SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
__X__ Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended: December 31, 1993 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 : 1-10386
CONVEX COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-1838006
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3000 Waterview Parkway
Richardson, Texas 75080
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (214)497-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
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 ]
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
The aggregate market value of voting stock held by non-affiliates
of the registrant as of March 18, 1994 was $137,964,033 based upon
the last sales price reported for such date on the New York Stock
Exchange. For purposes of this disclosure, shares of Common Stock
held by persons who hold more than 5% of the outstanding shares of
Common Stock and shares held by officers and directors of the
registrant, have been excluded in that such persons may be deemed to
be affiliates. This determination is not necessarily conclusive.
At March 18, 1994, registrant had outstanding 25,711,074 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the
definitive proxy statement for the Annual Meeting of Shareholders to
be held on May 12, 1994, (the "Proxy Statement").
PART I
ITEM 1. BUSINESS
GENERAL
Convex Computer Corporation ("Convex" or the "Company")
designs, manufactures, markets and services a family of high
performance computers for engineering, scientific and technical users.
The Company's current product family ranges from metacomputing,
consisting of specialized hardware integrated with advanced software,
to a single-processor scalar/vector machine to a multiprocessor
parallel supercomputer, and ranges in price from under $300,000 to
more than $8 million. Convex shipped its first production system in
March 1985, and most recently introduced its third generation of
supercomputers in May 1991. In addition, the Company has
announced that it is currently developing a fourth generation product
as well as a scalable parallel product that it plans to introduce in
1994. The Company has installed 1290 systems at 643 industrial and
research customers in 48 countries. Convex Computer Corporation
was incorporated under the laws of the State of Delaware on
September 8, 1982.
MARKETS and CUSTOMERS
The growing need for computer-aided simulation techniques in the
development of new products, combined with the improved
price/performance relationships available in scientific and engineering
computer systems, has contributed to the growth of the technical
computing market. Within that market, Convex focuses on the
following segments:
Discrete Manufacturing encompasses the use of computers in the
process of designing and manufacturing products or structures. This
market includes mechanical engineering applications. The
availability of third-party software packages is especially important to
end-users in this market segment. Key software programs which
address this market and which run on Convex computers include
Nastran and Ansys, two of the major structural analysis packages.
Convex customers in this market include Ford Motor Company,
Mercedes Benz AG, and Gulfstream Aerospace. Approximately 26%
of the Convex installed base as of December 31, 1993 is in this
market.
The government/aerospace market includes applications such as
computational fluid dynamics, signal and image processing,
telemetry, cryptography, pattern recognition and other data acquisition
and processing functions. Command and control systems, training
simulators and support and logistics systems are other important
segments of this market. Convex customers in this market include
the U.S. National Aeronautics and Space Administration, the U.S.
Department of Defense, Lockheed Missiles and Space Company, and
Arnold Air Force Base. Approximately 19% of the Convex installed
base as of December 31, 1993 is in this market.
Computational chemistry is a potential growth market being
addressed by Convex. Use of computers to simulate chemical
reactions is greatly increasing the productivity of research
laboratories and supplementing the use of "wet labs" in many new
areas. Convex customers in this market include research institutions
such as the U.S. National Institutes of Health, General Electric
Company and the Max Planck Institute in Germany, software vendors
and universities such as Harvard and Oxford, all of whom are
developing software for this new market, and commercial
pharmaceutical users such as Schering-Plough and Bayer.
Approximately 12% of the Convex installed base as of December 31,
1993 is in this market.
The petroleum market is characterized by applications relating to the
exploration for and the management of natural resources. These
applications include seismic data processing and interpretation, well
logging analysis, reservoir modeling and production analysis.
Convex customers in this market include major oil and gas
companies such as Royal Dutch Shell, Mobil and PEMEX, seismic
contractors such as Digicon Inc., Compagnie General de
Geophysique, universities such as Cambridge and Stanford and third-
party software vendors developing software for this industry.
Approximately 15% of the Convex installed base as of December 31,
1993 is in this market.
Advanced research has historically been a major market for
computers of all types and represents an important market for the
Company. Examples of applications in this market include medical
research and high-definition television development. Customers
include academic institutions such as the University of London
Computing Center, Delft University of Technology, and Universite
Catholique de Louvain, government laboratories, research institutes
and research departments of large corporations such as Sony.
Approximately 19% of the Convex installed base as of December 31,
1993 is in advanced research.
Data Management is a growing market where computers are used as
a server to manage, store, archive, and retrieve data. In these
applications, computer platforms are integrated with high
performance software and peripherals, including RAID disk
technology, tape robots, and multiple network connections. Demand
for these applications comes from the other segments served by the
Company and include customers such as Mobil Exploration and
Production Services Inc., the University of London Computing
Centre, the Centre for Scientific Computing (Helsinki, Finland), and
the Numerical Aerodynamic Simulation Systems Division at NASA
Ames Research Center. Approximately 2% of the Convex installed
base is in this market, but it represented approximately 17% of the
1993 installations.
Emerging markets represent new applications and market
opportunities for Convex products. New uses for Convex
supercomputers include environmental research, oceanographic
studies, linear programming, pipeline management, construction,
real-time simulation and visualization. Customers in this market
include the Danish Meteorological Institute, METEO, and DKRZ, the
German Climate Computer Center. Approximately seven percent of
the Convex installed base is in emerging markets.
HARDWARE PLATFORMS
Convex currently offers the C3 Series of 20 compatible and
expandable supercomputers, as well as a series of systems which
feature fully integrated real-time hardware and software capabilities
and additionally a metacomputing environment consisting of
specialized hardware systems integrated with advanced software. All
Convex supercomputers offer a broad range of price and performance
for its customers. These families of systems provide a smooth
growth path from a single-processor scalar/vector machine to a high-
end, eight-processor, tightly-coupled, parallel supercomputer. The
Company's memory subsystem ensures that memory access is rarely
a bottleneck and that processors can operate at their full potential.
Large physical memory, expandable up to four gigabytes, allows
applications to fit in physical memory, thereby reducing the time
required for large simulations.
Convex systems utilize all three forms of processing common in
scientific and engineering applications: scalar processing in which
operations are performed on one element at a time; vector processing,
in which simultaneous operations occur on arrays of data; and
parallel processing, in which two or more processors simultaneously
operate on different portions of a program. A distinctive hardware-
based technology, Automatic Self-Allocating Processors ("ASAP"),
automatically takes software code that has been parallelized by the
Convex compilers and splits it among the available processors. This
technique is faster and more efficient than the commonly used static
allocation technique which assigns processors to execute a single job
and leaves idle processors waiting for parallel code that may never
arrive. Unlike other parallel processing architectures, the ASAP
approach never requires the programmer to use special programming
techniques to take advantage of the parallel hardware technology.
The Company is also presently developing the next generation C
Series family of products. This generation is intended to replace the
existing C3 Series of products. The new products will be compatible
with existing C Series products and are planned to deliver improved
performance at approximately the same prices as the existing
products. As planned, the system will offer up to 6 GFLOPS of
maximum performance with up to 4GB of physical memory. The
development effort for this product family is nearing completion, but
the completion and ultimate introduction of this product line is
dependent on the Company receiving a number of key semiconductor
components from its suppliers. While the Company believes that it
will receive the necessary devices, there can be no assurance that the
suppliers of these devices will successfully complete their
development efforts or once completed that they will be capable of
manufacturing these devices in quantities sufficient to allow the
Company to achieve volume production of the new product family.
In March of 1994, Convex introduced the Exemplar product line, a
new family of scalable parallel processing systems. The system is
based on RISC microprocessors from Hewlett-Packard Company and
incorporates a completely new hardware architecture from that
previously delivered in the C Series product family. The system is
planned to scale from 2 to 128 processors with scalable memory, I/O
and operating system features that are balanced with the processing
capability in any processor configuration. The system is planned to
deliver up to 25 GFLOPS of processing with up to 32 GB of shared
memory. Initial shipments of entry level configurations (up to 8
processors) will begin in the first quarter of 1994. Systems in larger
configurations are planned to be introduced throughout 1994 as the
final development effort on larger configurations is completed.
SOFTWARE PRODUCTS
Convex offers a wide range of software products to assist its
customers in achieving maximum speed and productivity with
minimal incremental resource investments. C Series products are
fully software compatible. Convex customers can move up the
Convex product line taking advantage of all of the software, both
third-party and internally developed, that they have been using on
their current Convex products.
Convex believes that the combination of its UNIX-based operating
system, advanced compiler technology, third party application
program availability, and networking products offer its customers
increased productivity and ease-of-use, thereby increasing market
acceptance of its systems. The foundation of the Convex software
environment is the ConvexOS operating system, an enhanced high-
performance version of UNIX 4.2 and 4.3bsd developed at the
University of California, Berkeley. Extensions range from file
system performance enhancements, which enable programs to profit
from the innate parallelism in the input/output systems, to features
allowing a single process greater access to system resources such as
memory.
One of the Company's major technological achievements has been its
development of a vectorizing/optimizing/parallelizing compiler
technology that enables Convex systems to utilize existing
applications software. This compiler technology, currently available
for FORTRAN, C and Ada, permits programmers to take advantage
of vector and parallel processing without learning new programming
techniques. The compilers identify opportunities for optimization and
vectorization, instruction pipelining, and parallel processing and then
automatically generate software code that best utilizes the Convex
architecture. In addition, Convex offers the Convex Application
Compiler which identifies opportunities for parallelization across a
customer's entire software application.
The availability of third-party application software is often a critical
element of a customer's decision criteria when evaluating computer
systems. Convex actively promotes and supports the development
and conversion of third-party application software to run on Convex
hardware. Over 1300 third-party applications are now available on
Convex systems, including industry-leading programs used in each of
the Company's target markets. Key industrial and research
applications which are available include structural analysis,
computational fluid dynamics, graphics and leading applications for
the petroleum, electronics and chemistry markets.
To aid communication between computer systems, Convex offers
connectivity to almost every industry-standard network interface.
The Convex Network File System allows users to share a common
base of files across different systems. In addition, Convex supports
X Windows, a network-based window system which provides users
access to a wide array of computing resources and the ability to
execute multiple applications simultaneously.
In March of 1994, Convex introduced the Exemplar product line, a
new family of computer systems. The software elements of this new
product family include a new operating system that incorporates
components from several sources. The integration and performance
tuning of these components is critical to the overall success of the
product. These efforts will continue throughout 1994 as the
development efforts for the top-end of the product line are completed.
While the Company believes that these efforts will be successful,
there can be no assurance that overall performance of the new
operating system will reach satisfactory levels as a result of these
efforts. Market acceptance of this product family is also highly
dependent on third party software vendors porting their applications
to the product. While the Company is working with a number of
vendors to accomplish this result, there can be no assurance that the
third party vendors will undertake the necessary efforts, or that the
porting efforts will yield competitive software applications on the
Company's new product.
SALES AND DISTRIBUTION
Convex sells directly to end-users in the United States, Canada, the
United Kingdom, France, Germany, Italy, The Netherlands,
Switzerland, Denmark, Sweden, Greece, Norway, Finland, Belgium, Japan,
Australia, Singapore and Taiwan. Convex has contracted with OEMs
and with full-service independent distributors in certain other
countries, including Japan, Spain, South Korea, Hong Kong,
Malaysia, Indonesia and India.
The Company attempts to ship product to its customers as promptly
as practicable upon receipt of a purchase order and generally does
not maintain a significant backlog. However, backlog for C3800
systems and upgrades was reported at approximately $42 million in
1991 and $20 million in 1992, which the Company believes was
due to availability limitations. During 1993 the C3800 backlog
declined to near zero and remained at that level through year-end.
Adding to the difficulty of predicting future revenues, a significant
portion of the Company's sales often occur in the last month of a
fiscal quarter, a pattern that the Company believes is common in the
computer industry and due in part to the budgetary cycles of its
customers. Accordingly, revenues and net income have the potential
to fluctuate on a quarterly basis depending upon the timing of orders
and shipments.
Several of the Company's customers which are agencies of the U.S.
government collectively accounted for approximately 16% of total
revenue in 1993, approximately 13% of total revenue in 1992 and
approximately 15% in 1991. During 1989, one distributor of the
Company's products, Tokyo Electron Limited, accounted for 12% of
total revenues. No single end-user customer has accounted for more
than 10% of total revenues in the last five years.
SERVICE AND SUPPORT
The Company's direct service organization includes hardware
engineers, technicians and software experts who provide customer
assistance, support installations, conduct training classes, perform
periodic maintenance and provide on-demand service and support in
the event of any customer problems. Convex also provides a dial-in
hotline and remote diagnostic capabilities to provide problem
resolution from the Company's headquarters.
In 1992 the Company entered the systems integration business in
which it performs a service for the customer by integrating hardware
and software. The growth in service revenue for the last two years
has been sustained by the increase in this business which is now
approximately 32% of service revenue. Service revenue in total has
grown from 20% of total revenue in 1991 to just under 40% of total
revenue in 1993.
MANUFACTURING AND QUALITY
To maintain product quality and to control production cycles to
satisfy customer demand, Convex has implemented an internal
manufacturing capability. The Company's manufacturing operations
are located in Richardson, Texas, and consist primarily of assembly
and test of parts, components and subassemblies and final assembly
of the product.
Convex principally uses standard off-the-shelf components available
from multiple vendors. However, certain parts and components used
in the Company's products are currently available only from limited
sources. These include such items as custom VLSI gate arrays, which
are designed by Convex and manufactured by Fujitsu
Microelectronics Incorporated, custom gallium arsenide gate arrays
manufactured by Vitesse Semiconductor Corporation, and custom
BiCMOS gate arrays manufactured by Texas Instruments. In 1994
both the next generation C Series product and the scalable parallel
product will make use of leading edge semiconductor devices. As a
result, the Company has only one source for certain key components.
There are still significant technical and manufacturing uncertainties
involved in the Company successfully bringing these new products to
market. In addition, the Company's ability to manufacture its new
products in quantities adequate to meet potential demand will require
that the Company receive sufficient quantities of these semiconductor
devices. Convex attempts to reduce risks of interruption in its supply
of components by establishing backup vendors where feasible.
RESEARCH AND PRODUCT DEVELOPMENT
The Company's research and development programs are currently
focused on developing its next generation of C Series product and a
scalable parallel product based on Hewlett-Packard Company's PA-
RISC technology. A significant percentage of the Company's
research and development investment is being devoted to software
development. Convex intends to continue making substantial
investments in research and development activities to enhance its
competitive position. For the fiscal years ended December 31, 1991,
1992 and 1993, research and development expenses were $30
million, $33 million and $33 million, respectively.
COMPETITION
The computer business is intensely competitive and characterized by
rapid technological advances in both hardware and software. The
entire Convex product line competes with that of Cray Research, Inc.
("Cray"). Convex products compete with those IBM products which
incorporate vector facilities. The Company's products also compete
with systems offered by DEC. Each of these competitors is much
larger than Convex and has substantial financial resources and a large
installed base of customers. The Company also competes against
several vendors who offer high-performance workstation and server
products at relatively low prices.
Convex expects to see additional direct competition, both from
established companies and new market entrants. New competition
could result from existing computer vendors electing to address the
Company's traditional markets with product offerings incorporating
vector and parallel processing techniques. New competition may also
result from vendors providing increasingly powerful workstation and
server products which incorporate relatively inexpensive
microprocessors. Finally, companies are continually evaluating new
computer architectures, an example of which is massively parallel
processors, which could be targeted at the same customers being
served by Convex.
The potential impact on the Company's business of new products
from Cray, IBM, DEC and others is not known. However,
introduction of new products could cause delays in customer orders
as customers evaluate the new product offerings before reaching a
final purchase decision. Convex competes on the basis of price,
performance and ease of use. Convex believes that its current family
of products is facing increasingly difficult competition and the new
products planned for introduction in 1994 will be necessary to
compete favorably with respect to these factors.
PATENTS AND LICENSES
The Company has been issued 17 patents in the United States and 2
in certain foreign countries. Additionally, the Company has 16
applications for patents pending in the United States and 5 patent
applications pending in certain foreign countries. The patents and
patent applications relate to various aspects of the Company's
product architecture. There can be no assurance that patents will be
issued or that, once issued, the patents can be successfully defended.
Convex believes that, while patents may offer a measure of legal
protection, they are less significant to the success of the Company
than such factors as innovation and technical expertise.
Convex has entered into a cross-license agreement with Cray
Research, Inc. which grants a perpetual cross-license of each
company's existing and pending patents as of May 29, 1986. Neither
party is responsible for any fees or royalties to the other under this
agreement.
The Company has also entered into a non-exclusive perpetual license
with American Telephone and Telegraph Company for the UNIX
operating system under which the Company may grant sublicenses to
its customers. Convex also has been granted other non-exclusive
licenses for certain software which permit the Company to grant
sublicenses to its customers.
RELATIONSHIP WITH THE HEWLETT-PACKARD COMPANY
In March of 1992, the Company entered into a series of technology
and commercial agreements as well as a Stock Purchase Agreement
with the Hewlett-Packard Company ("HP"). Under the technology
and commercial agreements, Convex and HP exchanged certain core
technologies including HP providing Convex with RISC compiler
technology and Convex providing HP with supercomputer compiler
technology. In addition, Convex has the right to purchase from HP
various PA-RISC components for the Company's future MPP
products. Finally, Convex and HP have entered into a non-exclusive
cross-license covering various of each company's existing, pending
and future computer-related products. In April of 1993, this
agreement was extended to include HP's license to Convex for its
HP-UX operating system and related software technologies in return
for current and future software technologies from Convex.
Pursuant to the Stock Purchase Agreement, HP purchased
approximately 1.2 million shares of Common Stock from the
Company (which represents approximately 5% of the total
outstanding Common Stock of the Company) at a purchase price of
approximately $18 million. In connection with this Agreement, the
Company and HP agreed to meet in late 1994 and again in late 1996
to discuss possible increases in ownership by HP, although no right
or obligation to purchase additional shares was established.
During the term of the Stock Purchase Agreement, the Company has
agreed to certain covenants. These include the right of HP in certain
circumstances to acquire additional shares from the Company if the
Company sells shares of Common Stock to third parties. In addition,
the Company has agreed that, if HP's ownership reaches 10% of the
Company's outstanding Common Stock, HP will be entitled to
designate one nominee for election to the Company's Board of
Directors. Finally, the Company granted HP certain registration
rights.
EMPLOYEES
As of December 31, 1993, the Company employed 1,006 full-time
employees, of whom 252 were employed in research and
development, 504 in sales, support and marketing, 165 in
manufacturing and quality and 85 in finance and administration.
None of the Company's employees is represented by a labor union
and Convex believes its employee relations to be excellent.
ITEM 2. PROPERTIES
The Company has occupied its current location since 1989. This
single-tenant facility in Richardson houses the corporate headquarters,
research and development and the manufacturing facilities. It was
expanded during 1990 from approximately 260,000 square feet to a
total of approximately 300,000 square feet. It is located in the Dallas
metropolitan area, and is under a fifteen year lease expiring in 2004.
Land is available at the new site to accommodate total office and
manufacturing space of over 500,000 square feet. In addition, the
Company has entered into an agreement to lease an additional 70,000
square feet at a site adjacent to its corporate headquarters. The
Company leases 51 sales and service offices in other locations
throughout North America, Europe and the Pacific Rim. The
Company also plans to add additional sales and service offices as
required.
ITEM 3. LEGAL PROCEEDINGS
On August 2 and 7, 1991, two separate complaints were filed against
the Company and certain of its officers and directors in the United
States District Court for the Northern District of Texas. The two
cases were consolidated. Plaintiffs filed a Consolidated Amended
Complaint (the "Amended Complaint") on October 18, 1991, which
purports to be a class action lawsuit on behalf of persons who
purchased Convex stock between January 31, 1991 and July 29,
1991. The Amended Complaint alleges that defendants violated
specific provisions of the federal securities laws, namely Sections
10(b) and 20(a) of the Securities and Exchange Act of 1934 and Rule
10b-5 promulgated thereunder, and Texas common law.
Subsequent to December 31, 1993 the Company reached an
agreement in principle to settle this class action lawsuit, subject to
final approval by the court. The Company has included a charge for
the $2.5 million estimated cost of settlement in the 1993 results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names of the Company's executive officers and certain information about
them are set forth below:
Name Age Position with Company
- - - -------------------- --- -----------------------------------------------
Robert J. Paluck 46 Chairman of the Board and Chief Executive Officer
Steven J. Wallach 48 Senior Vice President, Technology; Director
James A. Balthazar 40 Vice President, Marketing
Matthew S. Blanton 53 Vice President, Advanced Development
William G. Bock 43 Senior Vice President, Worldwide Sales
Philip N. Cardman 46 Vice President, General Counsel; Secretary
Thomas M. Jones 47 Vice President, Data Management Systems
J. Cameron McMartin 37 Vice President, Finance and Chief Financial Officer
Daniel N. McQuay 49 Vice President, Manufacturing
Terrence L. Rock 47 President
Mr. Paluck, a founder of the Company, has served as Chief
Executive Officer and as a director since the Company's inception in
September 1982, and as President from inception until May 1993.
Mr. Paluck was appointed Chairman in July 1989. Before founding
Convex, Mr. Paluck was Vice President, Product Development and
Marketing for Mostek Corporation, a semiconductor manufacturer,
where he spent eleven years. Mr. Paluck holds a BSEE from the
University of Illinois and an MBA from Southern Methodist
University.
Mr. Wallach, a founder of the Company, has served as Vice
President, Technology and has been a director since its inception in
September 1982. Mr. Wallach was named Senior Vice President in
January 1990. Prior to founding Convex, he served as Product
Marketing Manager at ROLM Corporation for the 32-bit mil-spec
computer system from 1981 to 1982. Mr. Wallach was Manager of
Advanced Development of Eclipse Systems for Data General
Corporation from 1975 to 1981, where he was the principal architect
of the 32-bit Eclipse MV superminicomputer series. Mr. Wallach
received a BSEE from the Polytechnic Institute of Brooklyn, an MSEE
from the University of Pennsylvania and an MBA from Boston
University. He is the inventor with respect to 33 patents in various
areas of computer design.
Mr. Balthazar joined Convex in April 1984. He initially worked in
third party marketing, moving to Manager of Product Marketing in
1987 and to European Sales and Marketing Director in 1989. In
January 1991, he was promoted to Vice President, Marketing. Prior
to joining Convex, Mr. Balthazar worked as a mechanical
engineering consultant for Structural Dynamics Research Corporation,
Cincinnati, Ohio, and for University Computing Corporation, Dallas,
Texas. Mr. Balthazar holds a BS in Agricultural Engineering from
the University of Maryland and an MS from Cornell University in
Theoretical and Applied Mechanics.
Mr. Blanton joined Convex in November 1990 and held various
positions in engineering management. In February 1993 Mr. Blanton
was named Vice President, Advanced Development. Prior to joining
Convex, Mr. Blanton served as president of Vadis, Inc from 1989 to
1990. Mr. Blanton worked for ROLM Corporation from 1981
through 1989 and served as General Manager of their desktop
products division. He holds an MSEE degree from Southern
Methodist University and a BSEE degree from Texas A & M.
Mr. Bock joined Convex in May 1984 as Vice President, Finance and
Chief Financial Officer, and was named Senior Vice President in
January 1990. In February 1993, Mr. Bock was named Senior Vice
President, Worldwide Sales. From 1975 to 1984, Mr. Bock worked
for Texas Instruments in various finance and accounting positions,
most recently as the Vice President and Controller for the Data
Systems Group. Mr. Bock has a BS in Computer Science from
Iowa State University and an MS in Industrial Administration from
Carnegie-Mellon University and is a certified public accountant in the
State of Texas.
Mr. Cardman joined Convex in July 1989 as Vice President, General
Counsel and Secretary. From 1981 to 1989, Mr. Cardman was
employed by Tandem Computers Incorporated. Mr. Cardman's two
most recent positions with Tandem were as General Counsel and
Director of Business Development for Tandem Computers Europe
and as the Director of International Business. Mr. Cardman holds a
BA from Washington University and a JD from Duke University.
Mr. Jones joined Convex in October 1982 as the Manager of
Hardware Development, and in March 1988 was appointed Vice
President, Advanced Development. In March 1993 Mr. Jones was
named Vice President and General Manager, Data Management
Systems. Prior to joining Convex, Mr. Jones was Manager of Logic
Design at the Data General facility in North Carolina. Mr. Jones
holds a BS in Engineering Physics from the University of California,
Berkeley.
Mr. McMartin joined Convex in May 1989 as Director, Treasury
Services and Investor Relations and was named Controller,
Worldwide Sales, Service and Marketing in July 1990. Mr.
McMartin was promoted to Vice President, Finance and Chief
Financial Officer in March 1993. Prior to joining Convex, Mr.
McMartin worked for Texas Instruments Incorporated in various
finance and accounting positions, most recently as Controller,
Peripheral Products Division. Mr. McMartin holds a BA from
Trinity University and an MBA from the University of Michigan.
Mr. McQuay joined Convex in 1984 as Material Operations Manager.
In April 1993, Mr. McQuay was named Vice President of
Manufacturing. He worked approximately 14 years for Texas
Instruments in manufacturing, production control, and material
planning management before joining Convex. Mr. McQuay holds a
BA degree in Marketing from the University of Houston.
Mr. Rock joined Convex as Vice President of Operations in
November 1983, and was named Senior Vice President in January
1990. In April 1993, Mr. Rock was promoted to Senior Vice
President and Chief Operating Officer, and was named President in
May 1993. Mr. Rock previously worked for Texas Instruments from
1970 to 1983, in a variety of manufacturing and materials positions,
most recently as Materials Manager for the Data Systems Group.
Mr. Rock holds a BSME from the South Dakota School of Mines
and Technology.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock
Exchange under the symbol "CNX." The tables below present the
range of high and low prices for the Common Stock for the period
indicated. On December 31, 1993, there were 1,941 holders of
record of the Company's Common Stock. The Company has not
paid dividends on its Common Stock since its incorporation and
anticipates that for the foreseeable future it will continue to retain its
earnings for use in its business.
1993 Quarters
------------------------------------
4th 3rd 2nd 1st
-------- -------- -------- --------
Price range per share
High $6 1/8 $5 7/8 $6 7/8 $8 5/8
Low $5 $3 5/8 $4 1/4 $5 1/4
1992 Quarters
------------------------------------
4th 3rd 2nd 1st
-------- -------- -------- --------
Price range per share
High $8 1/8 $7 7/8 $11 5/8 $16 3/8
Low $4 3/4 $5 1/4 $ 7 $10 1/4
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Five-Year Financial Summary
(In thousands, except per share data)
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
Operating data:
<S> <C> <C> <C> <C> <C>
Revenue $193,119 $231,819 $198,099 $209,327 $158,607
Operating income (loss) (60,861) 6,194 (8,977) 25,057 17,356
Income (loss) before
extraordinary credit (63,804) (2) 2,788 (6,891) 18,432 11,450
Net income (loss) (63,804) (2) 2,788 (6,891) 18,432 11,747 (1)
Income (loss) per share before
extraordinary credit (2.53) (2) .11 (.31) .88 .60
Net (loss) income per share (2.53) (2) .11 (.31) .88 .62 (1)
Shares used in computing earnings
per share 25,222 24,577 22,122 20,899 18,912
Balance sheet data :
Working capital 104,204 151,421 143,682 151,208 105,281
Total assets 254,276 312,194 272,648 266,992 173,106
Total long-term debt 67,593 71,076 63,757 64,433 62,124
Shareholders' equity 112,385 173,754 145,925 142,809 79,518
The accompanying notes to the financial statements and Management's
Discussion and Analysis should be read in conjunction with this Five-Year
Summary.
(1) Includes $297, or $.02 per share, of extraordinary credit resulting from
the tax benefit of utilization of net operating loss carryforwards
during 1989.
(2) Includes restructuring and other charges of $36 million.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
In the first quarter of 1993, the Company reported revenues equal to
the levels achieved in 1992. However, the Company also
experienced a significant drop in the order rate and a resulting
decline in the value of its backlog. When the low order rate
continued in the second quarter of 1993 and product revenues
declined, the Company implemented a restructuring program designed
to reduce costs, to increase the Company's competitive strength and
to improve its financial performance. The Company believes the
expenses in the second half of 1993 showed a reduction due to the
implementation of the restructuring program.
In the second half of 1993, order rates remained low and the
Company operated at a net loss in both the third and fourth quarters.
The Company believes that order rates for the Company's products
will continue to be adversely affected by economic uncertainties and
tight customer budgets in the U.S., and in Europe and Japan, the
Company's major markets outside the U.S. In addition, customers in
the high-performance technical marketplace are faced with a wide
array of choices of technology which the Company believes will also
result in delayed buying decisions, lengthened sales cycles and
intense price competition. As a result, the Company expects to see
continued pricing pressure in 1994 with first half revenue levels at or
below the levels achieved in the second half of 1993.
The Company expects to introduce two new products in the first half
of 1994 (see discussion under "Research and Development") which
will result in an increase in capital expenditures (see discussion under
"Liquidity and Capital Resources").
Revenue
For the year ended December 31, 1993, total revenue decreased 17%
to $193 million after a 17% increase to $232 million in 1992, as
shown below.
Revenue ($000,000) 1993 1992 1991
----------------------------------- --------- -------- ---------
Product and Other 120 178 159
Service 73 54 39
Total 193 232 198
Percent Change - Annual
-----------------------------------
Product and Other Revenue -32% 12% -13%
Service Revenue 35% 37% 42%
Total Revenue -17% 17% -5%
Unit Shipments
---------------------
C3800 30 48 7
C3400 37 68 33
Meta Series 37 2 -
The 32% decline in product revenue in 1993 is primarily due to
decreased order rates for the C3 product line. The Company
experienced increased competition from workstations in the compute-
server markets, as well as order delays due to customers anticipating
new product introductions in 1994. Both the C3800 and the C3400
products experienced lower demand throughout the year. The Meta
Series product line was introduced in October 1992 and has shown
rapid growth; however, Meta Series revenue growth has not been
sufficient to offset the drop in the C3 product line. The increase in
product revenue in 1992 over 1991 is believed to be attributable to
increased availability of the C3 line in 1992. Both products were
announced in mid-1991 but were shipped in limited quantities due to
constrained supplies of key semiconductor components needed to
build them. These supply constraints were resolved in 1992.
Service revenue increased 35% in 1993 after a 37% increase in 1992
and a 42% increase in 1991. This component of revenue now accounts for 38%
of the Company's total revenue. This revenue includes both
maintenance contracts as well as systems integration revenue.
Systems integration is a line of business the Company entered during
1992 in which it performs a service for the customer by integrating
hardware and software from other vendors with Convex hardware
and software. Systems integration revenue includes the integration
components of both the Data Management business and the Meta
Series product line. The growth in service revenue during the last
two years has been sustained by the increase in the systems
integration business with revenue from systems integration of $8
million in 1992 and $23 million in 1993. The Company believes the
amount of systems integration revenue will fluctuate from quarter-to-
quarter and will depend to a large degree on the success of the Data
Management business. In addition, the Company believes that in the
future, modest growth in maintenance contract revenue is possible if
the Company is able to achieve growth in product revenues.
The Company believes the current economic and competitive
environment is causing its customers and prospects to reduce their
capital spending levels and to delay making decisions to purchase
high dollar capital goods such as the Company's products. The
Company also believes the current competitive environment has put
increased pressure on the Company's present compute-server
products. In addition, the Company plans to introduce two new
product families in 1994 (please refer to the discussion under
"Research and Development"). Some customers, anticipating the
availability of these new products, may further delay purchases of the
Company's current products until the new products are available.
There can be no assurance that the Company will be able to equal
the level of product shipments achieved in the second half of 1993.
The Company manufactures and ships its products as promptly as
practicable upon receipt of a purchase order, and generally does not
maintain a significant backlog. The Company did establish a backlog
position in the C3800 product in 1991 and 1992, which the Company
believes was due to product availability issues; however, that backlog
declined to zero in 1993. With no backlog entering 1994, the
Company's future financial performance will depend on its ability to
generate new orders for shipment in the same quarter in which the
orders are received.
Finally, because a significant portion of the Company's shipments
occur in the last month of a quarter, minor timing differences in the
receipt of customer purchase orders and in the Company's shipments
can have a significant impact on the Company's quarterly financial
results. Due to the high average selling price and low unit volume of
the Company's sales, failure to complete a small number of sales
transactions before the end of a quarter can have a significant
negative impact on financial results.
Gross Margin
Product margin remained at 50% through 1991, 1992 and the first
quarter of 1993, but dropped to 45% for the year 1993. The
Company believes two factors accounted for the margin decline:
Competitive pricing pressures have increased for the last three
quarters of 1993; and the absorption of fixed manufacturing costs on
the lower product revenue which resulted in approximately a 4
percentage point reduction in product margins.
Gross Margins % Revenue 1993 1992 1991
----------------------------------- --------- -------- -------
Product Margin 45% 50% 50%
Service Margin 32% 37% 35%
Total Margin 40% 47% 47%
Gross margin on the service business has dropped to 32% in 1993, a
reduction from 37% in 1992. This change was caused by the
increase in the lower margin systems integration business which has
grown from approximately 14% of service revenues in 1992 to
approximately 32% in 1993.
Expenses
Expenses for the Company are summarized below. In general,
expenses for 1993 were held constant with the previous year with the
exception of the restructuring and other charges taken during the
year.
Expenses ($000,000) 1993 1992 1991
- - - --------------------------------------- --------- --------- ---------
Research and Development 33 33 30
Selling, General and Administrative 69 69 73
Restructuring and Other 36 - -
Expenses - % Revenue 1993 1992 1991
- - - ---------------------------------------- --------- -------- ---------
Research and Development 17% 14% 15%
Selling, General and Administrative 36% 30% 37%
Restructuring and Other 19% - -
Research and Development
Research and development expenditures of $33 million in 1993 were
unchanged from the previous year. The decline in revenue this year
has increased these expenditures as a percentage of revenue, but the
Company remains committed to aggressive efforts to bring two new
product families to market in 1994. In 1994 the Company expects to
maintain research and development expenses at approximately the
same amount as 1993. However, because these two product families
are critical to the Company's competitiveness and future financial
results, some increase in spending may be necessary to complete
these two products.
The Company is developing both the fourth generation of C-Series
computers as well as a new scalable parallel computer family based
on Hewlett-Packard Company's PA-RISC technology. The scalable
parallel product will introduce both a completely new hardware
platform and a completely new suite of software products. The
software products include a new operating system that incorporates
components from several sources. The integration and performance
tuning of these components is critical to the overall success of the
product. Market acceptance of this product is also highly dependent
on third-party software vendors porting their applications to the
product. While the Company is working with a number of vendors
to accomplish this result, there can be no assurance that the third-
party vendors will undertake the necessary efforts, or that the porting
efforts will yield competitive software applications on the Company's
new product.
Both the next generation C-Series product and the scalable parallel
product make use of leading edge semiconductor devices. The
Company currently has only one source for certain key components.
The Company's ability to manufacture its new products in production
quantities will require that the Company receive sufficient quantities
of these semiconductor devices from its vendors. There are still
significant technical and manufacturing uncertainties involved in the
Company successfully bringing these new products to the market, and
there can be no assurance that these products, once introduced, will
gain market acceptance, or that the Company will receive adequate
supplies of critical components.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 1993 were also
unchanged from the 1992 level, after a decrease from 1991 to 1992
due to cost controls which included both staffing reductions and a
six-month salary freeze. These expenses as a percentage of revenue
have increased in 1993, but the Company believes the current selling
resources will be necessary to support the introduction of the new
products planned for 1994. The Company continues to focus on
tight expense management and has maintained the same total cost
year-to-year, including one-time charges incurred in the fourth quarter
of 1993 related to the bankruptcy of an international leasing company
and financial difficulties of another customer.
Restructuring and Other Charges
With a substantial decline in order rates and revenue in the first half
of 1993, in July the Company implemented a restructuring program
designed to reduce annualized costs by $22 million and to increase
the efficiency of the Company's operations. The restructuring also
reflected a strategic decision to write down certain assets based on an
analysis of future demand for both the C3800 and C3400 product
families. The $32 million charge taken in the second quarter was
comprised of $7 million for severance costs of approximately 185
employees, $22 million for costs associated with reducing factory
capacity in the Richardson manufacturing facility and to write down
certain of the Company's assets, and $3 million in miscellaneous and
other charges. An additional $5 million charge was taken in the
fourth quarter for the estimated cost of settling the 1991 class action
lawsuit and for additional asset write-downs.
The $36 million restructuring charge involves cash expenditures of
approximately $17 million, all funded from working capital. Of this
amount, $9 million had been spent at the end of 1993 and the
Company expects the remaining $8 million to be substantially spent
by mid-1994. In addition, the Company estimates that it has reduced
annual expenses by over $22 million. The expense reductions
include payroll and benefit expenses of approximately $15 million,
depreciation, rent and maintenance expenses of $5 million and $2
million of other expenses. There can be no assurance, however, that
this program will improve the Company's financial performance.
The Company ended the year with 1006 employees, 158 fewer than
the previous year with most of the reductions coming in the
manufacturing area.
Other Income and Expense
Other income for 1993 was also unchanged from the previous year at
$2 million expense. This item consists of interest earned less interest
expenses incurred and certain costs associated with implementing the
Company's foreign currency hedging program. In 1992 this expense
increased due to a decline in the rate of interest earned on cash and
short-term investments, combined with an increase in expenses
related to the Company's foreign currency hedging program. In 1993
short-term interest rates continued to decrease and interest income
declined, but this was offset by lower costs of foreign currency
hedging.
Income Taxes
The operating loss for the Company in 1993 resulted in a limited
U.S. tax benefit in the current year. The domestic tax benefit was
offset by tax expenses in various foreign subsidiaries, with a net
result of a $1 million tax expense for the year. No benefit has been
recorded on approximately $25 million of domestic book losses. At
December 31, 1993 the Company had operating loss carryforwards in
various foreign subsidiaries which are available to offset future
taxable income. The realization of the tax benefits related to the
domestic losses without tax benefit and foreign carryforwards is
dependent on the future profitability of the Company and its foreign
subsidiaries.
During 1992, the Company adopted Statement No. 109, "Accounting
for Income Taxes," which requires a change from the deferred
method of accounting for income taxes to the liability method. The
effect of the adoption on the Company's financial position was not
material.
Liquidity and Capital Resources
After an increase of $8 million in working capital in 1992, primarily
the result of a profitable year and an $18 million stock purchase by
the Hewlett-Packard Company, Convex experienced a $47 million
decline in working capital in 1993. The primary reason for this
decrease is the net loss of $64 million for the year.
Capital expenditures for the year were well below historical levels at
$11 million in 1993, down from $18 million in 1992 and $16 million
in 1991. The Company believes capital requirements in 1994 will
increase for the two new products planned for introduction during the
year and expenditures will equal or exceed the $18 million incurred
in 1992. The Company's most recent major product introduction, the
C3 product series, was supported by capital expenditures of $25
million in 1990.
The Company's cash, cash equivalents and investment balances
totaled approximately $70 million at the end of 1993. The Company
believes this source of liquidity will be sufficient to meet cash
requirements for at least the next twelve months. However, with
financial performance in the first half of 1994 expected to be at or
below the levels achieved in the second half of 1993, the Company
expects cash balances to decrease. To help ensure the transition to
the new products, the Company may seek to secure lines of working
capital.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
<TABLE>
Consolidated Balance Sheets
(In thousands, except share data)
<CAPTION>
December 31,
----------------------
1993 1992
---------- ---------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $43,094 $52,599
Short-term investments 13,820 25,575
Receivables, net of allowances of $7,517 and $5,267
in 1993 and 1992, respectively 60,145 70,470
Current portion of long-term receivables 13,622 15,626
Inventory 29,150 38,534
Income taxes receivable 7,913 5,714
Prepaid expenses and other current assets 10,758 10,267
---------- ----------
Total current assets 178,502 218,785
Fixed assets, net 38,910 48,106
Long-term receivables 20,566 26,821
Long-term investments 13,389 15,693
Other assets, net of accumulated amortization of $4,694 and $3,147
in 1993 and 1992, respectively 2,909 2,789
---------- ---------
Total assets $254,276 $312,194
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $13,529 $17,761
Accrued payroll and related taxes 5,358 5,082
Income taxes payable 1,983 484
Current portion of notes payable 11,347 11,312
Deferred revenue 14,387 13,342
Other current liabilities 27,694 19,383
---------- ----------
Total current liabilities 74,298 67,364
Long-term liabilities:
Notes payable 14,093 17,576
6% convertible subordinated debentures 53,500 53,500
---------- ----------
Total long-term liabilities 67,593 71,076
Contingencies and commitments -- --
Shareholders' equity:
Preferred stock ($.01 par value); 5,000,000 shares authorized; -- --
none outstanding
Common stock ($.01 par value); 40,000,000 shares authorized;
25,522,883 shares and 24,733,279 shares outstanding
in 1993 and 1992, respectively 255 247
Additional capital 148,973 145,733
Accumulated earnings (deficit) (33,283) 30,521
Cumulative translation adjustment (3,560) (2,747)
---------- ----------
Total shareholders' equity 112,385 173,754
---------- ----------
Total liabilities and shareholders' equity $254,276 $312,194
========== =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Operations
(In thousands, except per share data)
<CAPTION>
Years Ended December 31,
-------------------------------------------
1993 1992 1991
----------- ----------- -----------
Revenue:
<S> <C> <C> <C>
Product and other revenue $120,297 $177,860 $158,656
Service revenue 72,822 53,959 39,443
----------- --------- -----------
Total revenue 193,119 231,819 198,099
Costs and expenses:
Cost of product and other revenue 65,931 89,569 78,798
Cost of service revenue 49,819 33,981 25,591
Research and development 33,237 33,197 29,770
Selling, general and administrative 68,993 68,878 72,917
Restructuring and other charges 36,000 -- --
----------- --------- -----------
Total costs and expenses 253,980 225,625 207,076
Operating income (loss) (60,861) 6,194 (8,977)
Other income (expense), net (2,127) (2,092) (164)
---------- ----------- ----------
Income (loss) before provision for income taxes (62,988) 4,102 (9,141)
Provision (benefit) for income taxes 816 1,314 (2,250)
---------- ----------- ----------
Net income (loss) ($63,804) $2,788 ($6,891)
========== =========== ==========
Earnings per common and common equivalent share $ (2.53) $ .11 $ (.31)
Weighted average number of common and common equivalent
shares outstanding 25,222 24,577 22,122
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Shareholders' Equity
(In thousands)
<CAPTION>
Accumulated Cumulative
Common Additional Earnings Translation
Stock Capital (Deficit) Adjustment Total
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1990 $214 $109,046 $34,624 $(1,075) $142,809
Net (loss) -- -- (6,891) -- (6,891)
Common stock issued under
stock option and purchase
plans, net of repurchases 11 8,593 -- -- 8,604
Tax benefits realized from
stock transactions -- 1,962 -- -- 1,962
Foreign currency translation -- -- -- (559) (559)
----------- ------------ ------------- ---------- ------------
Balance at December 31, 1991 225 119,601 27,733 (1,634) 145,925
Net income -- -- 2,788 -- 2,788
Common stock issued in private
placement 12 18,044 -- -- 18,056
Common stock issued under
stock option and purchase
plans, net of repurchases 10 6,841 -- -- 6,851
Tax benefits realized from
stock transactions -- 1,247 -- -- 1,247
Foreign currency translation -- -- -- (1,113) (1,113)
------------ ------------ ----------- ---------- ---------
Balance at December 31, 1992 247 145,733 30,521 (2,747) 173,754
Net (loss) -- -- (63,804) -- (63,804)
Common stock issued under
stock option and purchase
plans, net of repurchases 8 3,179 -- -- 3,187
Tax benefits realized from
stock transactions -- 61 -- -- 61
Foreign currency translation -- -- -- (813) (813)
------------- ------------ ----------- ---------- ---------
Balance at December 31, 1993 $255 $148,973 ($33,283) ($3,560) $112,385
============= ============ =========== ========== =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
(In thousands)
<CAPTION>
Years Ended December 31,
----------------------------------
1993 1992 1991
-------- ---------- ---------
Operating activities:
<S> <C> <C> <C>
Net income (loss) ($63,804) $2,788 ($6,891)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 21,192 15,326 14,692
Deferred income taxes 2,455 (372) 1,139
Foreign currency losses 101 371 188
Changes in assets and liabilities:
(Increase) decrease in receivables 8,773 (6,596) (10,205)
(Increase) decrease in inventory 9,076 791 (7,963)
(Increase) in prepaid expenses and other current assets (3,574) (2,325) (4,352)
(Increase) decrease in long-term receivables 8,150 (13,104) (11,483)
Increase (decrease) in accounts payable (4,272) 5,554 (1,593)
Increase (decrease) in income taxes payable 1,499 379 (3,960)
Increase (decrease) in other current liabilities 7,641 (1,952) 2,600
Increase (decrease) in deferred revenue 1,501 (28) 2,848
---------- --------- ---------
Total adjustments 52,542 (1,956) (18,089)
---------- --------- ---------
Net cash provided by (used for) operating activities (11,262) 832 (24,980)
Investing activities:
(Additions) to fixed assets, net (10,591) (17,731) (16,225)
(Increase) decrease in short-term investments 11,755 (16,941) 16,153
(Increase) decrease in long-term investments 2,304 (15,693) --
Increase in other assets (1,668) (754) (2,401)
Foreign currency hedging activity 514 1,299 (2,943)
---------- --------- ---------
Net cash provided by (used for) investing activities 2,314 (49,820) (5,416)
Financing activities:
Proceeds from private placement of common stock, net -- 18,056 --
Issuance of common stock under stock option and purchase
plans, net 3,187 6,851 8,604
Decrease in capital lease obligations -- -- (1,111)
Proceeds from long-term debt 9,909 21,980 10,558
Principal payments on long-term debt (13,368) (11,050) (7,868)
Tax benefits realized from stock transactions 61 1,247 1,962
---------- --------- ---------
Net cash provided by (used for) financing activities (211) 37,084 12,145
---------- --------- ---------
Effect of exchange rate fluctuations on cash and cash equivalents (346) (651) 383
---------- --------- ---------
(Decrease) in cash and cash equivalents (9,505) (12,555) (17,868)
Cash and cash equivalents, beginning of year 52,599 65,154 83,022
---------- --------- ---------
Cash and cash equivalents, end of year $43,094 $52,599 $65,154
========== ========= =========
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest $6,299 $8,045 $6,736
Income taxes, net of refunds ($939) $808 $3,068
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Notes to Consolidated Financial Statements-December 31, 1993
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Convex
Computer Corporation and its wholly owned subsidiaries ("Convex"
or the "Company"). All significant intercompany accounts and
transactions have been eliminated. Certain amounts have been
reclassified from previously reported financial statements to conform
with current presentation.
Revenue Recognition
Product revenue is generally recognized at the time of shipment.
Certain sales agreements provide for compliance at the
customer's site with specified functional and performance criteria
which are generally factory-tested prior to shipment. Revenue
recognition may be deferred in certain cases, depending upon contract
terms or funding contingencies. An accounts receivable reserve is
established for potential returns pending completion of customer
product acceptance and payment.
Service revenue is recognized ratably over the contractual period or
as the services are provided. Customers are given the option to
prepay for twelve months of service in which case the prepayment is
accounted for as deferred revenue and recognized ratably over a
twelve month period in the Company's financial statements.
Risk Concentration
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash, investments and
accounts receivable. The Company attempts to minimize the
concentration of credit risk for cash and investments by limiting the
amount of credit exposure to any one commercial issuer.
Concentrations of credit risk with respect to the receivables are
limited due to the large number of customers in the Company's
customer base, and their dispersion across different industries and
geographic areas. The Company maintains an allowance for losses
based upon the expected collections of its accounts receivable.
Cash and Cash Equivalents
Cash in excess of daily requirements is invested primarily in
investment grade short-term commercial paper, repurchase
agreements, time deposits, and U.S. government securities. These
investments are stated at cost which approximates fair value as
determined by quoted market prices. Investments purchased with a
maturity of three months or less are considered cash equivalents.
Short-term Investments
Investments purchased with a maturity of more than three months
and less than one year are considered short-term investments. These
include U.S. government and government agency securities and
corporate bonds. These investments are stated at cost. Due to the
short-term maturity of these securities, fair value, as determined by
quoted market prices, closely approximates the carrying value.
Long-term Investments
Investments in securities for which the holding period is greater than one
year are considered long-term investments. The majority of the long-
term portfolio consists of mortgage-backed securities either issued or
guaranteed by the United States government or by its agencies.
Although there is minimal credit risk, interest rate and prepayment
fluctuations impact the market value of these securities. The carrying
value of these investments approximates fair value as determined by
quoted market prices.
Interest income for the years ended December 31, 1993, 1992, and
1991 was $4,464,000, $5,899,000, and $6,779,000, respectively.
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are
computed primarily on a straight-line basis over asset lives of three
years for office and research equipment, certain computer equipment
and purchased software used in research and development activities,
and five years for furniture and fixtures, manufacturing equipment,
certain computer equipment, and certain purchased software. Fixed
assets include the following (in thousands):
1993 1992
--------- ----------
Equipment $ 98,668 $91,132
Furniture and fixtures 14,997 14,294
Purchased software 9,566 7,612
--------- ----------
123,231 113,038
Less accumulated depreciation (84,321) (64,932)
--------- ----------
$ 38,910 $48,106
========= ==========
Inventory
Inventory is recorded at the lower of cost (on a first-in, first-out
basis) or market. Inventory consists of the following (in thousands):
1993 1992
---------- ----------
Raw material $ 9,489 $14,426
Work-in-process 5,044 7,498
Finished goods 14,617 16,610
---------- ----------
$29,150 $38,534
========== ==========
Equipment Leased to Customers
The Company leases equipment to customers under agreements
which are classified as sales-type leases in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 13. Accordingly,
the fair market value of the leased equipment in these agreements has
been recorded as revenue. The present value of the lease payments
to be received under these agreements has been recorded as current
and long-term receivables. Receivables from these leases at
December 31, 1993 and 1992 were as follows (in thousands):
1993 1992
---------- ----------
Future minimum lease payments $ 36,921 $ 45,693
Unearned interest income (2,733) (3,246)
---------- ----------
34,188 42,447
Less current portion (13,622) (15,626)
---------- ----------
Long-term receivables $20,566 $ 26,821
========== ==========
As of December 31, 1993, future minimum lease payments from
lease receivables are as follows: $14,820 in 1994, $12,754 in 1995,
$5,058 in 1996, $2,734 in 1997, $917 in 1998, and $638 thereafter.
The Company has a vendor leasing program whereby the majority of
trade lease receivables are used to obtain non-recourse borrowings
from several financial institutions or sold on a non-recourse basis to
certain third-party leasing companies. See Note 2 for further
information.
Capitalization of Internally Developed Software
The Company engages in the development of software products and
certain costs associated with the development of these software
products are capitalized in accordance with SFAS No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased,
or Otherwise Marketed." These costs are capitalized as incurred and
are amortized over a two year period. Unamortized software
development costs included in other assets at December 31, 1993 and
1992 were $1,809,000 and $1,580,000, respectively. Amortization
expense for 1993 and 1992 was $1,431,000 and $1,533,000,
respectively.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries has
been determined to be the local currency of each foreign subsidiary.
Accordingly, all subsidiaries' assets and liabilities are translated to
U.S. dollars at current exchange rates as of the balance sheet date.
Revenues and expenses are translated at the average exchange rates
during the period. Gains and losses resulting from foreign currency
translation as of the balance sheet date are recorded as a separate
component of shareholders' equity.
Gains and losses resulting from foreign currency transactions, and
remeasurement of non-functional currency assets and liabilities, are
included in net income.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to hedge the
impact of foreign currency fluctuations on certain assets and
liabilities denominated in non-functional currencies. Gains and losses
on these contracts are offset against the foreign exchange gains or
losses on the underlying assets and liabilities. At December 31,
1993, the Company had contracts with major banks maturing on
February 2, 1994 in the amount of $13,220,000 which amount
approximates fair value as determined by year-end spot rates.
Earnings Per Common and Common Equivalent Share
The computation of primary earnings per share is based on the
weighted average number of common and common equivalent (stock
options) shares assumed to be outstanding during the year. In loss
periods, common stock equivalents and the assumed conversion of
the convertible debentures are excluded from the computation since
their inclusion would have an anti-dilutive effect on earnings per
share. For the three years presented, the computation of fully diluted
earnings per share resulted in no significant additional dilution.
The number of shares used in the computation of earnings per share
for the years ended December 31, 1993, 1992 and 1991 is determined
as follows (in thousands):
1993 1992 1991
--------- --------- --------
Weighted average common shares
outstanding during the year 25,222 24,138 22,122
Dilutive common share equivalents
related to outstanding stock
options -- 439 --
--------- --------- --------
Weighted average shares used in
computation 25,222 24,577 22,122
========= ========= ========
Note 2. Long-term Debt
Vendor Leasing Program
The Company has a vendor leasing program whereby the Company
sells equipment to customers under sales-type leases. The majority
of trade lease receivables are used to obtain borrowings from several
financial institutions or sold on a non-recourse basis to certain
third-party leasing companies. The borrowings are collateralized by
the leased equipment, whereby the Company gives the financial
institution a first security interest. Collection of the lease receivables
is performed by the noteholders. The outstanding borrowings at
December 31, 1993 were approximately $25,440,000 at an interest
rate of approximately 7.0% which approximates current market rates.
Outstanding borrowings at December 31, 1992 were approximately
$28,888,000 at an interest rate of approximately 10.0%.
Convertible Debentures
The Company has outstanding $53,500,000 of 6% Convertible
Subordinated Debentures, due March 1, 2012. The debentures are
convertible into common stock of the Company prior to maturity,
unless previously redeemed, at a conversion price of $21.75 per
share, subject to adjustment under certain conditions. The debentures
are redeemable at par value. The debentures have mandatory sinking
fund requirements which provide for the annual redemption of
$2,675,000 plus accrued interest beginning March 1, 1998 and ending
March 1, 2011. The bonds on December 31, 1993 had an
approximate fair value of $35,310,000. The fair value for the
Company's long-term debt is determined based on the quoted market
price for the debentures.
Long-Term Debt
Aggregate maturities of long-term debt are as follows: $11,347,000
in 1994, $8,597,000 in 1995, $3,502,000 in 1996, $1,755,000 in
1997, and $2,914,000 in 1998.
Interest expense for the years ended December 31, 1993, 1992 and
1991 was $6,298,000, $7,933,000, and $6,832,000, respectively.
Note 3. Lease Obligations
The Company leases its headquarters building under a noncancelable
operating lease which expires in 2004. The lease agreement contains
two ten-year renewal options. Leases of sales offices are also
classified as operating leases and expire in various years through
2000.
Future minimum lease payments under noncancelable operating
leases are as follows (in thousands):
1994 $6,780
1995 5,287
1996 4,945
1997 4,144
1998 3,462
Later years 19,228
--------
Total $43,846
========
Total rental expense was $7,107,000 in 1993, $7,314,000 in 1992,
and $7,816,000 in 1991.
Note 4. Income Taxes
Effective January 1, 1992, the Company changed its method of
accounting for income taxes from the deferred method to the liability
method required by SFAS No. 109, "Accounting for Income Taxes."
As permitted under the new rules, prior years' financial statements
have not been restated. The effects of adopting Statement 109 were
not material.
The provision (benefit) for income taxes for the years ended
December 31, 1993, 1992 and 1991 consists of the following (in
thousands):
1993 1992 1991
---------- ---------- ---------
Current
State $ (61) $ 152 $ (534)
Federal (3,180) 1,579 (3,149)
Foreign 1,602 (45) 294
---------- ---------- ---------
$(1,639) $1,686 $(3,389)
Deferred
Federal 2,379 (216) 896
Foreign 76 (156) 243
---------- ---------- ---------
2,455 (372) 1,139
---------- ---------- ---------
Total $ 816 $1,314 $(2,250)
========== ========== =========
The foreign provision for income taxes is based upon net foreign
pretax losses of $1,079,000, $3,453,000, and $4,548,000 in 1993,
1992, and 1991, respectively.
The significant components of deferred tax assets and liabilities
included on the balance sheet at December 31 are as follows (in
thousands):
1993 1992
----------- -----------
Revenue recognition differences $ (9,492) $(12,285)
Other (1,567) (1,167)
----------- -----------
Gross deferred tax liabilities (11,059) (13,452)
----------- -----------
Fixed assets 5,613 3,449
Inventory valuation 6,108 3,515
Other accrued expenses 6,274 2,551
Tax credits 7,540 5,395
Foreign loss carryforwards 3,552 4,866
----------- -----------
Gross deferred tax assets 29,087 19,776
Asset valuation allowance (19,654) (5,495)
----------- -----------
Net deferred tax asset (liability) $ (1,626) $ 829
=========== ===========
Deferred income taxes were provided for the timing differences in
the recognition of revenue and expenses for tax and financial
statement purposes in 1991. The sources of deferred income tax and
the tax effect of each are as follows (in thousands):
1991
----------
Depreciation $ 792
Inventory valuation (24)
Revenue recognition differences 4,757
Other accrued expenses (691)
Utilization of research and development credits (3,849)
Other (net) 154
----------
Total $ 1,139
==========
A reconciliation of the recorded provision to income taxes provided at the
statutory rate is as follows (in thousands):
1993 1992 1991
----------- ---------- ----------
Expected tax (benefit) provision $(21,416) $1,395 $(3,109)
State income taxes, net of
federal benefit (40) 100 (353)
Impact of foreign taxes 1,317 301 (230)
Foreign sales corporation -- (506) (691)
Research and development
tax credit -- (740) --
Foreign losses without tax benefit 1,117 1,348 1,987
Domestic losses without tax
benefit 19,117 -- --
Utilization of foreign losses (398) (884) --
Other 1,119 300 146
------------ ---------- ----------
Provision (benefit) for
income taxes $ 816 $1,314 $(2,250)
============ ========== ==========
At December 31, 1993, the Company has foreign tax loss
carryforwards of approximately $10.5 million that expire in years
1996 through 2002. The Company has $5.7 million of research and
development credits which expire in various amounts from the year
1999 to the year 2008 and $1.6 million of alternative minimum tax
credits which have no expiration date. For financial reporting
purposes, a valuation allowance of $20 million (which includes a $14
million increase in 1993) has been recognized to fully offset the
deferred tax assets related to the foreign losses, tax credit
carryforwards, and domestic losses without tax benefit.
Note 5. Shareholders' Equity
Stock Option Plan
The Company has a stock option plan which provides for the
issuance to employees of stock options with a term of up to ten
years. Stock options generally vest to the employees over periods of
one to four years. Options granted pursuant to the plan are generally
exercisable by the optionee ahead of vesting. Unvested shares
purchased on exercise of an option are subject to a repurchase right
of the Company, and may not be sold by an optionee, until the shares
vest. At December 31, 1993, a total of 11,390,158 shares of
common stock had been reserved for issuance under this plan and
former plans and options for 258,898 shares were available for grant.
At December 31, 1992, a total of 10,280,158 shares of common stock
had been reserved for issuance under the plans and 1,466,225 options
were available for grant.
The following table summarizes stock option activity for the years
ended December 31, 1991, 1992 and 1993:
Number Option
Options of Shares Price
- - - --------------------------------------- ------------ ---------------
Outstanding at December 31, 1990 4,067,855 $ .80-14.125
Granted 77,450 $ 9.75-17.625
Exercised (735,688) $ 6.50-15.875
Forfeited (146,120) $ .80-17.625
------------ ---------------
Outstanding at December 31, 1991 3,263,497 $ 6.50-17.625
Granted 1,253,875 $6.125-14.500
Exercised (493,167) $6.125-13.000
Forfeited (274,307) $6.125-17.625
------------ ---------------
Outstanding at December 31, 1992 3,749,898 $6.125-14.375
Granted 2,520,575 $ 4.00-7.0000
Exercised (31,899) $ 4.00-6.1250
Forfeited (412,043) $ 4.00-13.875
------------ ---------------
Outstanding at December 31, 1993 5,826,531 $ 4.00-11.250
============ ===============
Of the total options outstanding at December 31, 1993 and December
31, 1992, 2,451,994 and 2,006,420, respectively, were fully vested.
On July 30, 1993, the Board of Directors offered to reprice all then
outstanding options that had exercise prices above the fair market
value on that date. The new option price reflected the fair market
value on July 30, 1993. The total number of amended options was
4,135,482.
Employee Stock Purchase Plan
The Company has an employee stock purchase plan available to all
full-time employees, excluding those who own 5% or more of the
Company's common stock. Through a payroll deduction program,
employees are given the opportunity semiannually to purchase the
Company's common stock at a 15% discount from the fair market
value on the purchase date or enrollment date, whichever is lower.
Each employee may elect to make these purchases up to a maximum
of 10% of each individual's regular earnings and commissions. As
of December 31, 1993, 2,774,036 shares have been issued under this
plan at an average price of $6.65 per share. A total of 2,970,000
shares have been reserved for issuance under this plan. During 1993,
the Board of Directors elected to suspend the employee stock
purchase plan on an indefinite basis.
Note 6. Related Party Transactions
In 1992, the Hewlett-Packard Company and the Company entered
into an agreement pursuant to which Hewlett-Packard purchased
1,213,855 shares of common stock from the Company at $14.875 per
share generating $18,056,093 in proceeds which have been used for
general corporate purposes. Additionally, in 1992, the Company
began purchasing components from Hewlett-Packard for use in
computer systems the Company sells. These purchases amounted to
$8,272,000 in 1993 and $1,290,000 in 1992.
The Company has guaranteed a $5,000,000 lease line for Vitesse
Semiconductor Corporation ("Vitesse") in exchange for warrants.
These warrants were exercised in 1991 and the Company purchased
88,888 shares of Vitesse common stock. This common stock is
carried at cost of $400,000 which approximates fair value at
December 31, 1993. The Company's obligation to guarantee the
$5,000,000 lease line will terminate no later than January 1, 1995.
The Company does not anticipate any liability will accrue to the
Company as a result of this lease line guarantee. The Company also
purchases components from Vitesse. Amounts paid to Vitesse for the
years ended December 31, 1993, 1992, and 1991 were $4,531,000,
$14,943,000 and $5,594,000, respectively.
Additionally, certain directors of the Company were also directors of
other corporations with which the Company does business. Amounts
paid to these companies for the years ended December 31, 1993,
1992, and 1991 were $833,000, $217,000 and $243,000, respectively.
Note 7. Segment Information and Major Customers
The Company's operations involve a single industry segment which
is the design, manufacture, sale and service of high performance
computer systems primarily for scientific, engineering and technical
users. The Company's customers are typically major corporations,
universities and governmental agencies. Currently, the Company has
ten foreign sales and service subsidiaries.
Segment information including revenue, operating income (loss) and
identifiable assets is as follows (in thousands):
1993 1992 1991
---------- ---------- ----------
Sales to unaffiliated customers:
United States $ 94,955 $123,123 $105,395
Europe 75,057 89,811 74,994
Other international 23,106 18,885 17,710
Sales between geographic areas:
United States 55,813 70,155 66,357
Europe 966 883 200
Other international -- -- 223
Eliminations (56,778) (71,038) (66,780)
----------- ---------- ----------
Total revenue $193,119 $231,819 $198,099
=========== ========== ==========
Operating income (loss):
United States $(59,031) $ 9,024 $ (68)
Europe (4,239) (2,781) (4,268)
Other international (997) 406 (1,663)
Eliminations 3,406 (455) (2,978)
---------- ---------- -----------
Total operating income (loss) $(60,861) $ 6,194 $ (8,977)
========== ========== ===========
Identifiable assets:
United States $257,196 $309,305 $268,854
Europe 58,918 75,893 77,490
Other international 23,451 21,456 15,672
Eliminations (85,289) (94,460) (89,368)
---------- ---------- ----------
Total identifiable assets $254,276 $312,194 $272,648
========== ========== ==========
Export sales--United States $ 8,079 $ 18,311 $ 10,887
========== ========== ==========
During 1993, 1992 and 1991, no single distributor or end-user
customer accounted for more than 10% of total revenue. However,
several of the Company's customers which are agencies of the U.S.
government collectively accounted for approximately 16% of total
revenue in 1993, approximately 13% of total revenue in 1992, and
approximately 15% in 1991.
Note 8. Legal Proceedings
On August 2 and 7, 1991, two separate complaints were filed against
the Company and certain of its officers and directors in the United
States District Court for the Northern District of Texas. The two
cases were consolidated. Plaintiffs filed a Consolidated Amended
Complaint, (the "Amended Complaint"), on October 18, 1991, which
purports to be a class action lawsuit on behalf of persons who
purchased Convex Stock between January 31, 1991 and July 29,
1991. The Amended Complaint alleges that defendants violated
specific provisions of the federal securities laws, namely Sections
10(b) and 20(a) of the Securities and Exchange Act of 1934 and Rule
10b-5 promulgated thereunder, and Texas common law.
Subsequent to December 31, 1993 the Company reached an
agreement in principle to settle this class action lawsuit, subject to
final approval by the court. The Company has included a charge for
the $2.5 million estimated cost of settlement in the 1993 results.
Note 9. Restructuring and Other Charges
With a substantial decline in order rates and revenue in the first half
of 1993, in July the Company implemented a restructuring program
designed to reduce annualized costs by $22 million and to increase
the efficiency of the Company's operations. The restructuring also
reflected a strategic decision to write down certain assets based on an
analysis of future demand for both the C3800 and C3400 product
families. The $31.5 million charge taken in the second quarter
comprised $7 million for severance costs of approximately 185
employees, $21.5 million for costs associated with reducing factory
capacity in the Richardson manufacturing facility and to write down
certain of the Company's assets, and $3 million in miscellaneous and
other charges. An additional $4.5 million charge was taken in the
fourth quarter for the estimated cost of settling the 1991 class action
lawsuit (Note 8) and for additional asset write-downs.
Report of Independent Auditors
Shareholders and Board of Directors
Convex Computer Corporation
We have audited the accompanying consolidated balance sheets of
Convex Computer Corporation at December 31, 1993 and 1992 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1993.
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Convex Computer Corporation at December 31, 1993 and 1992, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As described in Note 1 to the consolidated financial statements, in 1992
the Company changed its method of accounting for income taxes.
ERNST & YOUNG
Dallas, Texas
March 25, 1994
Quarterly Financial Summary (Unaudited)
(In thousands, except per share data)
1993 Quarters
-----------------------------------------------
4th 3rd 2nd 1st
--------- -------- --------- --------
Revenue $45,959 $42,986 $45,090 $59,084
Gross margin 18,013 17,448 15,769 26,139
Operating income (loss) (12,919) (1) (5,989) (42,665) (1) 712
Net income (loss) (15,749) (1) (6,280) (41,821) (1) 46
Earnings (loss) per share: (0.62) (1) (0.25) (1.67) (1) 0.00
1992 Quarters
----------------------------------------------
4th 3rd 2nd 1st
--------- --------- --------- ---------
Revenue $61,947 $57,862 $57,537 $54,473
Gross margin 28,199 27,629 26,595 25,846
Operating income (loss) 1,687 1,582 1,821 1,104
Net income (loss) 851 778 755 404
Earnings (loss) per share: 0.03 0.03 0.03 0.02
(1) Includes restructuring and other charges of $31.5 million in the second
quarter of 1993 and $4.5 million in the fourth quarter of 1993.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Report
in that the Registrant intends to file a definitive proxy statement
pursuant to Regulation 14A with the Securities and Exchange
Commission (the "Proxy Statement") relating to its annual meeting
of stockholders not later than 120 days after the end of the fiscal year
covered by this Report, and such information is incorporated by
reference herein.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information concerning the Company's directors required by this
Item is incorporated by reference to the Company's Proxy Statement
under the heading "Election of Directors."
Information regarding executive officers is included in Part I hereof
under the caption "Executive Officers of the Registrant" and is incorporated
by reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The information required by this Item is incorporated by reference to
the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) Documents Filed with Report
1. Financial Statements
The following Consolidated Financial Statements and Report of
Independent Auditors are included in Part II Item 8 of this
Form 10-K.
The consolidated balance sheets at December 31, 1993 and
1992, and the consolidated statements of operations,
statements of shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1993, together with
the notes thereto.
The report of Ernst & Young, independent auditors, dated
March 25, 1994.
2. Financial Statement Schedules
The following financial statement schedules should be read in
conjunction with the consolidated financial statements and the notes
thereto.
Page
----
Schedule I Marketable Securities - Other Investments S-1
Schedule VIII Valuation and Qualifying Accounts S-2
Report of Ernst & Young, Independent S-3
Auditors
All other schedules have been omitted since the required information
is not present or is not present in amounts sufficient to require
submission of the schedule or because the information required is
included in the consolidated financial statements, including the notes
thereto.
3. Exhibits
Exhibit
Number Description
- - - --------- -----------------------------
3.1* Restated Certificate of Incorporation, as amended.
3.2 Restated By-Laws.
4.1** Indenture between Registrant and The First National
Bank of Boston, Trustee covering $53,500,000 of 6%
Convertible Subordinated Debentures due 2012
(including form of Debenture).
10.1* Shareholder's Agreement dated January 13, 1986
between Registrant and Sam K. Smith, a director,
covering the sale of 10,000 shares of Common Stock.
10.2* License Agreement dated November 1, 1982 between
Registrant and AT&T.
10.3* Cross License Agreement dated May 29, 1986 between
Registrant and Cray Research, Inc.
10.4* Master Lease Agreement, as amended, dated December 31,
1986 between Registrant and Ford Equipment Leasing
Company covering property substantially located at
3000 Waterview Parkway, Richardson, Texas.
10.5* Form of Indemnification Agreement entered into
between the Registrant and each of its officers and
directors.
10.6**** Commercial Lease dated January 26, 1989, as
amended, between Registrant and Synergy Park
Associates covering property located at Synergy Park,
Richardson, Texas.
10.7**** Registrant's 1991 Stock Option Plan and form of Non-
Statutory Stock Option Agreement.
10.8***** Common Stock Purchase Agreement dated March 18,
1992 between Registrant and Hewlett-Packard
Company.
10.9***** Registration Rights Agreement dated March 18, 1992
between Registrant and Hewlett-Packard Company.
21.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young, Independent Auditors.
24.1 Power of Attorney (immediately following exhibits
schedule).
* Incorporated by reference from the Company's
Registration Statement on Form S-1 (No. 33-6109).
** Incorporated by reference from the Company's
Registration Statement on Form S-1 (No. 33-12106).
*** Incorporated by reference from the Company's
Registration Statement on Form S-8 (No. 33-33700).
**** Incorporated by reference to the Company's annual
report on Form 10-K for year ended December 31,
1990.
***** Incorporated by reference to the Company's annual
report on Form 10-K for year ended December 31,
1991.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
fiscal quarter ended December 31, 1993.
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.
CONVEX COMPUTER CORPORATION
Registrant
BY: ROBERT J. PALUCK
---------------------------
Robert J. Paluck,
Chairman of the Board, and Chief Executive Officer
March 25, 1994
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints Robert J.
Paluck and J. Cameron McMartin, jointly and severally, his
attorneys-in-fact, each with the power of substitution, for him in any
and all capacities, to sign any amendments to this Report on Form
10-K, and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and conforming all that each of said
attorneys-in-fact, or his substitute or substitutes, any do or cause to
be done by virtue hereof.
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.
Signature Capacity in Which Signed Date
- - - -------------------- ------------------------------------ ----------------
ROBERT J. PALUCK Chairman of the Board March 25, 1994
- - - -------------------- and Chief Executive
(Robert J. Paluck) Officer (Principal Executive
Officer) and Director
J. CAMERON MCMARTIN Chief Financial Officer March 25, 1994
- - - -------------------- and Vice President,
(J. Cameron McMartin) Finance (Principal Finance
and Accounting Officer)
STEVEN J. WALLACH Director March 25, 1994
- - - --------------------
(Steven J. Wallach)
Director March 25, 1994
- - - --------------------
(H. Berry Cash)
SAM K. SMITH Director March 25, 1994
- - - --------------------
(Sam K. Smith)
HOWARD D. WOLFE Director March 25, 1994
- - - --------------------
(Howard D. Wolfe)
ERICH BLOCH Director March 25, 1994
- - - --------------------
(Erich Bloch)
<TABLE>
SCHEDULE I
CONVEX COMPUTER CORPORATION
MARKETABLE SECURITIES -- OTHER INVESTMENTS
(In thousands)
<CAPTION>
Balance
Market Sheet
Principle Value Amount
Name of Issuer and Title of Each Issue Amount Cost 12/31/93 12/31/93
- - - -------------------------------------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government Securities $ 8,315 $ 8,519 $ 8,609 $ 8,506
Other Short-term Investments 5,169 5,349 5,450 5,314
Other Long-term Investments
(principally mortgage-backed securities) 13,281 13,622 13,515 13,389
---------- ----------- ---------- -----------
$26,765 $27,490 $27,574 $27,209
========== =========== ========== ===========
S-1
</TABLE>
<TABLE>
SCHEDULE VIII
CONVEX COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<CAPTION>
Balance at Charged Deductions Balance at
Beginning to from End of
Description of Period Expenses Reserve Period
- - - ------------------------------------- ----------- ------------ ------------ -----------
Year Ended December 31, 1993:
<S> <C> <C> <C> <C>
Accounts receivable allowances $ 5,267 $ 3,548 $ 1,298 $ 7,517
Long-term receivable allowances 150 -- 98 52
----------- ------------ ---------- ----------
$ 5,417 $ 3,548 $ 1,396 $ 7,569
=========== ============ ========== ==========
Year Ended December 31, 1992:
Accounts receivable allowances $ 3,924 $ 1,707 $ 364 $ 5,267
Long-term receivable allowances 316 52 218 150
----------- ----------- ---------- ----------
$ 4,240 $ 1,759 $ 582 $ 5,417
=========== =========== ========== ==========
Year Ended December 31, 1991:
Accounts receivable allowances $ 2,867 $ 1,761 $ 704 $ 3,924
Long-term receivable allowances 311 258 253 316
----------- ----------- ---------- ----------
$ 3,178 $ 2,019 $ 957 $ 4,240
=========== =========== ========== ==========
S-2
</TABLE>
REPORT OF ERNST & YOUNG
INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Convex
Computer Corporation as of December 31, 1993 and 1992, and for
each of the three years in the period ended December 31, 1993, and
have issued our report thereon dated March 25, 1994. Our audits
also included the financial statement schedules listed in Item
14(a)(2) of this Form 10-K. These schedules are the responsibility
of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set
forth therein.
ERNST & YOUNG
Dallas, Texas
March 25, 1994
S-3
EXHIBIT 3.2
CONVEX COMPUTER CORPORATION
* * * * *
B Y - L A W S
* * * * *
ARTICLE I
OFFICES
Section 1.1 The registered office shall be in the City of Wilmington, County
of New Castle, State of Delaware.
Section 1.2 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 2.1 All meetings of the stockholders for the election of directors
shall be held in the City of Dallas, State of Texas, 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
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 2.2 Annual meetings of stockholders, commencing with the year
1982, shall be held on the second Tuesday in January if not a legal holiday,
and if a legal holiday, then on the next secular day following, at 10:00 a.m.,
or at such other 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 which they shall
elect by a plurality vote a board of directors, and transact such other business
as may properly be brought before the meeting.
Section 2.3 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.
Section 2.4 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 the whole time thereof, and may be inspected by any
stockholder who is present.
Section 2.5 Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute 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, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 2.6 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.
Section 2.7 Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 2.8 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 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, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such 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 2.9 When a quorum is present at any meeting, 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 statutes or
of the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 2.10 Unless otherwise provided in the certificate of incorporation
each stockholder shall at every meeting of the stockholders be entitled to one
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 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 2.11 Unless otherwise provided in the certificate of incorporation,
any action required 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. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in
writing.
ARTICLE III
DIRECTORS
Section 3.1 The board shall consist of 7 directors. The directors shall be
elected at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 3.2 Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any 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 may, 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, 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 3.3 The business of the corporation shall be managed by or under the
direction of its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3.4 The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 3.5 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 3.6 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 determined
by the board.
Section 3.7 Special meetings of the board may be called by the president on
two days' notice to each director, either personally or by mail or by telegram;
special meetings shall be called by the president or secretary in like manner
and on like notice on the written request of two directors unless the board
consists of only one director; in which case special meetings shall be called
by the president or secretary in like manner and on like notice on the written
request of the sole director.
Section 3.8 At all meetings of the board a majority of the 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
by statute or by the certificate of incorporation. If a quorum shall not be
present at any meeting of the board of directors the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 3.9 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 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 proceedings of the board or committee.
Section 3.10 Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the board of directors, or any committee
designated by the board of directors, may participate in a meeting of the board
of directors, or any 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.
COMMITTEES OF DIRECTORS
Section 3.11 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, who
may replace any absent or disqualified member 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 provided in the resolution of the board of directors, 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 the 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 the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or
to authorize the issuance of stock. 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.
Section 3.12 Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 3.13 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 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.
REMOVAL OF DIRECTORS
Section 3.14 Unless otherwise restricted by the certificate of incorporation or
by law, any director or the entire board of directors may be removed, with or
without cause, by the holders of a majority of shares entitled to vote at an
election of directors.
ARTICLE IV
NOTICES
Section 4.1 Whenever, under the provisions of the statutes or of the
certificate of incorporation or of 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 by telegram.
Section 4.2 Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 5.1 The officers of the corporation shall be a chief executive officer,
a president, one or more vice presidents, a secretary, and a treasurer. The
corporation may also have, at the discretion of the board of directors, a
chairman of the board, one or more assistant vice presidents, assistant
secretaries, assistant treasurers, and any such other officers as may be
appointed in accordance with the provisions of Section 5.3 of these bylaws.
Any number of offices may be held by the same person.
Section 5.2 The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, one or more vice-presidents,
a secretary and a treasurer.
Section 5.3 The board of directors may appoint such other officers and
agents as it shall deem necessary who 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 5.4 The salaries of all officers and agents of the corporation shall be
fixed by the board of directors.
Section 5.5 The officers of the corporation shall hold office until their
successors are chosen and qualify. 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.
THE CHAIRMAN OF THE BOARD
Section 5.6 The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the Board of Directors and exercise and
perform such other powers and duties as may from time to time be assigned
to him by the Board of Directors or as may be prescribed by these Bylaws.
Unless otherwise determined by the Board of Directors, the chairman of the
board shall also be the chief executive officer of the corporation and shall
have the powers and duties prescribed in Section 5.7 of these Bylaws.
THE CHIEF EXECUTIVE OFFICER
Section 5.7 Subject to such supervisory powers as may be given by the Board
of Directors to the chairman of the board (if there be such an officer and the
Board of Directors has determined that he shall not be the chief executive
officer), the chief executive officer of the corporation shall, subject to the
control of the Board of Directors, have general supervision, direction
and control of the business and the officers of the corporation. He shall
preside at all meetings of the stockholders and, in the absence or nonexistence
of a chairman of the board, at all meetings of the Board of Directors. He
shall have the general powers and duties of management usually vested in the
chief executive officer of a corporation and shall have such other powers and
duties as may be prescribed by the Board of Directors or these Bylaws.
THE PRESIDENT
Section 5.8 In the absence or disability of the chief executive officer, the
president, if any, shall perform all the duties of the chief executive officer,
and when so acting shall have all the powers of, and be subject to all the
restrictions upon, the chief executive officer. The president shall have such
other powers and perform such other duties as from time to time may be
prescribed for him by the board of directors, these bylaws, the chief executive
officer (if the president is not also the chief executive officer) or the
chairman of the board.
THE VICE-PRESIDENTS
Section 5.9 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 directors, or in
the absence of any 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.
THE SECRETARY AND ASSISTANT SECRETARY
Section 5.10 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 meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. 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 5.11 The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, 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 shall perform
such other duties and have such other powers as the board of directors may
from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 5.12 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.
Section 5.13 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 president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 5.14 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 5.15 The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the board of directors (or if
there by no such determination, 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
CERTIFICATE OF STOCK
Section 6.1 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 chairman or
vice-chairman of the board of directors, or the president or a vice-president
and the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the corporation, certifying the number of shares owned by him in
the corporation. Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified. 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 qualification, limitations or restrictions of 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 that, except as otherwise provided in section 202 of the General
Corporation Law 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 statement that the
corporation will furnish without charge to each stockholder who so requests 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 of such preferences and/or rights.
Section 6.2 Any of or all 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.
LOST CERTIFICATES
Section 6.3 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 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 in such sum as it may direct as indemnity against any
claim that may be made against the corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 6.4 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.
FIXING RECORD DATE
Section 6.5 In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled 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 sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting: pro-
vided, however, that the board of directors may fix a new record date for the
adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6.6 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, and 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 laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 7.1 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 law.
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 7.2 Before payment of any dividend, there may be set aside out of
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.
ANNUAL STATEMENT
Section 7.3 The board of directors shall present at each annual meeting, and
at any special meeting of the stockholders when called for by a vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 7.4 All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 7.5 The fiscal year of the corporation shall be fixed by resolution of
the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words, "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7.6 The corporation shall indemnify its officers, directors, employees
and agents to the extent permitted by the General Corporation Law of
Delaware.
ARTICLE VIII
AMENDMENTS
Section 8.1 These by-laws may be altered, amended or repealed or new by-
laws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the board of directors by the certificate of
incorporation at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such special meeting. 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 the
stockholders to adopt, amend or repeal by-laws.
EXHIBIT 21.1
CONVEX COMPUTER CORPORATION
SUBSIDIARIES
Convex Computer Limited (United Kingdom)
Convex Computer Japan K.K. (Japan)
Convex Computer GmbH (Germany)
Convex S.A. (France)
Convex Computer Canada
Convex SpA (Italy)
Convex Computer B.V. (The Netherlands)
Convex Computer Pte. Ltd. (Singapore)
Convex Computer Pty Ltd. (Australia)
Convex Computer Barbados Ltd. (Barbados)
Convex Computer AG (Switzerland)
Convex International, Inc.
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG
INDEPENDENT AUDITORS
We consent to the incorporation by reference in (i) the Registration Statement
on Form S-8 (No. 33-49468) pertaining to the 1991 Stock Option Plan of Convex
Computer Corporation and (ii) the Registration Statement on Form S-8 (No. 33-
49470) pertaining to the 1986 Employee Stock Purchase Plan of Convex
Computer Corporation of our reports dated March 25, 1994, with respect to
the consolidated financial statements and schedules of Convex Computer
Corporation included in this Annual Report (Form 10-K) for the year ended
December 31, 1993.
ERNST & YOUNG
Dallas, Texas
March 25, 1994
