the exercise price shall be not less
than 110 percent of the fair market value of the Stock on the
date the option is granted. The exercise price of an option
shall be subject to adjustment to the extent provided in
paragraph 3(b), above.
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<PAGE> 4
(b) For purposes of paragraph 5(a) above and for all other
valuation purposes under the Plan, the fair market value per
share of Stock on any relevant date shall be the closing
selling price per share of Stock on the New York Stock
Exchange on the date in question, as such price is quoted on
the composite tape of transactions on such exchange. If there
is no reported sale of the Stock on the New York Stock
Exchange on the date in question, then the fair market value
shall be the closing selling price on such exchange on the
last preceding date for which such quotation exists.
6. Terms and Conditions of Options.
(a) Each option granted pursuant to the Plan will be evidenced by
a written Stock Option Agreement executed by the Company and
the person to whom such option is granted.
(b) The Committee shall determine the term of each option granted
under the Plan which shall not be for more than ten years;
provided, however, that in the case of an option granted to a
person possessing more than ten percent of the combined voting
power of the Company or a Subsidiary the term of each
incentive stock option shall be for no more than five years.
(c) The Stock Option Agreement may contain such other terms,
provisions, and conditions as may be determined by the
Committee (not inconsistent with this Plan). If an option, or
any part thereof is intended to qualify as an incentive stock
option, the Stock Option Agreement shall contain those terms
and conditions which are necessary to so qualify it.
(d) Notwithstanding any provision of the Plan to the contrary, the
Stock Option Agreement evidencing options granted to an
employee who is a "French Employee" (as that term is defined
in Appendix A to the Plan) or a "Dutch Employee" (as that term
is defined in Appendix B to the Plan) shall include the
provisions set forth in Appendix A or B, respectively.
(e) Options granted to any employee in a single fiscal year shall
in no event cover more than 700,000 shares of stock, subject
to adjustment in accordance with paragraph 3(b), above.
7. Additional Terms and Conditions of Options Granted to Non-Employee
Directors.
(a) On February 15, 1996, each person who was a Non-Employee
Director as of February 15, 1996 shall automatically receive
an option for 15,000 shares of Stock. In addition, on February
15, 1996, each person who was both a Non-Employee Director and
the chairman of the Audit Committee, the Compensation/Option
Committee and/or the Nominating Committee as of February 15,
1996 shall automatically receive an option for 10,000 shares
Stock with respect to each chairmanship.
(b) On the date that a person first becomes a Non-Employee
Director (other than a person who previously had been an
employee) which occurs after February 15, 1996, such person
shall automatically receive an option for 15,000 shares of
Stock.
(c) On the date that a Non-Employee Director first becomes the
chairman of the Audit Committee, the Compensation/Option
Committee and/or the Nominating Committee which occurs after
February 15, 1996, such Non-Employee Director shall
automatically receive an option for 10,000 shares of Stock
with respect to each chairmanship.
4
<PAGE> 5
(d) Each option granted to Non-Employee Directors pursuant to the
Plan shall be evidenced by a written Stock Option Agreement
executed by the Company and the person to whom such option is
granted.
(e) The term of each option granted to Non-Employee Directors
pursuant to the Plan shall be ten years.
(f) The exercise price of the Stock covered by each option granted
to Non-Employee Directors pursuant to the Plan shall be equal
to the per share fair value of such Stock on the date the
option is granted.
(g) On the date that a Non-Employee Director ceases to be a member
of the Board for any reason (the "Cessation Date"), all
unexercisable options held by the Non-Employee Director as of
the Cessation Date shall immediately terminate and all
exercisable options held by the Non-Employee Director as of
the Cessation Date shall terminate at the earlier of (i) the
end of the 12-month period following the Cessation Date or
(ii) the date the option would otherwise expire, pursuant to
paragraph 7(e), above. Notwithstanding the foregoing, an
option granted to a Non-Employee Director pursuant to the Plan
within the six-month period that ends on the Cessation Date
shall automatically and immediately terminate on the Cessation
Date.
(h) The Stock Option Agreement may contain such other terms,
provisions, and conditions as may be determined by the
Committee (not inconsistent with this Plan).
8. Use of Proceeds.
Any cash proceeds realized from the sale of Stock pursuant to options
granted or Stock issued under the Plan shall constitute general funds
of the Company.
9. Amendment, Suspension or Termination of the Plan.
(a) The Board or the Committee may at any time amend, suspend or
terminate the Plan as it deems advisable; provided, however,
except as provided in paragraph 3(b), above, the Board or the
Committee shall not amend the Plan without the consent of
stockholders to the extent required by applicable law,
regulation or rule.
(b) No option may be granted nor any Stock issued under the Plan
during any suspension or after the termination of the Plan,
and no amendment, suspension or termination of the Plan shall,
without the affected individual's consent, alter or impair any
rights or obligations under any option previously granted
under the Plan. The Plan shall terminate on February 15, 2006
unless previously terminated by the Board pursuant to this
paragraph 9.
10. Assignability.
Each option granted pursuant to the Plan shall, during the optionee's
lifetime, be exercisable only by him, and neither the option nor any
right thereunder shall be transferable by the optionee by operation of
law or otherwise, other than by will or the laws of descent and
distribution. Stock subject to a Restricted Stock Agreement shall be
transferable only as provided in such Agreement.
11. Payment Upon Exercise.
5
<PAGE> 6
Payment of the purchase price upon exercise of any option granted under
this Plan shall be made (i) in cash, (ii) with shares of Stock owned by
the optionee, (iii) by delivery of an irrevocable direction to a
securities broker approved by the Committee to sell shares and deliver
all or a portion of the proceeds to the Company in payment for the
Stock, (iv) by delivery of the optionee's promissory note with such
recourse, interest, security and redemption provisions as the Committee
in its discretion determines appropriate, or (v) in any combination of
the foregoing. Any Stock used to exercise options shall be valued at
its fair market value on the date of the exercise of the option.
12. Withholding of Shares.
To the extent permitted by the option agreement, an optionee may
satisfy federal, state and local tax obligations incident to the
exercise of stock options under the Plan, or other purchase or receipt
of Stock under the Plan, with shares of the Company's Common Stock
(whether acquired through exercise of a stock option or otherwise).
13. Restrictions on Transfer of Shares.
The Stock acquired pursuant to the Plan shall be subject to such
restrictions and agreements regarding sale, assignment, encumbrances,
or other transfer as are in effect among the stockholders of the
Company at the time such Stock is acquired, as well as to such other
restrictions as the Committee shall deem advisable.
14. Stockholder Approval.
This Plan shall become effective upon its approval by a majority of the
stockholders voting (in person or by proxy) at a stockholders' meeting
held within 12 months of the Board's adoption of the Plan. The
Committee may grant options under the Plan prior to the stockholders'
meeting, but until stockholder approval of the Plan is obtained, Stock
shall not be issued pursuant to the Plan (whether or not for
consideration) and no option shall be exercisable.
15. Change in Control.
Upon the actual consummation of a Change in Control, all outstanding
repurchase rights of the Company shall automatically expire and cease
to have effect with respect to any and all shares of Stock purchased
under the Plan. Upon the actual consummation of a Change in Control,
all outstanding options shall immediately become exercisable in full.
The foregoing not withstanding, the Board may otherwise provide in
connection with such Change in Control or any attempt to effect such
Change in Control.
For purposes of applying the vesting acceleration provisions of this
paragraph 15, the following provisions shall be controlling:
A "Change in Control" shall be deemed to be effected upon:
(i) the acquisition by any Person, other than the Company or one
or more persons controlling, controlled by or under common
control with the Company, of bene ficial ownership (as
determined pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of eighty-five percent (85%)
or more of the Company's outstanding voting securities
pursuant to a transaction which the
6
<PAGE> 7
majority of the Continuing Directors does not at any time
recommend the Company's stockholders to accept or approve, or
(ii) a change in the composition of the Board over any period of
thirty-six (36) consecutive months or less such that a
majority of the Board members (determined by rounding up the
next whole number) cease to be comprised of individuals who
either (A) were Continuing Directors at the start of such
period or (B) were elected or nominated for election as Board
members during such period by at least a majority of the
Continuing Directors in office at the time such election or
nomination was approved by the Board.
Continuing Director shall mean any member of the Board who has served
continuously as such Board member from and before the commencement of
the transaction resulting in the Change in Control.
Person shall mean any individual, firm, partnership, corporation or
other entity and shall include any successor of such entity and all
Affiliates, Associates and Subsidiaries (as such terms are defined in
Rule 12b-2 of the Securities Exchange Act of 1934, as amended) of such
entity.
The 85% test in subparagraph (i) of the Change in Control definition
shall be measured at the time the transaction resulting in the Change
in Control first commences, and there shall be excluded from such
calculation, to the extent provided pursuant to Section 203 (or any
successor provision) of the Delaware General Corporation Law, shares
owned by (i) persons who are both officers and directors of the Company
and (ii) employee stock plans in which employee-participants do not
have the right to determine confidentially whether shares held subject
to the plan are to be tendered in a tender or exchange offer.
7
<PAGE> 8
APPENDIX A
OPTION GRANTS TO FRENCH EMPLOYEES
This Appendix A to the Tandem Computers Incorporated 1997 Stock Plan
(the "Plan") sets forth special rules under which options shall be granted to
individuals who are employees of Tandem Computers Europe Incorporated or of a
Tandem Subsidiary in France (collectively referred to as the "French Companies")
and whose salary is paid in French currency on the date of the grant. To the
extent the rules in this Appendix A are not consistent with the provisions of
the Plan, this Appendix A shall govern. To the extent that there is no
inconsistency between the provisions of the Plan and this Appendix A, the
provisions of the Plan shall govern.
1. ELIGIBILITY. Options shall not be granted to French Employees
possessing shares representing ten percent (10%) or more of
Tandem's capital stock.
2. VESTING. Options granted shall vest daily over a four-year
period that begins on the effective date of the option and
ends on the earlier of (i) the fourth (4th) anniversary of the
effective date or (ii) the date the French Employee terminates
employment with the French Companies.
3. OPTION PRICE. The purchase price of the shares of stock
covered by an option shall not be less than eighty percent
(80%) of the closing stock price on the NYSE, averaged over a
period of twenty (20) consecutive trading days ending on the
date of grant. The option price shall not be changed and shall
be adjusted only upon the occurrence of the events specified
under the July 24, 1966 corporate law, section 208-5, in
accordance with French law.
4. EXERCISE OF OPTIONS.
(a) When Exercisable. An option cannot be exercised by a
French Employee unless it is vested pursuant to
paragraph 2 above.
(b) Death. Upon the death of a French Employee, his or
her options shall remain exercisable for a period of
six (6) months following the date of death to the
extent that such options were vested pursuant to
paragraph 2 above on the date of death.
(c) Method of Exercise. An option is exercisable by a
French Employee upon written notice to Tandem. This
written notice must state the number of shares being
exercised and must be accompanied by full payment for
the stock being purchased. Payment may be in the form
of cash, check or money order.
5. TERM OF PLAN.
No options with respect to treasury shares shall be granted to
French Employees more than five (5) years after the date when
the stockholders of Tandem approve the Plan.
6. DEFINITIONS.
(a) "French Employee" shall mean an individual who is an
employee of Tandem Computers Europe Incorporated or
of a Tandem Subsidiary or Affiliate, in France, and
whose salary is paid in French currency on the date
the option is granted.
(b) "Tandem Subsidiary" shall mean a company in which
Tandem has a fifty percent
8
<PAGE> 9
(50%) or greater equity interest, directly or
indirectly, or a corporation of which Tandem owns
fifty percent (50%) or more of the voting shares,
either directly or indirectly.
(c) "Tandem Affiliate" shall mean a company with which
Tandem has a business relationship.
9
<PAGE> 10
APPENDIX B
OPTION GRANTS TO DUTCH EMPLOYEES
This Appendix B to the Tandem Computers Incorporated 1997 Stock Plan
(the "Plan") sets forth special rules under which options shall be granted to
individuals who are employees of Tandem Computers Europe Incorporated or a
Tandem Subsidiary in The Netherlands (collectively referred to as the "Dutch
Companies") whose salary is paid in Dutch currency on the date of grant. To the
extent the rules in this Appendix B are not consistent with the provisions of
the Plan, this Appendix B shall govern.
To the extent that there is no inconsistency between the provisions of the Plan
and this Appendix B, the provisions of the Plan shall govern.
1. VESTING. Options granted to a Dutch Employee will vest
immediately upon grant.
2. RIGHT OF REPURCHASE. If a Dutch Employee ceases to be employed
by the Dutch Companies before the fourth anniversary of the
Effective Date, Tandem shall have the right to repurchase a
limited number of shares from the Dutch Employee. The
repurchase price shall be the option price. The number of
shares to which this right of repurchase applies shall be
determined according to the following formula:
(Total Number of Shares Purchased) minus [(Total Number of Shares Under
Option) x (Number of Days of Continuous Employment Following the
Effective Date) x (0.000685)]
3. EXERCISE OF OPTIONS. An option granted to a Dutch Employee
cannot be exercised after the fifth anniversary of the date of
grant.
4. DEFINITIONS.
(a) "Dutch Employee" shall mean an individual who is an
employee of Tandem Computers Europe Incorporated or
of a Tandem Subsidiary or Affiliate, in the
Netherlands, and whose salary is paid in Dutch
currency on the date the option is granted.
(b) "Tandem Subsidiary" shall mean a company in which
Tandem has a 50 percent equity interest, directly or
indirectly or a corporation of which Tandem owns 50
percent or more of the voting shares, either directly
or indirectly.
(c) "Tandem Affiliate" shall mean a company with which
Tandem has a business relationship.
10
<PAGE> 1
LETTER
TO OUR
SHAREHOLDERS
<PAGE> 2
EXHIBIT 13.0
Shareholder's Letter
Through hard work and the commitment of a great team of employees, we created a
new vision for Tandem(R) in fiscal 1996 -- one that leverages our clustered
computing solutions into new opportunities in the fast emerging online world. It
was a challenging year for us, one in which we had to make tough decisions. We
are confident that our new direction in technology, marketing strategies,
industry partnerships, and management and organizational changes will enable us
to build an even stronger, more competitive Tandem. At Tandem, we like to say
our goal is to provide more Tandem technology to more people by bringing our
core strengths to the broader market.
It is clear we are now entering a new age of computing. Millions upon millions
of users -- individuals and businesses worldwide -- are going online.
Simultaneously, the speed and quantity of data available online -- from text and
music to videos, advertising, electronic commerce, training, and much, much more
- -- are growing exponentially. The dramatic explosion in services and media-rich,
data-intensive transactions is expected to create a huge demand for computing
systems that offer high levels of reliability and scalability. For example, a
massive computing "infostructure" will be required behind the browsers to
support this unprecedented transaction volume and complexity.
Tandem's high-performance, scalable, continuous computing is a requirement for
any company competing in this environment. Today, Tandem is delivering new
clustering technology that provides enormous leaps in throughput, reliability,
scalability, and security compared with previous generations of products. This
will create a huge opportunity in the marketplace -- benefiting infostructure
builders like telecommunications companies and Internet service providers, as
well as customers in the banking, finance, retail, and transportation
industries.
As this market unfolds, we see a fundamental shift taking place: from online
transaction processing (OLTP) to interactive, media-rich Internet-based
transactions, or what we call ITP. For Internet and intranet solutions, there is
no company as well positioned as Tandem to be the leader in building the ITP
server engines and the ITP infostructure. These solutions require quantum leaps
in both data throughput (for next-generation applications) and scalability (for
rapid growth in response to unpredictable business growth). In addition, ITP
solutions must meet the same requirements as traditional OLTP: continuous
availability, secure transactions, and data integrity.
As the world moves from transactions to interactions, we will continue to bring
our core strengths of reliability, availability, scalability, and parallel
processing based on clustering to the new world of computing and the
Internet/intranet explosion. In particular, our vision is to extend the
attributes of our NonStop(R) Himalaya(R) platform and UNIX(R) system-based
Integrity(R) servers to a much broader market: Microsoft's Windows NT(R)
operating system.
2 Tandem Computers Incorporated
<PAGE> 3
The new Tandem -- A strategy for growth: reliability, no limits.
As an established leader in enterprise computing, we intend to grow our core
business with our iTP(TM) solutions for the Himalaya and Windows NT Server
platforms, which taken together yield a "best of both worlds" environment. In
other words, our customers get the low cost of PC-based servers and the
scalability of NonStop Himalaya servers -- both with outstanding reliability. By
deploying the NonStop Himalaya server and Windows NT Server-based systems in
various configurations, companies can take advantage of a full spectrum of
capabilities as dictated by their business requirements. During fiscal 1996, we
put a strategy in place that focuses on achieving the following goals.
Growing the core business. Building on more than 20 years of OLTP leadership, we
are expanding our focus to include new products and solutions that target
high-growth opportunities in the Windows NT Server environment and the Internet.
Our fault-tolerant technology launched OLTP, and today our next-generation
ServerNet(TM) technology -- a system area network (SAN) -- is launching ITP with
reliable, high-bandwidth clustered servers. Tandem's ServerNet interconnect and
cluster technology is designed to deliver unprecedented response times,
throughput, linear scalability, and reliability. With ServerNet technology, we
are effectively clearing the server bandwidth bottleneck -- as significant a
development as Tandem's fault-tolerant technology was some 20 years ago.
The ServerNet architecture provides the interconnect technology for our range of
S-series for Windows NT Server products announced in October 1996 and for
Tandem's new NonStop Himalaya S-series parallel processing servers as well as
the UNIX system-based Integrity S4000 server shipped earlier in fiscal 1996.
With ServerNet technology's any-to-any system interconnect, the Himalaya servers
can start small and scale up flexibly to meet the massive throughput
requirements of data-intensive applications such as multimedia-enhanced Internet
transactions and large-scale relational data mining and data warehousing, as
well as the requirements of the telecommunications industry.
Breaking into new markets. In May 1996, we formed a strategic alliance with
Microsoft Corporation to accelerate customer adoption of the Microsoft Windows
NT Server platform. Through this alliance, we are extending our database,
transaction processing, and messaging software (ServerWare(TM) solutions) to the
Windows NT Server environment. Along with our ServerNet cluster technology, we
are making this software available across multiple computing platforms. Already
adopted by Compaq, Dell, NEC, Siemens Nixdorf and other industry leaders -- and
with Microsoft slated to include ServerNet technology drivers in its Windows NT
Server clustering software (code-named "Wolfpack") -- ServerNet technology is
emerging as the de facto standard for high-speed, high-availability
interconnections for clustered systems.
In October 1996, we announced the first iTP solutions designed to create a
secure, reliable environment for next-generation commerce on public networks
such as the Internet. All six powerful new iTP solution servers provide Internet
and intranet customers with the reliability, scalability, security, and
performance currently enjoyed by
1996 Annual Report 3
<PAGE> 4
Tandem's OLTP customers. Each iTP solution has been customized to meet six core
business needs: secure business-to-consumer commerce on the Internet;
cost-effective distribution of digital assets, videos, electronic catalogs,
music, and large databases; secure messaging capabilities over both public and
private networks; computer telephony integration; intranet capabilities; and
integration of legacy, off-the-shelf, and custom applications with each other
and with information delivery technologies such as the World Wide Web.
These new iTP solutions target telecommunications companies and Internet service
providers (ISPs) that will build the ITP infrastructure, companies building
intranets, and companies in the banking, finance, transportation, and retail
industries.
We also introduced the S-series for Windows NT Server -- the first to provide
failover software through Tandem CAS (Cluster Availability Software) that will
support the easy, compatible migration to Microsoft's Windows NT Server-based
clustering standard when it becomes available next year.
In the data warehousing arena, we continued to build momentum by offering
innovative, customized, and packaged data warehouse solutions that are providing
tangible results for our customers. As we evolve toward powerful new Knowledge
Discovery through Database (KDD) solutions, we will continue to increase our
focus on data mining products that allow customers to derive even greater value
and insight from their data. To further support our Internet strategy, all data
warehousing solutions will ultimately be Web-enabled, thereby allowing intranet
and Internet Web access.
Partnering with industry leaders. While the Microsoft alliance is an important
one, it is only part of the Tandem partnership story. A major component of
Tandem's strategy has been to move quickly to an open business model, one that
leverages strategic relationships with market makers in the industry. We believe
that this trend toward "competition" is a necessity, not a luxury, for the new
Tandem. In keeping with this strategy, during fiscal 1996 we entered into a
number of strategic partnerships with key market makers. By establishing
relationships with companies such as Microsoft, Computer Associates, Compaq,
Lucent, Baan, BEA, Informix, and Motorola, we are further expanding the market
for our technology.
For example, we are collaborating with Computer Associates to jointly develop a
clustered version of the CA-Unicenter. We are also teaming with Informix to
enable the handling of new data types, including video, voice, and images, by
integrating the Informix DataBlade technology into Tandem's ServerWare software
for the NonStop Himalaya and Windows NT Server systems.
Through the Tandem Alliance Program, we are continuing to encourage third
parties to develop application software for Tandem systems. More than 350
companies worldwide now focus on developing Tandem software solutions for our
key markets.
4 Tandem Computers Incorporated
<PAGE> 5
Organizing for efficiency and speed. During the year, we made significant
changes to our overall management structure, executive team, and sales
organization. In January 1996, Roel Pieper, formerly president and chief
executive officer of Tandem's wholly owned subsidiary, UB Networks, was named
CEO. At the beginning of fiscal year 1997, Enrico Pesatori joined Tandem as
president and chief operating officer. Pesatori, who formerly served as vice
president and general manager of Digital Equipment Corporation's Computer
Systems Division, will be responsible for strategic execution of the new product
business unit structure and our global sales, service, and marketing
organization.
To increase the effectiveness of our sales force, we named John Losier, formerly
president of the large business services and chairman of the network integration
subsidiary at Bell Atlantic Corp., to the position of senior vice president of
Worldwide Sales and Services. We also reorganized into six product line business
units, each chartered with establishing the requisite partnerships to drive
Tandem's success. The six groups are Parallel Systems under Kurt Friedrich,
Communications Platforms under Eric Doggett, ServerNet Technology under Jerry
Peterson, ServerWare Software under Bill Heil, the Atalla Division under Bob
Gargus, and Tektonic Software under Harald Sammer. We believe all these changes
are a vital and necessary part of bringing more Tandem products to more people.
However, despite our best efforts, our UB Networks subsidiary has not performed
to our expectations. The networking segment of the industry has become fiercely
competitive in the last year, driven by acquisitions and steep price declines.
In July, we announced plans to sell UB Networks and began working with Lehman
Brothers to divest the subsidiary. To date, several interested parties are
reviewing this networking company as a potential acquisition candidate.
Creating a new image, a new Tandem. Achieving success in new markets is about
building mind share -- not just with our traditional customers, but with new
partners and customers. Toward that end, we are beginning to change the way we
think about ourselves and the way we create and communicate image and awareness
of Tandem in the market. The Challenge 2000 program, a global gathering of
Tandem employees, has been instrumental in setting the course for the new
Tandem. We have also redesigned our corporate logo to better reflect this new
vision.
In addition, we are reshaping the Tandem image through global projects in such
areas as entertainment, sports, environmental education, and healthcare. We are
demonstrating our technology to the world and are driving innovation in these
arenas.
Through a joint venture with Informix and Planet Hollywood Online, Inc., we are
participating in the development of a major entertainment destination in
cyberspace. Through E-Spaces, Inc., we are participating in the development of
"televirtual" online services and applications, such as customer 3-D interactive
worlds for Web sites, interactive 3-D catalogs, and online showrooms for
products and services. We are also providing the technology backbone for a
number of other World Wide Web activities. For example, for Whitbread, an
around-the-world yacht race, Tandem is sponsoring an innovative interactive Web
site. Starbright World is a virtual playhouse for
1996 Annual Report 5
<PAGE> 6
hospitalized children, chaired by filmmaker Steven Spielberg. One Step Beyond
links the world to explorer Robert Swan of the UNESCO South Pole expedition as
he becomes one of the first people to walk across the Antarctic continent, and
to 35 Young Explorers as they voyage across the Antarctic Ocean.
Given the extraordinary pace of change sweeping the globe, we recognize that our
effort to establish Tandem as a visionary market maker must be an evolving,
ongoing process. We would like to thank all of our stakeholders -- our
employees, customers, partners, suppliers, and stockholders -- for supporting
Tandem through this transition. Because of your commitment, Tandem is more
strongly positioned than ever to provide our hallmark scalability, reliability,
and data integrity to the fast emerging online world.
/s/Roel Pieper /s/Thomas J. Perkins
Roel Pieper Thomas J. Perkins
Vice Chairman and Chief Executive Officer Chairman of the Board
6 Tandem Computers Incorporated
<PAGE> 7
MANAGEMENT'S
DISCUSSION AND
ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS
<PAGE> 8
Selected Operating Statistics
The table below summarizes the changes in selected operating statistics. The
percentages in the left three columns show the relationship of revenue and
expense items to total revenues, except cost of product and services, which are
shown in relation to product revenues and service revenues, respectively. The
percentages in the right columns measure the year-to-year changes.
The Company's fiscal year ends on September 30. References to 1996, 1995, and
1994 in this section represent the Company's fiscal years.
<TABLE>
<CAPTION>
Percent of Total Revenues Percent Increase
(Except cost of product and service) (Decrease)
1996 1995 1994 1996 1995
- --------------------------------- -------------
<S> <C> <C> <C> <C> <C>
79.0 80.9 81.0 Product revenues (3) 10
21.0 19.1 19.0 Service and other revenues 9 11
100.0 100.0 100.0 Total revenues (1) 10
43.4 42.4 37.8 Cost of product revenues (1) 24
72.8 72.3 64.7 Cost of service and other revenues 9 24
49.6 48.1 42.9 Total cost of revenues 2 24
15.1 14.7 13.3 Research and development 2 22
31.4 30.8 35.9 Marketing, general, and administrative 1 (5)
2.7 N/A N/A Restructuring charge N/M N/A
1.2 6.4 7.9 Operating income (81) (11)
(0.3) 5.0 8.9 Income (loss) -- continuing operations N/M (37)
(0.9) 0.6 0.9 Income (loss) -- discontinued operations N/M (35)
(1.2) 5.6 9.8 Net income (loss) N/M (37)
================================= =============
===============================================================================================
</TABLE>
N/M = not meaningful N/A = not applicable
Operating Results
The discussion of operating results and financial tables that follow pertain to
the Company's continuing operations, the computer systems business. Discontinued
operations are discussed separately.
REVENUES -- Total 1996 revenues of $1.9 billion decreased 1 percent from 1995.
Product revenues for 1996 of $1.5 billion decreased $52 million, or 3 percent,
from 1995, while service and other revenues of $398 million increased $32
million, or 9 percent.
The decline in product revenues is primarily attributable to reduced unit
shipments of NonStop Himalaya processors (approximately 19 percent from 1995)
and the negative impact of exchange rate changes in the Japanese currency from a
year ago, offset somewhat by improved revenue per processor shipped and
increased revenues from UNIX system-based Integrity products. Processor
shipments were positively affected and revenue per processor shipped was
negatively affected, in 1995, due to a high volume of processor-only trade-in
activity.
Growth in service and other revenues was primarily attributable to increased
consulting revenues. Hardware service revenues were relatively flat year over
year.
8 Tandem Computers Incorporated
<PAGE> 9
Total 1995 revenues of $1.9 billion increased 10 percent over 1994. Product
revenues for 1995 increased 10 percent over 1994, while service and other
revenues increased 11 percent. Increases in product revenues were primarily
attributable to an increased volume of unit shipments of the Company's computer
systems and to increased software license and support revenues. The benefits of
the increased unit shipments were partially offset by a shift from system add-on
business to aggressively discounted trade-in activity on the NonStop product
family, largely resulting from rapid Himalaya server product introductions.
Increases in service and other revenues were the result of increased consulting
revenues.
GEOGRAPHIC -- The table below summarizes revenues derived from Tandem's domestic
and international operations and the percentage of revenues contributed by
geographic location for the indicated periods.
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
(Dollars in millions) $ % $ % $ %
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $ 896.1 47 $ 926.8 48 $ 889.6 51
Europe
United Kingdom 159.1 8 161.0 8 142.8 8
Germany 112.7 6 97.5 5 92.3 5
Other Europe 255.3 13 262.1 14 222.8 13
----------------------------------------------------------
Total Europe 527.1 27 520.6 27 457.9 26
Japan 258.7 14 277.3 14 211.7 12
Asia-Pacific 129.0 7 109.7 6 103.0 6
Americas (excluding the U.S.) 89.0 5 86.0 5 76.6 5
----------------------------------------------------------
Total revenues $1,899.9 100 $1,920.4 100 $1,738.8 100
==========================================================
</TABLE>
Revenues in the United States in 1996 decreased 3 percent compared to 1995,
primarily as a result of reduced unit shipments of Himalaya processors
(approximately 30 percent from 1995) and reduced revenues from Integrity
products, offset somewhat by improved revenue per processor shipped and
increased consulting services.
Revenues in Europe increased 1 percent during 1996, compared to 1995. Increased
revenues from high-end Himalaya servers, Integrity servers, and consulting
services were offset by reduced revenues in the mid-range and low-end Himalaya
product offerings and by the negative impact of changes in currency.
In Japan, revenues decreased 7 percent during 1996, compared to 1995. The
decrease is due to the negative impact of currency movements between 1996 and
1995, offset partially by increased sales of the mid-range line of Himalaya
servers and Integrity products.
Asia-Pacific revenues in 1996 increased by 18 percent, compared to the previous
year. The increase is primarily the result of a higher volume of high-end and
mid-range Himalaya product shipments, particularly in the first quarter of 1996,
and increased revenues from consulting services.
Revenues in the United States in 1995 increased 4 percent compared to 1994, due
to increased unit shipments of high-end and mid-range servers and increased
consulting revenues, offset by the shift from system add-on business to
aggressively discounted trade-in activity on the NonStop products. Revenues in
Europe increased 14 percent in
1996 Annual Report 9
<PAGE> 10
the 1995 to 1994 comparison as a result of the positive effects of foreign
exchange rate changes, increased consulting revenues, and increased unit
shipments of high-end and mid-range servers. The positive effects of foreign
exchange rate changes were somewhat offset by local product pricing reductions.
In Japan, revenues increased 31 percent during 1995, compared to 1994. These
increases were attributable to the positive effects of foreign exchange rate
changes, increased product shipments of high-end servers, and increased
consulting revenues, offset by reduced revenues in the Integrity product line.
Asia-Pacific revenues in 1995 increased by 6 percent as a result of foreign
exchange rate changes from 1994 and increased revenues of Integrity products.
COST OF REVENUES -- During 1996, product margins declined to 57 percent, from 58
percent in 1995. Product margins were negatively affected by increases in
amortization of capitalized software and increases in royalty payments, offset
somewhat by changes in product mix and improved management of discounting and
other pricing programs.
Margins on service and other revenues decreased to 27 percent in 1996, from
28 percent in 1995, reflecting a general increase in hardware servicing costs
evident throughout the year in areas such as salaries and benefits and an
increase in the proportion of consulting business to the total services
business.
Management expects product margins to continue to decline in 1997. However,
product margins are difficult to predict, as they are affected by future
competitive pricing actions, geographic revenue mix, product mix, and changes in
foreign currency. Management does not expect hardware servicing margins to
change significantly in 1997. Margins in the consulting business are expected to
improve, but can vary significantly period to period, as consulting margins are
influenced by the mix of the consulting activities conducted. For additional
discussion on the risks associated with these statements and other
forward-looking statements, refer to the Outlook and Risks section below.
During 1995, product margins declined 4 percent to 58 percent, in comparison to
1994. With the availability of the new NonStop Himalaya K-series line of servers
in 1995, there was an increase in the volume of aggressively priced trade-in
activity and a decrease in add-on sales. Further, the Company reduced prices on
disk storage products early in 1995, and sales volume of these products
increased for the year. Also, the shift in product mix to the Himalaya servers
from the older NonStop products continued to affect the comparison of product
margins in these periods. The unfavorable impact on product margins from these
factors was offset slightly by the strength of foreign currencies during 1995.
Margins on service and other revenues decreased by 7 percent to 28 percent in
1995, as compared to 1994, as a result of a higher contribution to revenues from
consulting activities. Further, the Company implemented an organizational change
in the first quarter of 1995 to price, market, and sell consulting services,
resulting in a change of classification of certain costs associated with
consulting services, which were reported as marketing expenses in 1994 and
earlier years.
RESEARCH AND DEVELOPMENT EXPENSES -- Research and development (R&D) spending in
1996 increased $5 million, or 2 percent, compared to 1995. The increase was
primarily attributable to increased salaries and benefits, write-offs of
capitalized software and equipment depreciation, somewhat offset by higher
levels of software capitalization and external funding received on joint
development projects. Capitalized software write-offs
10 Tandem Computers Incorporated
<PAGE> 11
were a result of management decisions made during the fourth quarter to
reprioritize development efforts and were associated with software products not
yet introduced.
Management expects R&D spending to decline slightly in 1997. However, the
expected R&D spending pattern could be affected by delays or changes in product
development schedules, by changes in product strategy, and by changes in
external funding. For additional discussion of the risks associated with these
statements and other forward-looking statements, refer to the Outlook and Risks
section below.
Research and development spending in 1995 increased $50 million, or 22 percent,
compared to 1994. The increase was attributable to the Company's new product
development efforts, including additional costs for outside contractors,
increased salaries and benefits, and purchases of development material.
MARKETING, GENERAL, AND ADMINISTRATIVE EXPENSES -- In 1996, marketing, general,
and administrative (MG&A) expenses increased $4 million, or less than 1 percent,
compared to 1995. The increase in MG&A expenses is attributable to increased
commissions and outside consulting costs, offset somewhat by benefits achieved
from the second quarter restructuring actions, which reduced sales and marketing
headcount, and by strict management of certain variable costs, such as travel
and entertainment expenses. MG&A expenses in 1995 included realized gains from
the sale of strategic investments of approximately $8 million. Realized gains in
1996 were insignificant.
Management expects MG&A expense to decline slightly in 1997. For additional
discussion of the risks associated with these statements and other
forward-looking statements, refer to the Outlook and Risks section.
In 1995, MG&A expenses declined $31 million, or 5 percent, compared to 1994,
primarily due to the Company's ongoing efforts to manage general and
administrative expenses relative to gross margin levels. Approximately
one-quarter of the decrease was attributable to the sales of Applied
Communications, Inc. (ACI), and Applied Communications, Inc. Limited (ACI,
Ltd.), in December 1993. Specific to marketing expenses, the Company realized
increased commissions generated by growing shipment volumes, and experienced
increased salaries and benefits. These increased marketing expenses were fully
offset by the impact of the change in reporting of certain consulting services
costs as discussed previously.
RESTRUCTURING CHARGES -- During 1996, the Company initiated a restructuring
program as a result of decisions by its new Chief Executive Officer and
management team to transform the Company's organizational structure in order to
align resources with a new strategic business model and to lower the Company's
cost structure. The restructuring actions resulted in a charge of $52 million
and included reducing headcount, vacating leased facilities, and disposing of
assets to discontinue certain product programs and other activities. The
restructuring provisions, supported by appropriate levels of specificity for
planned actions, were established and approved by the Company's executive
management and its Board of Directors. Actual restructuring costs are recognized
as reductions in related restructuring reserves in the period incurred.
Information relating to restructuring activity is presented on the following
page.
1996 Annual Report 11
<PAGE> 12
<TABLE>
<CAPTION>
Reduction of Internal Discontinued
(In thousands) Work Force Facilities Systems Activities Other Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1993 $ 86,634 $ 89,302 $ 34,000 $ 15,325 $ 57,310 $ 282,571
Utilized -- 1994 (34,568) (34,560) (10,178) (4,614) (25,473) (109,393)
---------------------------------------------------------------------------------
Balances, September 30, 1994 52,066 54,742 23,822 10,711 31,837 173,178
Adjustments -- 1995 1,611 (45) 3,074 42 (4,682) --
Utilized -- 1995 (36,000) (26,036) (19,482) (933) (20,122) (102,573)
---------------------------------------------------------------------------------
Balances, September 30, 1995 17,677 28,661 7,414 9,820 7,033 70,605
Provision -- 1996 34,100 8,600 -- 9,300 -- 52,000
Utilized -- 1996 (33,838) (12,467) (7,414) (5,632) (7,033) (66,384)
---------------------------------------------------------------------------------
Balances, September 30, 1996 $ 17,939 $ 24,794 $ -- $ 13,488 $ -- $ 56,221
=================================================================================
Cash used:
1994 $ 34,568 $ 25,075 $ 10,178 $ (5,037) $ 23,680 $ 88,464
1995 36,000 20,674 19,482 57 19,093 95,306
1996 33,838 9,369 7,414 991 6,461 58,073
Expected future 17,939 19,106 -- 2,819 -- 39,864
---------------------------------------------------------------------------------
Total $ 122,345 $ 74,224 $ 37,074 $ (1,170) $ 49,234 $ 281,707
=================================================================================
</TABLE>
The 1996 provision for reduction of work force included severance, related
medical and other benefits, and an employment agreement with the former Chief
Executive Officer. The 1996 provision included termination benefits for
approximately 500 employees, of which approximately three-fourths were based in
the United States. Approximately two-thirds of the planned terminations were in
sales, marketing, and administrative functions; approximately 20 percent in
engineering and development functions; and the balance was in manufacturing,
service, and support functions. The Company's plan anticipates these
terminations to be substantially completed during early 1997.
The 1996 provision for facilities included primarily lease payments, fixed
costs, and write-offs of related property, plant, and equipment associated with
plans to permanently exit sales, support, and administrative operations in
approximately fifteen leased facilities throughout the United States, Europe,
and Asia-Pacific geographic areas. The Company plans to vacate substantially all
of these facilities by the first half of 1997. As of September 30, 1996,
facilities restructure reserves included approximately $19 million representing
lease payments and expenses for idle facilities, and approximately $6 million
representing related improvements. The above leases have remaining terms
generally not exceeding four years.
The 1996 provision for discontinued activities included costs related to exiting
the maintenance and support obligations of a third-party product, asset
write-offs associated with discontinuing imaging solutions products, and asset
write-offs and other costs associated with discontinuing product initiatives and
programs. The Company initiated negotiations to outsource the above maintenance
and support obligations in 1996 and expects to begin outsourcing this activity
early in 1997. Future cash utilization represents the present value of a
long-term land lease in Germany.
12 Tandem Computers Incorporated
<PAGE> 13
IMPACT OF CURRENCY AND INFLATION -- The Company's international
operations generally consist of sales and support organizations that generate
revenues and incur service costs and marketing, general, and administrative
expenses in local currencies. Product costs, research and development, and
corporate marketing and administrative expenses are mostly incurred in U.S.
dollars. Thus, a weakening of local currencies has a negative effect on
translated international revenues and a positive effect on translated local
costs and expenses. A strengthening of local currencies against the U.S. dollar
has a positive influence on international revenues translated into dollars and a
negative effect on translated local costs and expenses. The impact of exchange
rate changes on profitability and cash flows is somewhat mitigated by the
Company's hedging program, the objective of which is to neutralize the impact of
foreign currency exchange rate movements on the Company's operating results.
During 1996, in comparison to 1995, the currencies in most foreign countries
where Tandem has significant operations generally weakened against the U.S.
dollar, negatively affecting consolidated revenues and operating results of the
Company, as stated in U.S. dollars. This impact was mitigated by Tandem's
hedging program. In comparing fiscal years 1996 and 1995, the net effect of
foreign currency exchange rate movements on changes in operating income was not
material.
During 1995, in comparison to 1994, the currencies in most foreign countries
where Tandem has significant operations strengthened against the U.S. dollar,
positively affecting consolidated revenues and operating results of the Company,
as stated in U.S. dollars. This impact was somewhat mitigated by pricing and
other management actions in the local markets and by the Company's hedging
program. Understanding that the net impact of currency is difficult to quantify,
particularly when measuring the effects of local currency pricing actions,
management estimates that, compared to 1994, foreign exchange rate movements had
a positive impact on the change in operating income of approximately $15 million
to $20 million.
The effect of inflation on the Company's financial position has not been
significant.
RESULTS FROM CONTINUING OPERATIONS -- For the year ended September 30,
1996, the Company reported a loss from continuing operations of $5 million, or
$0.04 per share, including the $52 million restructuring charge. Income from
continuing operations for 1995 and 1994 was $96 million and $154 million, or
$0.82 and $1.35 per share, respectively. Income from continuing operations for
1994 included a $23 million pretax non-operating gain from the sales of ACI and
ACI, Ltd.
The Company recorded a provision for income taxes of $29 million in 1996,
consisting primarily of taxes currently payable in foreign jurisdictions. The
effective tax rates for 1995 and 1994 were 24 percent and 6 percent,
respectively, also arising principally from taxes currently payable in foreign
jurisdictions. Tandem expects to continue to report income in certain foreign
jurisdictions, which will result in tax provisions despite loss carryforwards
that are available primarily to offset U.S. and certain foreign income. At
September 30, 1996, net deferred tax assets of $18 million represent the tax
effects of temporary differences existing in certain foreign jurisdictions that
the Company believes are more likely than not to be realized, based upon the
strong earnings history in these jurisdictions.
1996 Annual Report 13
<PAGE> 14
Results from Discontinued Operations
During June 1996, the Company adopted a plan to sell the Company's networking
business, UB Networks, Inc. (UB Networks). UB Networks, a wholly owned
subsidiary of the Company, is a supplier of networking hardware and software
products for shared and switched environments. The Company has engaged Lehman
Brothers to assist in executing the sale. Although UB Networks is expected to
continue to incur operating losses until disposition, management does not expect
to incur a net loss on the overall disposition of UB Networks' net assets.
Management's estimates are based on discussions with and analyses provided by
the Company's financial advisors, as well as preliminary discussions with
potential buyers. The actual amount the Company will ultimately realize upon
disposition of the net assets of UB Networks is subject to risks and
uncertainties and could differ materially from these estimates.
The table below summarizes revenues and results of operations associated with
the discontinued operation for the indicated periods.
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Total revenues $368,270 $364,526 $369,285
Operating income (loss) $(48,106) $ 3,158 $ 19,476
Income (loss) before income taxes $(17,332) $ 12,269 $ 17,529
Income taxes $ -- $ 1,134 $ 947
Income (loss) from discontinued operations $(17,332) $ 11,135 $ 16,582
Earnings (loss) per share from discontinued operations,
net of income taxes $ (.15) $ .09 $ .15
===================================
</TABLE>
Income (loss) from discontinued operations in 1996 included a loss of $23.2
million for the period from the date of adoption of the plan, June 30, 1996,
through September 30, 1996. Income (loss) from discontinued operations in 1996
and 1995 included non-operating gains of $30.6 million and $9.3 million,
respectively, from the sale of investments.
In comparison to 1995, networking product revenues in 1996 decreased $3 million,
while consulting and service revenues increased $7 million. Customer demand for
UB Networks' next generation of intelligent switching hubs was significantly
less than anticipated in 1996, partially due to product availability. The market
for ATM (Asynchronous Transfer Mode) did not accelerate as quickly as expected,
resulting in lower than planned sales of a new ATM switching product. As a
result, sales of newer products were not sufficient to offset the decline in
sales of the more mature products.
Networking margins declined to 30 percent for the year ended September 30, 1996,
compared to 40 percent in 1995. Networking margins were negatively affected by
lower sales of proprietary ethernet switching enclosures and related peripheral
products, an increased proportion of revenues from third-party product sales,
related service fees, and increased provisioning for excess inventory.
Research and development expenses of $39 million in 1996 decreased 4 percent
from 1995. MG&A expenses of $120 million in 1996 increased 16 percent over 1995.
The increase in MG&A expenses was due to international
14 Tandem Computers Incorporated
<PAGE> 15
geographic expansion, an increase in the average number of sales representatives
and associated travel costs, costs associated with retaining key employees, and
increased marketing and advertising.
Networking revenues decreased $5 million, or 1 percent, during 1995, in
comparison to 1994. Excluding NetWorth, Inc., which was a consolidated
subsidiary prior to April 1, 1994, networking revenues increased $9 million, or
2 percent. Networking product revenues decreased $7 million, offset by increased
consulting and service revenues of $16 million.
Financial Condition
Cash and cash equivalents decreased $33 million during 1996. The Company
generated $117 million positive cash flow from operations during 1996, compared
with $161 million in 1995. Net cash used in investing activities was $191
million during 1996, compared with $208 million in 1995. Investing activities in
1996 consisted mainly of investment in property, equipment, and software
development. Financing activities, consisting of borrowing activity and sales of
stock, provided $55 million in 1996, compared with $42 million in 1995.
Accounts receivable days were 80 days for 1996, excluding receivables of
discontinued operations, compared to 78 days for 1995. Inventory days decreased
to 39 days at 1996 year-end versus 42 days at the end of 1995, excluding
inventories of discontinued operations.
The Company has a receivables purchase agreement with a group of financial
institutions whereby the Company can sell a percentage ownership interest in an
eligible pool of accounts receivable. Under the terms of the agreement, the
Company retains collection and servicing responsibilities for the receivables
and retains substantially the same risk of credit loss as if the interest in
receivables had not been sold. The agreement allows for maximum borrowings of up
to $100 million and expires in October 1997. The maximum amount outstanding at
any point during the years ended September 30, 1996 and 1995, was $65 million
and $50 million, respectively. There were no amounts outstanding at the end of
either year.
At September 30, 1996, total debt and short-term borrowings were $175 million
compared with $142 million at September 30, 1995, of which $127 million and $120
million, respectively, represented limited recourse borrowings against lease
receivables. Repayments on the lease borrowings are sourced from the underlying
lease receivables that are collected directly by the lending institution and are
scheduled as follows (in millions): $65 (1997), $41 (1998), $17 (1999), and $4
(2000). Repayments on the remaining debt and short-term borrowings will be
funded through operations and are as follows (in millions): $35 (1997), $1
(1998), $10 (1999), $1 (2000), and $1 (thereafter). Total debt as a percentage
of total capital was 14 percent at September 30, 1996, compared to 11 percent at
September 30, 1995.
Cash used for restructuring actions aggregated $58 million, $95 million, and $88
million for 1996, 1995, and 1994, respectively. Cash requirements for
restructure actions for 1997 are expected to be approximately $28 million and
will be funded by cash generated from operations.
1996 Annual Report 15
<PAGE> 16
In October 1996, UB Networks received cash of approximately $30 million from the
sale of an investment.
The Company's sources of working capital include cash generated from operations;
amounts available under the accounts receivable purchase agreement; certain
uncommitted, unsecured credit lines; and other financing arrangements available
to the Company. Management believes that the financing sources available at
September 30, 1996, can adequately meet Tandem's financing needs, both in the
short and the long term. To provide additional flexibility, the Company is
exploring opportunities for term debt financing.
Outlook and Risks
Tandem's core competencies have historically centered around providing reliable,
scalable hardware and software solutions for business-critical applications,
such as online transaction processing (OLTP), decision support, and messaging.
With the advent of the Internet and growing corporate intranets, the Company
believes that computer applications will emerge that will result in media-rich,
high-volume transactions, causing OLTP to be expanded to include Internet
transaction processing (ITP), increasing the demand for reliability and
scalability in computing infrastructures. The Company believes that it is well
positioned to provide the computing solutions to meet this demand.
In response to this opportunity, Tandem plans to extend its fundamentals,
integral to the high-end Himalaya platform, to the Windows NT Server market. In
October 1996 the Company introduced its S-series servers--ServerNet
interconnect technology-enabled NonStop Himalaya servers and introductory
Windows NT Server-based systems--joining the UNIX system-based Integrity
servers which were introduced in fiscal 1996. Tandem plans to continue to invest
in Himalaya and Integrity servers and to leverage that investment into the
Windows NT Server market. The Company is also working to extend its
business-critical software applications to the Windows NT Server market.
In the context of the Company's new product strategy, the Company's future
operating results are dependent upon the Company's ability to execute its new
strategy, to introduce new products on a timely basis, and to manage product
transitions effectively. Future operating results are also dependent upon
continued demand for Himalaya and Integrity servers and the market's acceptance
of the Company's new product offerings.
Another aspect of the Company's vision addresses strategic partnerships. The
Company has entered into strategic partnerships with other technology companies
for joint development, OEM distribution, and product licensing associated with
the Company's ServerNet clustering technology and ServerWare "middleware"
software. Future operating results are dependent upon the Company's ability to
manage these new partnership relationships, and associated competitive risks,
effectively.
To prepare for the changes in business strategy briefly outlined above, the
Company changed its organizational structure during 1996 into product line
business units and refocused its North American sales organization first by
geography and then by line of business. These organizational changes, together
with the 1996 restructuring actions,
16 Tandem Computers Incorporated
<PAGE> 17
have resulted in substantial changes in the Company's management team,
including, but not limited to, appointment of a new Chief Executive Officer
(CEO) and a new President and Chief Operating Officer (COO). Going forward,
changes of management and organizational structure may continue to occur. The
impact of such changes on the Company's future operating results cannot be
predicted.
As previously discussed, the Company has adopted a plan to sell UB Networks.
There can be no assurances that the sale of UB Networks will be completed within
management's plans.
Historically, Tandem recognizes a large percentage of its revenues in the latter
part of each quarter. Further, the Company's performance in the latter half of a
fiscal year is typically stronger than in the beginning of a fiscal year. These
trends make it difficult to forecast revenues and could subject the Company to
fluctuations in revenues and earnings.
Although the Company's operating and pricing strategies and currency hedging
practices take into account changes in foreign currency exchange rates over
time, the Company's operating results can be affected by foreign currency
exchange rates.
Forward-looking statements in this document are based on management's current
expectations and involve numerous risks and uncertainties, some of which have
been outlined above, that could cause actual results to differ materially.
1996 Annual Report 17
<PAGE> 18
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands except per share amounts) For the years ended September 30,
1996 1995 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $1,899,943 $1,920,436 $1,738,750 $1,682,646 $1,689,333
Cost of revenues $ 941,610 $ 923,515 $ 745,637 $ 695,948 $ 656,994
Research and development $ 287,693 $ 282,446 $ 232,321 $ 267,452 $ 238,995
Marketing, general, and
administrative $ 596,033 $ 592,329 $ 623,674 $ 711,391 $ 720,828
Restructuring charges $ 52,000 -- -- $ 258,204 $ 102,600
------------------------------------------------------------------------
Operating income (loss) $ 22,607 $ 122,146 $ 137,118 $ (250,349) $ (30,084)
Income (loss) from continuing
operations $ (5,425) $ 96,411 $ 153,618 $ (307,723) $ (32,683)
Income (loss) from discontinued
operations, net of income taxes $ (17,332) $ 11,135 $ 16,582 $ (222,375) $ (8,501)
Net income (loss) $ (22,757) $ 107,546 $ 170,200 $ (517,727) $ (41,184)
------------------------------------------------------------------------
Earnings (loss) per share --
continuing operations $ (.04) $ .82 $ 1.35 $ (2.74) $ (.30)
Earnings (loss) per share --
discontinued operations $ (.15) $ .09 $ .15 $ (1.98) $ (.08)
Earnings (loss) per share $ (.19) $ .91 $ 1.50 $ (4.61) $ (.38)
------------------------------------------------------------------------
Total assets $1,744,973 $1,856,694 $1,761,885 $1,685,209 $2,045,424
Long-term obligations $ 75,225 $ 75,923 $ 86,481 $ 86,162 $ 93,626
Stockholders' investment $1,086,422 $1,110,335 $ 938,841 $ 736,825 $1,236,895
---------------------------------------------------------------------------
</TABLE>
Certain prior year amounts have been restated to reflect UB Networks, Inc., as a
discontinued operation. Income (loss) from discontinued operations for 1996 and
1995 includes gains on sale of investments of $30.6 million and $9.3 million,
respectively. Income (loss) from discontinued operations for 1993 and 1992
includes restructuring charges of $192.8 million and $3.4 million, respectively.
Effective October 1, 1992, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." Net income (loss) for 1993 includes a positive cumulative effect
of a change in accounting for income taxes of $12.4 million ($0.11 per share).
See the Notes to Consolidated Financial Statements.
18 Tandem Computers Incorporated
<PAGE> 19
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 20
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended September 30,
(In thousands except per share amounts) 1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Revenues
Product revenues $ 1,501,614 $ 1,553,852 $ 1,408,047
Service and other revenues 398,329 366,584 330,703
---------------------------------------------
Total revenues 1,899,943 1,920,436 1,738,750
---------------------------------------------
Costs and expenses
Cost of product revenues 651,680 658,548 531,710
Cost of service and other revenues 289,930 264,967 213,927
Research and development 287,693 282,446 232,321
Marketing, general, and administrative 596,033 592,329 623,674
Restructuring charge 52,000 -- --
---------------------------------------------
Total costs and expenses 1,877,336 1,798,290 1,601,632
---------------------------------------------
Operating income 22,607 122,146 137,118
Gain on sale of subsidiaries -- -- 23,000
Interest income 16,024 17,948 13,900
Interest expense (15,056) (12,664) (10,347)
---------------------------------------------
Income from continuing operations before income taxes 23,575 127,430 163,671
Provision for income taxes 29,000 31,019 10,053
---------------------------------------------
Income (loss) from continuing operations (5,425) 96,411 153,618
Income (loss) from discontinued operations,
net of income taxes (17,332) 11,135 16,582
---------------------------------------------
Net income (loss) $ (22,757) $ 107,546 $ 170,200
=============================================
Earnings (loss) per share -- continuing operations $ (.04) $ .82 $ 1.35
Earnings (loss) per share -- discontinued operations (.15) .09 .15
---------------------------------------------
Earnings (loss) per share $ (.19) $ .91 $ 1.50
=============================================
Weighted average shares outstanding 117,536 118,217 113,449
=============================================
</TABLE>
See accompanying notes.
20 Tandem Computers Incorporated
<PAGE> 21
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At September 30,
(In thousands except per share amount) 1996 1995
------------------------------
Assets
<S> <C> <C>
Current assets
Cash and equivalents $ 87,813 $ 121,230
Accounts receivable, net of allowances of $19,862 in 1996
and $17,721 in 1995 475,464 539,993
Current portion of lease receivables 74,624 73,555
Inventories 115,320 169,948
Prepaid expenses and other 43,749 65,759
Net current assets of discontinued operations 62,593 --
------------------------------
Total current assets 859,563 970,485
------------------------------
Property, plant, and equipment, at cost 1,246,950 1,297,481
Accumulated depreciation and amortization (696,140) (700,813)
Net property, plant, and equipment of discontinued operations 30,402 --
------------------------------
Net property, plant, and equipment 581,212 596,668
------------------------------
Lease receivables 86,618 86,173
------------------------------
Other assets 217,580 203,368
------------------------------
Total assets $ 1,744,973 $ 1,856,694
==============================
Liabilities and stockholders' investment
Current liabilities
Accounts payable $ 135,821 $ 195,793
Accrued liabilities 353,765 409,520
Current maturities of long-term obligations 93,740 65,123
------------------------------
Total current liabilities 583,326 670,436
------------------------------
Long-term obligations 75,225 75,923
------------------------------
Commitments and contingencies -- --
------------------------------
Stockholders' investment
Common stock $.025 par value, authorized 400,000 shares,
outstanding 121,318 shares in 1996 and 119,808 shares in 1995 3,033 2,995
Additional paid-in capital 710,264 691,097
Retained earnings 420,363 450,086
Accumulated translation adjustments 3,629 17,064
Treasury stock, at cost (50,867) (50,907)
------------------------------
Total stockholders' investment 1,086,422 1,110,335
------------------------------
Total liabilities and stockholders' investment $ 1,744,973 $ 1,856,694
==============================
</TABLE>
See accompanying notes.
1996 Annual Report 21
<PAGE> 22
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
For the years ended September 30 Additional Accumulated
Common Stock Paid-In Retained Translation
(In thousands) Shares Amount Capital Earnings Adjustments
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances,
September 30, 1993 113,666 $2,842 $620,297 $162,260 $3,207
Sale of Common Stock
under stock plans 2,571 63 25,935 -- --
Reissuance of treasury
stock under stock plans -- -- 24 -- --
Acquisition of treasury
stock -- -- -- -- --
Translation adjustments -- -- -- -- 5,985
Net income -- -- -- 170,200 --
-------------------------------------------------------------------------------------
Balances,
September 30, 1994 116,237 2,905 646,256 332,460 9,192
Effect of adoption of
SFAS No. 115 -- -- -- 4,117 --
-------------------------------------------------------------------------------------
Balances,
October 1, 1994 116,237 2,905 646,256 336,577 9,192
Sale of Common Stock
under stock plans 3,571 90 44,277 -- --
Reissuance of treasury
stock under stock plans -- -- (4) -- --
Termination of ESOP -- -- (1,046) -- --
Gain from change
of interest in
NetWorth, Inc. -- -- 1,614 -- --
Translation adjustments -- -- -- -- 7,872
Net unrealized gains on
available-for-sale
securities -- -- -- 5,963 --
Net income -- -- -- 107,546 --
-------------------------------------------------------------------------------------
Balances,
September 30, 1995 119,808 2,995 691,097 450,086 17,064
Sale of Common Stock
under stock plans 1,510 38 13,480 -- --
Reissuance of treasury
stock under stock plans -- -- (13) -- --
Issuance of warrants -- -- 5,700 -- --
Translation adjustments -- -- -- -- (13,435)
Net changes in unrealized
gains on available-for-
sale securities -- -- -- (6,966) --
Net loss -- -- -- (22,757) --
-------------------------------------------------------------------------------------
Balances,
September 30, 1996 121,318 $3,033 $710,264 $420,363 $3,629
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
For the years ended September 30 Deferred Total
Treasury ESOP Stockholders'
(In thousands) Stock Compensation Investment
----------------------------------------------------
<S> <C> <C> <C>
Balances,
September 30, 1993 $ (8,871) $(42,910) $ 736,825
Sale of Common Stock
under stock plans -- -- 25,998
Reissuance of treasury
stock under stock plans 426 -- 450
Acquisition of treasury
stock (617) -- (617)
Translation adjustments -- -- 5,985
Net income -- -- 170,200
----------------------------------------------------
Balances,
September 30, 1994 (9,062) (42,910) 938,841
Effect of adoption of
SFAS No. 115 -- -- 4,117
----------------------------------------------------
Balances,
October 1, 1994 (9,062) (42,910) 942,958
Sale of Common Stock
under stock plans -- -- 44,367
Reissuance of treasury
stock under stock plans 19 -- 15
Termination of ESOP (41,864) 42,910 --
Gain from change
of interest in
NetWorth, Inc. -- -- 1,614
Translation adjustments -- -- 7,872
Net unrealized gains on
available-for-sale
securities -- -- 5,963
Net income -- -- 107,546
----------------------------------------------------
Balances,
September 30, 1995 (50,907) -- 1,110,335
Sale of Common Stock
under stock plans -- -- 13,518
Reissuance of treasury
stock under stock plans 40 -- 27
Issuance of warrants -- -- 5,700
Translation adjustments -- -- (13,435)
Net changes in unrealized
gains on available-for-
sale securities -- -- (6,966)
Net loss -- -- (22,757)
----------------------------------------------------
Balances,
September 30, 1996 $ (50,867) $ -- $ 1,086,422
====================================================
</TABLE>
See accompanying notes.
22 Tandem Computers Incorporated
<PAGE> 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended September 30,
(In thousands) 1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (22,757) $ 107,546 $ 170,200
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 197,667 170,834 163,277
Gain on sale of subsidiaries and investments (30,628) (9,297) (23,000)
Restructuring charge 52,000 -- --
Write-off of capitalized software 10,867 -- --
Loss on dispositions of property, plant, and equipment 5,884 5,885 3,530
Changes in (net of dispositions):
Accounts receivable (12,223) (20,125) (68,398)
Inventories 10,263 (8,501) (2,399)
Lease receivables (1,821) (23,046) 4,017
Non-debt current liabilities and other (92,638) (62,477) (131,397)
--------------------------------------------
Net cash provided by operating activities 116,614 160,819 115,830
--------------------------------------------
Cash flows from investing activities
Investment in property, plant, and equipment (151,258) (188,030) (152,807)
Proceeds from dispositions of property, plant, and equipment 9,571 14,495 41,036
Sale of businesses and investments, net of cash disposed 34,802 12,262 70,519
Increase in other assets (83,650) (47,086) (74,373)
--------------------------------------------
Net cash used in investing activities (190,535) (208,359) (115,625)
--------------------------------------------
Cash flows from financing activities
Borrowings 119,513 65,772 73,480
Repayments (83,865) (68,208) (84,864)
Issuance of warrants 5,700 -- --
Issuance of Common Stock under stock plans 13,545 44,382 25,998
--------------------------------------------
Net cash provided by financing activities 54,893 41,946 14,614
--------------------------------------------
Effect of exchange rate fluctuations on cash and equivalents (5,932) 2,782 3,044
--------------------------------------------
Net increase (decrease) in cash and equivalents (24,960) (2,812) 17,863
Cash and equivalents at beginning of year 121,230 124,042 106,179
Cash of discontinued operations at end of year (8,457) -- --
--------------------------------------------
Cash and equivalents at end of year $ 87,813 $ 121,230 $ 124,042
============================================
Supplementary cash flow information -- cash paid during the year for:
Income taxes $ 41,983 $ 12,099 $ 20,214
Interest $ 15,169 $ 13,074 $ 13,069
============================================
</TABLE>
See accompanying notes.
1996 Annual Report 23
<PAGE> 24
NOTES
TO
CONSOLIDATED
FINANCIAL
STATEMENTS
<PAGE> 25
Summary of Significant Accounting Policies
CONSOLIDATED FINANCIAL STATEMENTS -- The consolidated financial statements
include the accounts of Tandem Computers Incorporated and its majority-owned
subsidiaries (the Company) after the elimination of intercompany accounts and
transactions. Certain prior year amounts have been restated to reflect UB
Networks, Inc. (UB Networks), a wholly owned subsidiary of the Company, as a
discontinued operation.
REVENUE RECOGNITION -- The Company generally recognizes revenue from hardware
and software product sales at the time of shipment. When significant obligations
remain after products are delivered, revenue is recognized only after such
obligations are fulfilled. Product support and other revenues are recognized
ratably over the contractual period or as the services are provided.
TRANSLATION OF NON-U.S. CURRENCY AMOUNTS -- The Company's non-U.S. subsidiaries
use as their functional currency the local currencies of the countries in which
they operate. Their assets and liabilities are translated into U.S. dollars at
the exchange rates in effect at the balance sheet date. Revenues and expenses
are translated at average rates of exchange prevailing during the period. In
addition, all ongoing adjustments resulting from the process of translating each
subsidiary's financial statements into U.S. dollars have been accumulated and
recorded within a separate component of stockholders' investment. Foreign
currency transaction gains and losses are not material and are included in the
determination of net earnings.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
INCOME TAXES -- Deferred tax assets and liabilities are recognized for the
expected tax consequences attributable to temporary differences between the
carrying amounts of assets and liabilities and their tax bases. The Company
accounts for research and development tax credits as a reduction of the
provision for income taxes in the year in which the credits are realizable. In
general, the Company's practice is to provide U.S. federal taxes on
undistributed foreign earnings.
EARNINGS (LOSS) PER SHARE -- Earnings per share is based on the weighted average
number of common and common equivalent shares outstanding. Common equivalent
shares result from the assumed exercise of outstanding stock options and
warrants, which have a dilutive effect when applying the treasury stock method.
Loss per share is calculated using the weighted average number of common shares
outstanding during the period. Fully diluted earnings per share are
substantially the same as reported earnings per share.
CASH AND EQUIVALENTS -- Cash equivalents are valued at cost, which approximates
market value; have original maturity dates not exceeding 90 days; and generally
consist of certificates of deposit, time deposits, treasury notes, money market
deposits and preferred stocks, municipal notes, and commercial paper.
1996 Annual Report 25
<PAGE> 26
INVESTMENTS -- Effective October 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain
Investments in Debt and Equity Securities." Previously, the Company's equity
securities were recorded at lower of cost or market. Under SFAS No. 115, the
Company's equity securities are classified as available-for-sale.
Available-for-sale securities are included in prepaid expenses and other and are
stated at fair value, with the unrealized gains and losses, net of taxes,
reported in stockholders' investment. Realized gains and losses and declines in
value judged to be other than temporary on available-for-sale securities are
included in results of operations. The cost of securities sold is based on the
average cost method. In accordance with SFAS No. 115, prior period financial
statements have not been restated to reflect the change in accounting principle.
When a subsidiary or investee sells additional shares of its common stock to
third parties, thus reducing the Company's percentage ownership interest in the
investee, the Company records any increase in its share value of the investee
directly to paid-in capital.
INVENTORIES -- Inventories are stated at the lower of cost (first-in, first-out)
or market. The components of inventories at September 30 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
----------------------
<S> <C> <C>
Purchased parts and subassemblies $ 62,511 $ 71,455
Work in process 19,986 29,097
Finished goods 32,823 69,396
----------------------
Total $115,320 $169,948
======================
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT -- Property, plant, and equipment are stated at
cost. Depreciation and amortization are computed using the straight-line method
over estimated useful lives.
SOFTWARE DEVELOPMENT COSTS -- The Company capitalizes software development costs
when the resulting products become "technologically feasible" and amortizes
those costs when, and as, the products are shipped. The annual amortization of
the capitalized amounts is the greater of the amount computed based on the
estimated revenue distribution over the products' remaining life or a
straight-line method, generally three years, from the date of product release.
The amounts of unamortized software development costs included in other assets
at September 30, 1996 and 1995, were $148.7 million and $128.9 million,
respectively. The amortization expense for 1996, 1995, and 1994 was $57.7
million, $43.8 million, and $34.1 million, respectively.
ADVERTISING EXPENSES -- The Company accounts for advertising costs as expense in
the period in which they are incurred. Advertising expense for 1996, 1995, and
1994 was $18.5 million, $23.0 million, and $23.9 million, respectively.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS -- In March 1995, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which requires that
long-lived assets and certain identifiable intangibles, to be held and used, be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value of the asset may not be recoverable. The Company is
26 Tandem Computers Incorporated
<PAGE> 27
required to adopt SFAS No. 121 in 1997. The Company has evaluated the
implications of SFAS No. 121 and does not expect it to have a material impact on
the Company's financial condition or results of operations.
In October 1995, the FASB issued Statement of Accounting Standards No. 123 (SFAS
No. 123), "Accounting for Stock-Based Compensation." The Company is required to
adopt SFAS No. 123 in 1997. SFAS No. 123 allows companies to choose whether to
account for stock-based compensation on a fair value method or to continue to
account for stock-based compensation under the current intrinsic value method
and provide pro forma disclosures of net income and earnings per share as if the
accounting provisions of this statement had been adopted. The Company plans to
adopt only the disclosure requirements of SFAS No. 123, therefore the Company
does not expect the adoption of SFAS No. 123 to have a material impact on the
Company's financial condition or results of operations.
In June 1996, the FASB issued Statement of Accounting Standards No. 125 (SFAS
No. 125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 125 is effective for all such
transactions occurring after December 31, 1996. The Company does not expect the
implementation of SFAS No. 125 to have a material impact on the Company's
financial condition or results of operations.
Discontinued Operations
During June 1996, the Company adopted a plan to sell the Company's networking
business. UB Networks is a supplier of networking hardware and software products
for shared and switched environments. The Company has engaged Lehman Brothers to
assist in executing the sale. Although UB Networks is expected to continue to
incur operating losses until disposition, management does not expect to incur a
net loss on the overall disposition of UB Networks' net assets. Management's
estimates are based on discussions with and analyses provided by the Company's
financial advisors, as well as preliminary discussions with potential buyers.
The actual amount the Company will ultimately realize upon disposition of the
net assets of UB Networks is subject to risks and uncertainties and could differ
materially from these estimates. The results for UB Networks have been
segregated in the Consolidated Statements of Operations and accounted for as a
discontinued operation, as the networking subsidiary represents a separate major
line of business for the Company.
Revenues, results of operations, and income taxes associated with the
discontinued operation were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Total revenues $368,270 $364,526 $369,285
Operating income (loss) $(48,106) $ 3,158 $ 19,476
Income (loss) before income taxes $(17,332) $ 12,269 $ 17,529
Income taxes $ -- $ 1,134 $ 947
Income (loss) from discontinued operations $(17,332) $ 11,135 $ 16,582
Earnings (loss) per share from discontinued operations,
net of income taxes $ (.15) $ .09 $ .15
=====================================
</TABLE>
Income (loss) from discontinued operations in 1996 includes a loss of $23.2
million for the period from the date of adoption of the plan, June 30, 1996,
through September 30, 1996. Income (loss) from discontinued operations for 1996
and 1995 includes gains on sale of investments of $30.6 million and $9.3
million, respectively.
1996 Annual Report 27
<PAGE> 28
The components of net current assets of discontinued operations and net
property, plant, and equipment of discontinued operations included in the
Consolidated Balance Sheet at September 30, 1996, are outlined below. Similar
information as of September 30, 1995, has been provided for comparative purposes
only.
<TABLE>
<CAPTION>
(In thousands) 1996 1995
------------------------
<S> <C> <C>
Cash and equivalents $ 8,457 $ 13,545
Accounts receivable, net 66,734 71,005
Inventories 42,805 42,403
Prepaid expenses and other 14,839 23,283
Other assets 2,473 2,624
Accounts payable (33,203) (35,666)
Accrued liabilities (39,164) (34,432)
Long-term obligations (348) (343)
------------------------
Net current assets $ 62,593 $ 82,419
========================
Property, plant and equipment, at cost $ 94,719 $ 90,672
Accumulated depreciation and amortization (64,317) (67,420)
------------------------
Net property, plant and equipment $ 30,402 $ 23,252
========================
</TABLE>
SUBSEQUENT EVENT -- On October 14, 1996, UB Networks received approximately
$30 million from the sale of an investment.
Other Dispositions
In 1994 the Company sold 100 percent of its interest in Applied Communications,
Inc. (ACI), and Applied Communications, Inc. Limited (ACI Ltd.), providers of
financial services software, for approximately $53.6 million net cash. The sales
of these subsidiaries resulted in a gain for financial accounting purposes of
$23 million. The consolidated results of operations include the results of ACI
and ACI Ltd. from their respective acquisition dates through December 31, 1993,
their disposition date.
In 1994 the Company sold its interest in the storage subsystems business of
Array Technology Corporation, together with certain assets, for approximately
$10 million cash. As part of its 1993 restructuring plan and related provision,
the Company had decided to sell or otherwise dispose of this business unit.
Accordingly, the transaction was recorded as part of restructuring activity and
no gain or loss was realized for financial accounting purposes.
Financial Instruments
OFF BALANCE SHEET RISK -- The Company enters into foreign currency forward
exchange and option contracts to reduce the impact of currency fluctuations on
intercompany and other foreign currency denominated balance sheet positions, and
on certain anticipated revenue transactions related to sales by its foreign
subsidiaries that are expected to occur within 12 months. The objective of these
contracts is to neutralize the impact of foreign currency exchange rate
movements on the Company's operating results. The gains and losses on forward
exchange contracts
28 Tandem Computers Incorporated
<PAGE> 29
and option contracts are included in earnings when the underlying foreign
currency denominated transaction is recognized. Costs associated with entering
forward and option contracts are amortized over the life of the instruments. The
cash flows related to gains and losses on these contracts are classified as
operating activities in the Consolidated Statements of Cash Flows.
The foreign currency forward exchange contracts described above generally
require the Company to sell foreign currencies for U.S. dollars at rates agreed
to at the inception of the contracts. Foreign currency option contracts
generally provide the Company with the right, but not the obligation, to sell a
specified amount of foreign currency at a fixed price on a specified future
date. The forward contracts generally have maturities that do not exceed 3
months. The option contracts generally have maturities that range from 6 to 12
months. These contracts do not subject the Company to significant market risk
from exchange rate movements because the contracts offset gains and losses on
the balances and transactions being hedged. At September 30, 1996, the Company
had $156 million of foreign exchange forward contracts outstanding, including
$26 million held on behalf of UB Networks, and $63 million of option contracts
outstanding, in 16 different currencies. At September 30, 1995, the Company had
$158 million of foreign exchange forward contracts outstanding, including $23
million held on behalf of UB Networks, and $70 million of option contracts
outstanding, in 15 different currencies. Contracts to exchange European
currencies and the Japanese yen represented approximately 94 percent of the
total in 1996 and 88 percent of the total in 1995. Unrealized gains and losses
related to these instruments at September 30, 1996 and 1995, were not material.
The Company does not anticipate any material adverse effect on its financial
position resulting from the use of these instruments.
FAIR VALUES OF FINANCIAL INSTRUMENTS -- For certain of the Company's financial
instruments, including cash and equivalents, accounts receivable and payable,
notes receivable and payable, short-term borrowings, secured bank loans, and
accrued liabilities, the carrying amounts approximate fair value due to their
short maturities. The following tables provide information regarding the
estimated fair values of other financial instruments at September 30:
<TABLE>
<CAPTION>
1996 1995
---------------------------------- ----------------------------------
(Asset)/Liability (Asset)/Liability
---------------------- -----------------------
Contract Carrying Estimated Contract Carrying Estimated
(In thousands) Amount Amount Fair Value Amount Amount Fair Value
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term obligations:
Japanese yen
notes payable -- $27,655 $27,815 -- $12,838 $13,185
Mortgages -- $ 5,375 $ 5,588 -- $ 7,626 $ 8,239
Foreign exchange:
Forward contracts,
accrued (gains)/losses $156,000 $(1,407) $(1,766) $158,000 $ (917) $(1,365)
Option contracts,
unamortized premium $ 63,000 $(1,080) $ (213) $ 70,000 $(1,019) $(1,178)
===========================================================================
</TABLE>
1996 Annual Report 29
<PAGE> 30
The fair values for long-term obligations have been estimated using a discounted
cash flow analysis based upon interest rates that approximate current interest
rates for similar borrowings. The fair value of the foreign exchange forward
contracts is based upon quoted market prices for the same or similar
instruments. The fair value of option contracts is estimated using option
pricing models. These values represent general approximations of potential value
and are not necessarily the values that will be ultimately realized.
INVESTMENTS -- At September 30, 1996 and 1995, the Company held
available-for-sale securities with estimated fair values of $3 million and $16
million, respectively, consisting of gross unrealized gains of $2 million and
$10 million, respectively, and cost basis of $1 million and $6 million,
respectively. Available-for-sale securities are reported in prepaid expenses and
other.
During 1996, the proceeds and realized gains from the sales of
available-for-sale securities were not material. During 1995, the Company
received $14.0 million in proceeds, and realized gains of $7.6 million from
sales of available-for-sale securities. Realized gains were reported in
marketing, general, and administrative expenses in the Consolidated Statement of
Operations. See the Discontinued Operations footnote for information on sales of
securities of UB Networks.
The cumulative effect of adopting SFAS No. 115, as of October 1, 1994, increased
the beginning balance of stockholders' investment by $4.1 million to reflect the
net unrealized holding gains on securities classified as available-for-sale.
CONCENTRATIONS OF CREDIT RISK -- Credit risk with respect to trade receivables
is generally diversified due to the number of entities that make up the
Company's customer base and their dispersion across many different industries
and geographies. Credit risk is also limited by the Company's credit evaluation
process and reasonably short collection terms. Bad debt expenses have been
insignificant, and generally, the Company does not require collateral or other
security to support accounts receivable. The Company also has short-term cash
and foreign exposure management policies that limit the amount of credit
exposure to any one financial institution and restrict placement of the
investments and contracts to financial institutions evaluated as highly
creditworthy.
RESTRUCTURING -- During 1996, the Company initiated a restructuring program as a
result of decisions by its new Chief Executive Officer and management team to
transform the Company's organizational structure in order to align resources
with a new strategic business model and to lower the Company's cost structure.
The restructuring actions resulted in a charge of $52 million and included
reducing headcount, vacating leased facilities, and disposing of assets to
discontinue certain product programs and other activities.
In 1992 and 1993, the Company initiated separate restructuring programs designed
to streamline operations and lower its worldwide cost structure. These
restructuring actions included a reduction of headcount, consolidation of
facilities, and disposal of assets no longer required.
30 Tandem Computers Incorporated
<PAGE> 31
At September 30, 1996, $40 million remained in accrued liabilities and $16
million remained as a reduction on net property, plant, and equipment. At
September 30, 1995, $61 million remained in accrued liabilities and $10 million
remained as a reduction of net property, plant, and equipment.
The restructuring provisions, supported by appropriate levels of specificity for
planned actions, were established and approved by the Company's executive
management and its Board of Directors. Actual restructuring costs are recognized
as reductions in related restructuring reserves in the period incurred.
Information relating to restructuring activity is presented below.
<TABLE>
<CAPTION>
Reduction of Internal Discontinued
(In thousands) Work Force Facilities Systems Activities Other Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1993 $ 86,634 $ 89,302 $ 34,000 $15,325 $ 57,310 $ 282,571
Utilized -- 1994 (34,568) (34,560) (10,178) (4,614) (25,473) (109,393)
------------------------------------------------------------------------------
Balances, September 30, 1994 52,066 54,742 23,822 10,711 31,837 173,178
Adjustments -- 1995 1,611 (45) 3,074 42 (4,682) --
Utilized -- 1995 (36,000) (26,036) (19,482) (933) (20,122) (102,573)
------------------------------------------------------------------------------
Balances, September 30, 1995 17,677 28,661 7,414 9,820 7,033 70,605
Provision -- 1996 34,100 8,600 -- 9,300 -- 52,000
Utilized -- 1996 (33,838) (12,467) (7,414) (5,632) (7,033) (66,384)
------------------------------------------------------------------------------
Balances, September 30, 1996 $ 17,939 $ 24,794 $ -- $13,488 $ -- $ 56,221
==============================================================================
Cash used:
1994 $ 34,568 $ 25,075 $ 10,178 $(5,037) $ 23,680 $ 88,464
1995 36,000 20,674 19,482 57 19,093 95,306
1996 33,838 9,369 7,414 991 6,461 58,073
Expected future 17,939 19,106 -- 2,819 -- 39,864
------------------------------------------------------------------------------
Total $122,345 $ 74,224 $ 37,074 $(1,170) $ 49,234 $ 281,707
==============================================================================
</TABLE>
The 1996 provision for reduction of work force included severance, related
medical and other benefits, and an employment agreement with the former Chief
Executive Officer. The 1996 provision included termination benefits for
approximately 500 employees, of which approximately three-fourths were based in
the United States. Approximately two-thirds of the planned terminations were in
sales, marketing, and administrative functions; approximately 20 percent in
engineering and development functions; and the balance was in manufacturing,
service, and support functions. The Company's plan anticipates these
terminations to be substantially completed during early 1997.
The 1996 provision for facilities included primarily lease payments, fixed costs
and write-offs of related property, plant, and equipment associated with plans
to permanently exit sales, support, and administrative operations in
approximately fifteen leased facilities throughout the United States, Europe,
and Asia-Pacific geographic areas. The Company plans to vacate substantially all
of these facilities by the first half of 1997. As of September 30, 1996,
facilities restructure reserves included approximately $19 million representing
lease payments and expenses for idle facilities, and approximately $6 million
representing related improvements. The above leases have remaining terms
generally not exceeding four years.
1996 Annual Report 31
<PAGE> 32
The 1996 provision for discontinued activities included costs related to exiting
the maintenance and support obligations of a third-party product, asset
write-offs associated with discontinuing imaging solutions products, and asset
write-offs and other costs associated with discontinuing product initiatives and
programs. The Company initiated negotiations to outsource the above maintenance
and support obligations in 1996 and expects to begin outsourcing this activity
early in 1997. Future cash utilization represents the present value of a
long-term land lease in Germany.
Accounts Receivable
The Company has a receivables purchase agreement with a group of financial
institutions whereby the Company can sell a percentage ownership interest in an
eligible pool of accounts receivable. Under the terms of the agreement, the
Company retains collection and servicing responsibilities for the receivables
and retains substantially the same risk of credit loss as if the interest in
receivables had not been sold. The agreement allows for maximum borrowings of up
to $100 million and expires in October 1997.
The maximum amount outstanding at any point during the years ended September 30,
1996 and 1995, was $65 million and $50 million, respectively. There were no
amounts outstanding at the end of either year.
Property, Plant, and Equipment
Property, plant, and equipment balances at September 30 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
--------------------------
<S> <C> <C>
Land and buildings $ 392,861 $ 399,294
Machinery and equipment 180,103 197,235
Computer equipment 516,244 534,748
System spares 96,630 94,348
Leasehold improvements 60,613 64,802
Construction in progress 16,442 16,645
Restructuring reserves (15,943) (9,591)
--------------------------
Total $1,246,950 $1,297,481
==========================
</TABLE>
The 1995 balances include the property, plant, and equipment of UB Networks.
Included in land and buildings at September 30, 1996 and 1995, was approximately
$59.5 million and $55.9 million, respectively, of costs relating to land and
land improvements on undeveloped parcels located near the Company's Cupertino,
California, headquarters.
Depreciation expense from continuing operations was $125.4 million, $112.3
million, and $110.4 million in 1996, 1995, and 1994, respectively. Rent expense
from continuing operations was $46.5 million, $48.2 million, and $53.8 million
in 1996, 1995, and 1994, respectively.
32 Tandem Computers Incorporated
<PAGE> 33
The Company leases certain equipment, automobiles, and some of its operating
facilities and offices under operating lease agreements. Future minimum lease
payments as of September 30, 1996, for continuing operations, net of amounts
included in restructuring, are as follows (in millions): $36.4 (1997), $29.2
(1998), $19.5 (1999), $14.3 (2000), $11.0 (2001), and $73.9 (2002 and
thereafter). Future minimum lease payments as of September 30, 1996, for
discontinued operations, net of amounts included in restructuring, are as
follows (in millions): $8.5 (1997), $6.3 (1998), $5.5 (1999), $5.0 (2000), $0.7
(2001), and $5.6 (2002 and thereafter).
Leasing Program
The Company offers lease financing of selected products to its customers.
Sales-type leases are originated by the Company and either sold on a nonrecourse
basis or used as collateral for borrowings from certain third-party financial
institutions. Under lease borrowings, the Company receives all proceeds at the
inception of the lease. The third-party financial institution assumes the
administrative responsibility for collection of the lease receivables and the
credit risk. In the event of a default by a lessee, recourse by the financial
institutions is generally limited to the collateralized computer equipment. The
Company may also be required to participate in remarketing the computer
equipment on a "best efforts" basis on behalf of the financial institutions.
The following table relates the borrowing and repayment activity in the
lease-related installment notes to the investment in sales leases:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Total borrowings, beginning balance $120,238 $121,674 $114,274
Current year borrowings 80,564 64,447 72,878
Current year repayments (73,319) (65,883) (65,478)
-------------------------------------
Total borrowings, ending balance 127,483 120,238 121,674
Leases not funded at year-end 33,759 39,490 16,558
Insured residual values -- -- 49
-------------------------------------
Investment in sales leases 161,242 159,728 138,281
Less current lease receivables (74,624) (73,555) (61,516)
-------------------------------------
Lease receivables $ 86,618 $ 86,173 $ 76,765
=====================================
</TABLE>
The borrowings and repayments shown above are included in the Company's total
borrowings and repayments as shown in the Consolidated Statements of Cash Flows.
Sales of lease receivables in 1996, 1995, and 1994 were $12.1 million, $11.3
million, and $9.0 million, respectively.
1996 Annual Report 33
<PAGE> 34
Long-Term Obligations
Long-term obligations at September 30 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
-----------------------
<S> <C> <C>
Installment notes due through 2001, collateralized by lease receivables (1) $127,483 $120,238
Japanese yen notes payable, due 1997 to 1999 (2) 27,655 12,838
Secured bank loan (6.8%) (3) 8,376 --
Mortgages (9.3% - 14.5%) (4) 5,375 7,626
Other 76 344
-----------------------
Total obligations 168,965 141,046
Less current portion (93,740) (65,123)
-----------------------
Long-term obligations $ 75,225 $ 75,923
=======================
</TABLE>
(1) Weighted average interest rates were 8.5% and 8.7% at September 30, 1996 and
1995, respectively.
(2) Weighted average interest rates were 2.2% and 4.6% at September 30, 1996 and
1995, respectively.
(3) Secured by an underlying note receivable of the Company of $8.4 million,
included in other assets, with an interest rate of 7.5%, and due in 1998.
(4) Payable monthly; maturing 1997 to 2001; weighted average interest rates were
10.5% and 11.1% at September 30, 1996 and 1995, respectively. The mortgages
are secured by certain land and buildings, with a carrying value of
approximately $39 million.
Repayments on the lease borrowings are sourced from the underlying lease
receivables and are scheduled as follows (in millions): $65 (1997), $41 (1998),
$17 (1999), and $4 (2000). Repayments on the remaining debt are as follows (in
millions): $29 (1997), $1 (1998), $10 (1999), $1 (2000), and $1 (thereafter).
The Company has guaranteed payment of personal bank loans made to officers and
other employees totaling $2.4 million and $3.8 million at September 30, 1996 and
1995, respectively, under a bank credit line of $5.0 million.
Accrued Liabilities
Accrued liabilities at September 30 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
----------------------
<S> <C> <C>
Accrued salaries and related items $ 81,768 $ 76,264
Accrued commissions to third parties 9,789 11,281
Deferred income 136,377 171,415
Restructuring reserves 40,278 61,014
Other 85,553 89,546
----------------------
Total $353,765 $409,520
======================
</TABLE>
Short-term borrowings, included above in Other, consisted of notes payable of
$6.3 million and $1.4 million at September 30, 1996 and 1995, respectively.
Notes payable generally consist of notes and borrowings under uncommitted credit
lines at weighted average interest rates of 11.9 percent and 14.0 percent at
September 30, 1996 and 1995, respectively.
34 Tandem Computers Incorporated
<PAGE> 35
Income Taxes
Income (loss) from continuing operations before income taxes is as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
U.S. $(70,251) $ (6,580) $101,938
Foreign 93,826 134,010 61,733
-------------------------------------
Total $ 23,575 $127,430 $163,671
=====================================
</TABLE>
The provision for income taxes relating to continuing operations included the
following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
------------------------------------
<S> <C> <C> <C>
Federal:
Current $ -- $ -- $ 667
Deferred -- -- --
------------------------------------
-- -- 667
------------------------------------
State:
Current $ 715 $ 555 $ 1,259
Deferred -- -- --
------------------------------------
715 555 1,259
------------------------------------
Foreign:
Current $35,625 $ 41,203 $ 8,127
Deferred (7,340) (10,739) --
-------------------------------------
28,285 30,464 8,127
-------------------------------------
Total provision for income taxes $29,000 $ 31,019 $10,053
=====================================
</TABLE>
The Company recorded a 1996 provision for income taxes consisting primarily of
taxes currently payable in foreign jurisdictions. The 1996 domestic operating
loss provided no current tax benefit.
The provision for income taxes differed from the amount obtained by applying the
federal statutory income tax rate to income (loss) before income taxes, as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
Losses with no current tax benefit 90.5 1.6 2.8
Foreign earnings at other than U.S. statutory rate 18.3 4.6 --
Valuation allowance utilization (30.1) (17.3) (34.1)
State taxes, net of federal income tax benefit 3.0 .6 .8
Amortization of cost in excess of net assets acquired -- -- .3
Other 6.3 (.2) 1.3
-----------------------------------
Effective tax rate 123.0% 24.3% 6.1%
===================================
</TABLE>
1996 Annual Report 35
<PAGE> 36
Significant components of the Company's deferred tax assets (liabilities) as of
September 30 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
------------------------
<S> <C> <C>
Deferred tax assets:
Restructuring accruals $ 26,916 $ 32,381
Inventory reserves 19,192 10,108
Deferred income 12,975 17,492
Intercompany profit eliminations 25,885 28,408
Federal tax credit carryovers (expire beginning 1997) 53,621 36,470
Federal net operating loss carryover (expires in 2010) 53,077 50,497
Foreign net operating loss carryovers (expire beginning 1997) 11,311 10,504
Foreign taxes on unremitted foreign earnings, net of the related
U.S. tax liability 53,349 49,811
Expenses not currently deductible 37,272 28,051
Other 21,536 6,593
------------------------
Total deferred tax assets 315,134 270,315
Valuation allowance for deferred tax assets (200,043) (163,384)
------------------------
Net deferred tax assets $115,091 $ 106,931
------------------------
Deferred tax liabilities:
Capitalized software $(53,614) $ (43,084)
Operating leases for income tax reporting (32,763) (41,208)
Accelerated depreciation (10,635) (11,900)
------------------------
Total deferred tax liabilities $(97,012) $ (96,192)
------------------------
Total net deferred tax assets $ 18,079 $ 10,739
========================
</TABLE>
At September 30, 1996 and 1995, net deferred tax assets of $18.1 million and
$10.7 million, respectively, represent the tax effects of temporary differences
existing in certain foreign jurisdictions that the Company believes are more
likely than not to be realized, based upon the strong earnings history in those
jurisdictions. Accordingly, the valuation allowance at September 30, 1996 and
1995, reduced deferred tax assets to an amount deemed realizable. The valuation
allowance includes $30.5 million and $30.0 million in 1996 and 1995,
respectively, attributable to stock option deductions, the benefit of which will
be credited to paid-in capital when realized.
Capital Stock
The Company's authorized capital stock consists of 2.4 million shares of
preferred stock, of which .8 million shares are designated as Series A
Participating Preferred Stock; 4.0 million shares of Junior Common Stock; and
396.0 million shares of Common Stock. No shares of preferred stock or Junior
Common Stock have been issued. At September 30, 1996 and 1995, 28.7 million
shares and 26.3 million shares of Common Stock, respectively, were reserved for
future issuance under stock option plans, the employee stock purchase plan, and
outstanding warrants.
36 Tandem Computers Incorporated
<PAGE> 37
TREASURY STOCK -- Treasury shares are carried at cost and are being used to
satisfy requirements under employee stock and benefit plans. At September 30,
1996 and 1995, the Company held 3.1 million shares with an aggregate cost of
$50.9 million.
STOCK RIGHTS -- The Company has a stock rights plan (the Plan), which is
intended to protect stockholders from unfair takeover practices. Under the Plan,
each share of Common Stock carries one right to obtain additional stock or other
property with equivalent value on terms provided in the Plan. The rights will
not be exercisable or transferable apart from the Common Stock until another
person or group of persons (subject to certain exceptions) acquires at least 20
percent of the Common Stock or commences, or announces its intention to
commence, a tender offer for at least 30 percent of the Common Stock.
The rights are redeemable by the Board of Directors or upon vote of the
stockholders for $.05 per right or property with an equivalent value, and expire
on June 17, 1998.
Employee Benefits
STOCK OPTION PLANS -- The Company has stock option plans under which eligible
individuals may be granted options to purchase shares of Common Stock, generally
at fair market value at the time of the grant. In general, options become
exercisable six months after the effective date, vest over four years, and
expire no more than ten years after the effective date. At the discretion of the
Board of Directors, options granted under the stock option plans may qualify as
incentive stock options under the Internal Revenue Code of 1986.
At September 30, 1996 and 1995, options for 5.0 million shares and 9.5 million
shares, respectively, were available for future grant.
EMPLOYEE STOCK PURCHASE PLAN -- Under the employee stock purchase plan, the
Company may offer shares to employees in two ways. Under the first method,
eligible employees may elect to purchase shares of Common Stock at the lower of
85 percent of fair market value as of the first trading day of each quarterly
participation period, or as of the last trading day of each quarterly
participation period. Under this method, in 1996, 1995, and 1994, employees
purchased 1,287,000 shares for aggregate proceeds of $11.1 million; 876,000
shares for aggregate proceeds of $11.0 million; and 1,111,000 shares for
aggregate proceeds of $10.4 million, respectively. Under the second method, the
Company may grant to all eligible employees an option to purchase an identical
number of shares of Common Stock at not less than 85 percent of fair market
value at the grant date. As of September 30, 1996 and 1995, the Company had
reserved 3.6 million shares and 1.2 million shares, respectively, for future
issuance under its employee stock purchase plan.
1996 Annual Report 37
<PAGE> 38
STOCK OPTION ACTIVITY -- Information concerning the combined option activity
during the years ended September 30 under the stock option plans and the option
portion of the employee stock purchase plan is as follows:
<TABLE>
<CAPTION>
(In millions except 1996 1995 1994
per share amounts) -------------------------------------------------------------------------
Aggregate Aggregate Aggregate
--------------------- ---------------------- ---------------------
Shares Price Shares Price Shares Price
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 15.6 $215.1 16.7 $222.0 19.4 $254.7
Options granted 7.8 87.0 3.2 47.8 0.8 9.8
Options exercised ($8.88
to $19.00 per share) (0.2) (2.3) (2.7) (33.0) (1.5) (16.9)
Options canceled (4.1) (56.6) (1.6) (21.7) (2.0) (25.6)
-------------------------------------------------------------------------
End of year 19.1 $243.2 15.6 $215.1 16.7 $222.0
=========================================================================
Options vested at year-end 12.2 11.4 12.4
=========================================================================
</TABLE>
Although stock options may be exercised before they are fully vested and the
effect of all dilutive stock options is considered in the determination of
earnings per share, the following tables show the maximum number of shares that
would be issued based on the number of options vesting in each future year and
the maximum number of shares expiring in each future year. The option vesting
table does not reflect any anticipated early vesting based upon stock price
performance.
<TABLE>
<CAPTION>
(In thousands except Maximum number of existing options vesting each year
price range amounts) --------------------------------------------------------------------------
1996 and 2000 and Total
Exercise Price Range Prior 1997 1998 1999 Thereafter Shares
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Under $9.00 3 2 2 2 -- 9
$9.00 - $9.99 2,043 953 578 541 66 4,181
$10.00 - $10.99 775 230 127 106 19 1,257
$11.00 - $11.99 1,412 778 760 644 124 3,718
$12.00 - $12.99 1,350 96 81 67 2 1,596
$13.00 - $13.99 2,370 383 362 216 -- 3,331
$14.00 - $14.99 2,012 42 28 10 -- 2,092
$15.00 - $15.99 193 65 59 51 6 374
$16.00 - $16.99 542 28 27 11 -- 608
$17.00 - $17.99 641 26 25 7 -- 699
$18.00 - $18.99 229 81 81 61 6 458
$19.00 - $19.99 418 -- -- -- -- 418
Over $20.00 242 49 49 49 6 395
--------------------------------------------------------------------------
12,230 2,733 2,179 1,765 229 19,136
==========================================================================
</TABLE>
38 Tandem Computers Incorporated
<PAGE> 39
<TABLE>
<CAPTION>
(In thousands except Maximum number of existing options expiring each year
price range amounts) ------------------------------------------------------------------------
2001 and Total
Exercise Price Range 1997 1998 1999 2000 Thereafter Shares
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Under $9.00 -- -- -- -- 9 9
$9.00 - $9.99 8 20 57 -- 4,096 4,181
$10.00 - $10.99 12 8 70 5 1,162 1,257
$11.00 - $11.99 14 5 26 21 3,652 3,718
$12.00 - $12.99 40 16 36 4 1,500 1,596
$13.00 - $13.99 10 335 64 441 2,481 3,331
$14.00 - $14.99 629 499 363 174 427 2,092
$15.00 - $15.99 4 -- 46 10 314 374
$16.00 - $16.99 10 34 383 15 166 608
$17.00 - $17.99 224 219 137 10 109 699
$18.00 - $18.99 -- 98 23 8 329 458
$19.00 - $19.99 249 41 52 76 -- 418
Over $20.00 55 -- 5 135 200 395
------------------------------------------------------------------------
1,255 1,275 1,262 899 14,445 19,136
========================================================================
</TABLE>
OPTION LOAN PROGRAM -- The Company has the Tandem Computers Incorporated Option
Loan Program (the Program) to enable employees to exercise certain outstanding
options. Under the Program, the Company can issue full recourse loans that are
secured by a pledge of the Company's Common Stock. Loan agreements entered into
between the Company and participants provide that in the event of a change in
control of the Company (as defined), principal and interest will be forgiven
over a four-year period. The amounts outstanding at September 30, 1996 and 1995,
were insignificant.
401(k) INVESTMENT PLAN -- The Company has a 401(k) investment plan (the
Investment Plan) covering substantially all of its U.S. employees. Under the
Investment Plan, participating employees may defer up to 18 percent of their
pretax earnings, subject to the Internal Revenue Service annual contribution
limit ($9,500 for calendar year 1996). The Company matches 63 percent to 100
percent of each employee's contribution up to a maximum 2.5 percent of the
employee's earnings. The Company's matching contributions to the Investment Plan
for 1996, 1995, and 1994 were $8.1 million, $7.5 million, and $7.7 million,
respectively.
DEFERRED COMPENSATION PLAN -- The Company has the Tandem Computers Incorporated
Deferred Compensation Plan that permits eligible officers and employees to defer
a portion of their compensation. Funds deferred under the plan are held by the
Company in an irrevocable trust established for the benefit of the participants.
The deferred compensation is distributable in cash after retirement or
termination of employment. At September 30, 1996 and 1995, the liability for
deferred compensation included in other liabilities totaled $4.4 million and
$1.9 million, respectively. The Company can insure the lives of the participants
in the Deferred Compensation Plan to assist in the funding of the deferred
compensation liability. The life insurance policies are owned by and payable to
the trust. At September 30, 1996 and 1995, the cash surrender value of these
insurance policies included in other assets was $6.3 million and $2.6 million,
respectively.
1996 Annual Report 39
<PAGE> 40
Commitments and Contingencies
The Company and three principal officers were named as defendants in a class
action complaint for damages filed in the United States District Court for the
Northern District of California on July 19, 1995. The class action is purported
to be on behalf of purchasers of the Company's Common Stock between March 8,
1995, and July 12, 1995. The complaint alleges violations of Section 10(b) of
the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5.
Management believes that this complaint is without merit and that the outcome of
the complaint will not have a material adverse effect on the financial position
or overall trends in the results of operations of the Company. The foregoing
forward-looking statement is based on information presently known to management,
and the future outcome could differ.
Two similar class action complaints were filed on November 2, 1995, and December
19, 1995, respectively. The plaintiffs in both of these cases voluntarily
dismissed their complaints in January 1996.
The Company is subject to other legal proceedings and claims that arise in the
normal course of its business. In the opinion of management, these proceedings
will not have a material adverse effect on the financial position or overall
trends in the results of operations of the Company.
See the Property, Plant, and Equipment note to the Consolidated Financial
Statements for a discussion of the Company's operating lease commitments.
Segment Information
The Company's principal business is the development, manufacturing, marketing,
and servicing of computer systems, servers, and software. The Company operates
in five geographic regions: the United States (internally, included in the
Americas Division), Americas, Europe, Japan, and Asia-Pacific. Americas
includes operations in North and South America outside of the United States,
principally Canada and Latin America.
The following table sets forth information about the Company's operations in
these different geographic regions for the fiscal years ended September 30.
Prior year amounts for revenues and income (loss) from continuing operations
before income taxes have been restated to reflect UB Networks, a separate major
line of business, as a discontinued operation.
40 Tandem Computers Incorporated
<PAGE> 41
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
-------------------------------------------------
<S> <C> <C> <C>
Revenues
United States -- customers $ 896,083 $ 926,844 $ 889,521
United States -- intercompany 376,031 377,116 403,497
Americas -- customers 89,045 86,040 76,580
Americas -- intercompany 540 1,309 811
Europe -- customers 527,111 520,541 457,948
Europe -- intercompany 24,828 22,827 23,186
Japan -- customers 258,734 277,332 211,706
Japan -- intercompany 4,773 2,398 806
Asia-Pacific -- customers 128,970 109,679 102,995
Asia-Pacific -- intercompany 3,421 749 4,734
-------------------------------------------------
2,309,536 2,324,835 2,171,784
Eliminations (409,593) (404,399) (433,034)
-------------------------------------------------
Total revenues $ 1,899,943 $ 1,920,436 $ 1,738,750
=================================================
Income (loss) from continuing operations before
income taxes
United States $ (60,257) $ 2,838 $ 119,664
Americas 5,380 5,604 (2,644)
Europe 56,006 68,003 28,378
Japan 31,560 45,783 13,445
Asia-Pacific (21,906) (10,424) (5,166)
-------------------------------------------------
10,783 111,804 153,677
Eliminations 12,792 15,626 9,994
-------------------------------------------------
Total income from continuing operations before
income taxes $ 23,575 $ 127,430 $ 163,671
=================================================
Identifiable assets
United States $ 1,180,258 $ 1,327,352 $ 1,277,554
Americas 28,092 44,654 35,880
Europe 316,708 343,774 351,386
Japan 106,983 157,359 134,716
Asia-Pacific 86,859 75,561 71,998
-------------------------------------------------
1,718,900 1,948,700 1,871,534
Eliminations (66,922) (92,006) (109,649)
-------------------------------------------------
Total identifiable assets $ 1,651,978 $ 1,856,694 $ 1,761,885
=================================================
</TABLE>
Intercompany transfers are made at arm's-length prices. Pretax income (loss) for
1996 includes restructuring charges for United States, Europe, and Asia-Pacific
in the approximate amounts of $43 million, $6 million, and $3 million,
respectively. Identifiable assets are those assets of the Company that are
identified with the operations of the corresponding geographic area.
United States customer revenues include export sales of $77 million in 1996, $56
million in 1995, and $41 million in 1994.
1996 Annual Report 41
<PAGE> 42
Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(In thousands except per share amounts)
Fiscal 1996 Quarters ended Dec. 31 March 31 June 30 Sept. 30
---------------------------------------------------------
<S> <C> <C> <C> <C>
Continuing operations:
Total revenues $420,979 $469,941 $465,778 $543,245
Gross margin $213,597 $233,597 $238,767 $272,372
Income (loss) from continuing operations $(21,932) $(46,993) $ 23,338 $ 40,162
Earnings (loss) per share $ (.19) $ (.40) $ .20 $ .34
Discontinued operations:
Total revenues $ 91,463 $106,257 $ 82,132 $ 88,418
Gross margin $ 32,682 $ 34,013 $ 23,559 $ 20,532
Income (loss) from discontinued operations $ 23,898 $ (2,564) $(15,440) $(23,226)
Earnings (loss) per share $ .20 $ (.02) $ (.13) $ (.20)
Net income (loss) $ 1,966 $(49,557) $ 7,898 $ 16,936
Earnings (loss) per share $ .02 $ (.42) $ .07 $ .14
Market stock price range
High $ 12.75 $ 11.38 $ 15.25 $ 12.50
Low $ 10.00 $ 8.75 $ 8.38 $ 8.63
=========================================================
</TABLE>
Income (loss) from discontinued operations for the quarter ended December 31,
1995, includes a gain on the sale of an investment of $30.6 million. Income
(loss) from continuing operations for the quarter ended March 31, 1996, includes
pretax restructuring charges of $52.0 million.
<TABLE>
<CAPTION>
(In thousands except per share amounts)
Fiscal 1995 Quarters ended Dec. 31 March 31 June 30 Sept. 30
--------------------------------------------------------
<S> <C> <C> <C> <C>
Continuing operations:
Total revenues $445,893 $428,683 $499,151 $546,709
Gross margin $243,102 $222,707 $261,384 $269,728
Income from continuing operations $ 31,165 $ 14,159 $ 28,001 $ 23,086
Earnings per share $ .26 $ .12 $ .24 $ .20
Discontinued operations:
Total revenues $ 88,707 $ 87,259 $ 95,263 $ 93,297
Gross margin $ 39,558 $ 34,958 $ 38,486 $ 34,350
Income (loss) from discontinued operations $ 4,060 $ 7,527 $ 2,843 $ (3,295)
Earnings (loss) per share $ .03 $ .06 $ .02 $ (.03)
Net income $ 35,225 $ 21,686 $ 30,844 $ 19,791
Earnings per share $ .30 $ .18 $ .26 $ .17
Market stock price range
High $ 19.13 $ 19.75 $ 17.25 $ 17.50
Low $ 15.50 $ 15.38 $ 13.38 $ 11.75
========================================================
</TABLE>
Tandem Computers Incorporated Common Stock is traded on the New York, Midwest,
and Pacific Stock Exchanges under the trading symbol TDM. All quotations shown
represent the high and low sale prices. The Company has not declared or paid any
cash dividends on its Common Stock and has no plans to do so in the foreseeable
future. As of December 2, 1996, there were approximately 7,130 holders of record
of the Common Stock of the Company.
42 Tandem Computers Incorporated
<PAGE> 43
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Tandem Computers Incorporated:
We have audited the accompanying consolidated balance sheets of Tandem Computers
Incorporated and subsidiaries as of September 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' investment, and cash flows
for each of the three years in the period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tandem Computers
Incorporated and subsidiaries at September 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
--------------------
San Jose, California
October 22, 1996
1996 Annual Report 43
<PAGE> 44
<TABLE>
<CAPTION>
Board of Directors Corporate Officers
<S> <C>
Thomas J. Perkins, Chairman of the Board Roel Pieper
General Partner, Kleiner Perkins Caufield & Byers Vice Chairman and Chief Executive Officer
Jack F. Bennett Enrico L. Pesatori
Retired, Formerly Senior Vice President and Director, President and Chief Operating Officer
Exxon Corporation
Eric L. Doggett
Morton Collins Senior Vice President and General Manager,
General Partner, DSV Partners Communications Platforms Business Unit
Franklin P. Johnson, Jr. Kurt L. Friedrich
General Partner, Asset Management Partners Senior Vice President, General Manager, and Chief
Technology Officer,
Robert M. Kavner Parallel Systems Business Unit
President and Chief Executive Officer,
On Command Corp. William W. Heil, Jr.
Senior Vice President and General Manager,
Enrico L. Pesatori ServerWare Business Unit
President and Chief Operating Officer,
Tandem Computers Incorporated John T. Losier
Senior Vice President,
Roel Pieper Worldwide Sales and Services Group
Vice Chairman and Chief Executive Officer,
Tandem Computers Incorporated Josephine T. Parry
Vice President, General Counsel and Secretary
Vera Stephanie Shirley
Life President, Founder Director, F.I. Group PLC Gerald L. Peterson
Senior Vice President and General Manager,
Robert G. Stone, Jr. ServerNet Business Unit
Chairman Emeritus and Director of the Board,
Kirby Corporation John T. Reece
Vice President and Corporate Controller
Washington SyCip
Founder, The SGV Group David J. Rynne
Senior Vice President and Chief Financial Officer
Alex S. Vieux
Chairman, DASAR Inc. Gerd Stoecker
Vice President and Treasurer
Walter B. Wriston
Corporate Director and Consultant
</TABLE>
44 Tandem Computers Incorporated
<PAGE> 45
<TABLE>
<S> <C>
International Advisory Council Tandem Computers Incorporated
Manuel Somoza Alonso Mexico World Headquarters
Eduardo Santos Andres Spain 19333 Vallco Parkway
Dr. Marco Bono Italy Cupertino, California 95014-2599, USA
Luigi Dusmet Switzerland +1 (408) 285 6000
Harry G.B. Faulkner Sweden
Sir Campbell Fraser United Kingdom Americas Division Headquarters
Sir Leslie Froggatt Australia 19191 Vallco Parkway
Fredrick T. White Canada Cupertino, California 95014-2599, USA
United States: 1 (800) 482 6336
Canada: 1 (800) 345 8636
Auditors Latin America: +1 (954) 983 7900
Ernst & Young LLP, San Jose, California European Division Headquarters
Antareslaan 11
2132 JE Hoofddorp, The Netherlands
Registrar and Transfer Agent +31 (23) 566 8000
Boston EquiServe, Canton, Massachusetts Asia-Pacific Division Headquarters
300 Beach Road #33-01
The Concourse, Singapore 199555
Annual Meeting +65 297 4866
The annual meeting of stockholders will be held at Japan Division Headquarters
10:00 a.m. on Tuesday, January 28, 1997, at 10435 Tennoz Central Tower 2-2-24
North Tantau Avenue, Cupertino, California. Higashi-Shinagawa, Shinagawa-ku
Tokyo 140, Japan
+81 (3) 5463 6600
Stockholder Information
The Tandem home page can be found at
A copy of the Company's Report on Form 10-K for the http://www.tandem.com.
1996 fiscal year, as filed with the Securities and
Exchange Commission, is available on written request.
Please contact: Manufacturing Facilities
Investor Relations
Loc 200-33 Fremont, California
Tandem Computers Incorporated Stirling, Scotland
10435 North Tantau Avenue
Cupertino, California 95014-2599
1 (800) 538 3107
The annual report is also available on-line at Tandem's
Web site, www.tandem.com.
</TABLE>
1996 Annual Report 45
<PAGE> 46
Sales Offices and Distributors
<TABLE>
<CAPTION>
The Americas
<S> <C> <C>
Argentina Connecticut New Jersey
Brazil Florida New York
Canada Georgia North Carolina
Chile Hawaii Ohio
Colombia Illinois Oklahoma
Ecuador Iowa Oregon
Guatemala Kansas Pennsylvania
Mexico Kentucky Puerto Rico
Peru Louisiana Tennessee
Uruguay Maryland Texas
Venezuela Massachusetts Utah
Alabama Michigan Virginia
Arizona Minnesota Washington
California Missouri Wisconsin
Colorado Nebraska
Europe
Austria Greece Portugal
Bahrain Hungary Russia
Belgium Ireland Saudi Arabia
Croatia Israel Slovenia
Cyprus Italy South Africa
Czech Republic Jordan Spain
Denmark Kuwait Sweden
Dubai Lebanon Switzerland
Egypt Luxembourg Turkey
Finland The Netherlands United Arab Emirates
France Norway United Kingdom
Germany Oman Zimbabwe
Asia-Pacific and Japan
Australia Malaysia Singapore
Hong Kong New Zealand South Korea
India People's Republic Sri Lanka
Indonesia of China Taiwan
Japan Philippines Thailand
Commission Agent
India
</TABLE>
46 Tandem Computers Incorporated
<PAGE> 47
Founded in 1974, Tandem(R) is a global information technology company that
provides software, hardware, solutions, and services for business-critical
electronic commerce, decision support, high-volume online transaction
procession (OLTP), and the fast emerging online world of Internet transaction
processing (ITP). As a result of Tandem's market recognition and the reliability
of its products, businesses worldwide entrust their core business applications
to Tandem systems. Stock exchanges processing the bulk of the world's security
transactions use Tandem technology and equipment, and a significant percentage
of all automated teller machines (ATMs) run on Tandem systems. Credit card
transactions, electronic funds transfers, telecommunications, messaging
systems, and public e-mail networks are all areas in which Tandem systems
play a key role in promoting commerce around the world. With US$1.90 billion in
1996 revenue, Tandem and its subsidiaries employ approximately 8,000 people in
180 offices worldwide. The company is headquartered in Cupertino, California.
<PAGE> 48
Tandem, Himalaya, Integrity, iTP, NonStop, ServerNet, ServerWare, and the Tandem
Logo are trademarks or registered trademarks of Tandem Computers Incorporated in
the United States and/or other countries. "System Area Network" and the acronym
"SAN" are being used by Tandem as generic descriptive terms and neither is
intended to be interpreted as a trademark of Tandem. Microsoft and Windows NT
are either registered trademarks or trademarks of Microsoft Corporation in the
United States and/or other countries. UB Networks is a trademark of
Ungermann-Bass Networks, Inc. UNIX is a registered trademark in the United
States and other countries, licensed exclusively through X/Open Company Ltd.
All other brand and product names are trademarks or registered trademarks of
their respective companies. (C) 1996 Tandem Computers Incorporated. Printed on
recycled paper. 100631.
<PAGE> 49
OUR
MISSION
Our business mission is to be the leading provider of reliable and scalable
solutions for business-critical applications, using the best open, clustered,
high-bandwidth computing and communications technologies, serving business and
consumers. Our technical mission is to be the leader in clustered technologies
for communication bandwidth, messaging, database, and transaction processing
systems.
<PAGE> 1
Exhibit 22.1
SUBSIDIARIES OF TANDEM COMPUTERS INCORPORATED
Name of Subsidiary and Jurisdiction
Name Under Which Doing Business: of Incorporation
- -------------------------------- ----------------
ACI Canada EFTS Limited Nebraska
NonStop Manufacturing Pty. Ltd. Delaware
PT Tandem Computers Indonesia Indonesia
PT Tandem Computers Indonesia Delaware
Tandem Computers AB Sweden
Tandem Computers AG Switzerland
Tandem Computers A/O Russia
Tandem Computers A/O Delaware
Tandem Computers A/S Denmark
Tandem Computers Asia Ltd. Delaware
Tandem Computers Asia-Pacific Incorporated Delaware
Tandem Computers B.V. Netherlands
Tandem Computers Canada Limited Canada
Tandem Computers Credit Corporation Delaware
Tandem Computers del Peru S.A. Peru
Tandem Computers do Brasil Inc. Delaware
Tandem Computers Europe Incorporated Delaware
Tandem Computers Export Corporation California
Tandem Computers FSC, Inc. Barbados
Tandem Computer Ges.m.b.H. Austria
Tandem Computers GmbH Germany
Tandem Computers (Hong Kong) Limited Hong Kong
Tandem Computers (Hungary) Incorporated Delaware
Tandem Computers Iberica, S.A. Spain
Tandem Computers India Ltd. Delaware
Tandem Computers International Incorporated Delaware
Tandem Computers International (Thailand) Ltd. Thailand
Tandem Computers Investment Corporation Delaware
Tandem Computers Investments do Brasil Inc. Delaware
Tandem Computers Italia S.p.A. Italy
Tandem Computers Italia S.p.A. Delaware
Tandem Computers Japan, Limited Japan
Tandem Computers Korea Ltd. Korea
Tandem Computers Korea Ltd. Delaware
Tandem Computers Limited United Kingdom
Tandem Computers Manufacturing, Inc. California
Tandem Computers Marketing Inc. Delaware
Tandem Computers (Norway) A/S Norway
Tandem Computers Pty. Ltd. Delaware
Tandem Computers S.A. France
Tandem Computers S.A./N.V. Belgium
Tandem Computers South Asia Ltd. Delaware
Tandem Computer Systems Sdn BHD Malaysia
Tandem Computer Systems Sdn BHD Delaware
Tandem de Argentina Incorporated Delaware
Tandem Employees Emergency Relief Fund, Inc. Delaware
Tandem PRC Incorporated Delaware
Tandem/Simplicity A, Inc. Delaware
Tandem/Simplicity B, Inc. Delaware
Tandem South Africa (Pty) Ltd. South Africa
Tandem South Africa (Pty) Ltd. Delaware
Tandem Taiwan Incorporated Delaware
Ungermann-Bass Networks, Inc. Delaware
Twinco A/S Norway
Yura Corp. Colorado
<TABLE> <S> <C>
<ARTICLE> 5
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0
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<CGS> 531,710
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0
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<OTHER-EXPENSES> 64,616
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<RECEIVABLES> 491,148
<ALLOWANCES> 16,813
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<CURRENT-ASSETS> 959,202
<PP&E> 1,251,454
<DEPRECIATION> 679,231
<TOTAL-ASSETS> 1,831,704
<CURRENT-LIABILITIES> 698,669
<BONDS> 78,545
0
0
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<OTHER-SE> 1,051,511
<TOTAL-LIABILITY-AND-EQUITY> 1,831,704
<SALES> 704,657
<TOTAL-REVENUES> 874,576
<CGS> 293,613
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<OTHER-EXPENSES> 132,834
<LOSS-PROVISION> 995
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<DISCONTINUED> 11,587
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<NET-INCOME> 56,911
<EPS-PRIMARY> 0.48
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</TABLE>
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 9-MOS
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<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
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<SECURITIES> 0
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<ALLOWANCES> 18,045
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<DEPRECIATION> 699,926
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<CURRENT-LIABILITIES> 678,549
<BONDS> 76,735
0
0
<COMMON> 2,988
<OTHER-SE> 1,085,557
<TOTAL-LIABILITY-AND-EQUITY> 1,843,829
<SALES> 1,103,666
<TOTAL-REVENUES> 1,373,727
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<OTHER-EXPENSES> 204,700
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<INCOME-TAX> 19,349
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<NET-INCOME> 87,755
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<EPS-DILUTED> 0.74
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 121,230
<SECURITIES> 0
<RECEIVABLES> 557,714
<ALLOWANCES> 17,721
<INVENTORY> 169,948
<CURRENT-ASSETS> 970,485
<PP&E> 1,297,481
<DEPRECIATION> 700,813
<TOTAL-ASSETS> 1,856,694
<CURRENT-LIABILITIES> 670,436
<BONDS> 75,923
0
0
<COMMON> 2,995
<OTHER-SE> 1,107,340
<TOTAL-LIABILITY-AND-EQUITY> 1,856,694
<SALES> 1,553,852
<TOTAL-REVENUES> 1,920,436
<CGS> 658,548
<TOTAL-COSTS> 923,515
<OTHER-EXPENSES> 282,446
<LOSS-PROVISION> 3,635
<INTEREST-EXPENSE> 12,664
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<INCOME-TAX> 31,019
<INCOME-CONTINUING> 96,411
<DISCONTINUED> 11,135
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<EPS-PRIMARY> 0.91
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</TABLE>
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0
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0
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<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-K FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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0
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<TOTAL-REVENUES> 1,899,943
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</TABLE>
