SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
________________________________________
(Mark One)
_X_ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal quarter ended: September 30, 1994 or
___ Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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
________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes___X___
No_______
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at October 31, 1994
Common Stock - $0.01 par value 26,327,122
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CONVEX COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
Assets 1994 1993
----------- ----------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 30,054 $ 43,094
Short-term investments 5,974 13,820
Receivables, net 40,390 60,145
Inventory 26,904 29,150
Current portion of long-term receivables 9,179 13,622
Prepaid expenses and other current assets 11,740 18,671
--------- ---------
Total current assets 124,241 178,502
--------- ---------
Fixed assets, net 32,461 38,910
Long-term receivables 17,790 20,566
Long-term investments 10,029 13,389
Other assets, net 4,535 2,909
--------- ---------
Total assets $ 189,056 $ 254,276
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 11,457 $ 13,529
Accrued payroll and related taxes 6,145 5,358
Current portion of notes payable 8,226 11,347
Deferred revenue 15,622 14,387
Other current liabilities 24,896 29,677
--------- ---------
Total current liabilities 66,346 74,298
--------- ---------
Long-term liabilities:
Notes payable 8,577 14,093
6% convertible subordinated debentures 53,500 53,500
--------- ---------
Total long-term liabilities 62,077 67,593
Shareholders' equity:
Preferred stock ($.01 par value); 5,000,000 shares authorized, -- --
and none outstanding
Common stock ($.01 par value); 40,000,000 shares authorized;
26,191,178 shares and 25,522,883 shares outstanding
in 1994 and 1993, respectively 262 255
Additional capital 151,659 148,973
Accumulated (deficit) (89,744) (33,283)
Cumulative translation adjustment (1,544) (3,560)
--------- ---------
Total shareholders' equity 60,633 112,385
--------- ---------
Total liabilities and shareholders' equity $ 189,056 $ 254,276
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
CONVEX COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1994 1993 1994 1993
--------- --------- --------- ----------
Revenue:
<S> <C> <C> <C> <C>
Product and other revenue $ 20,537 $ 25,199 $ 47,279 $ 95,571
Service revenue 15,906 17,787 52,610 51,588
--------- --------- --------- ----------
Total revenue 36,443 42,986 99,889 147,159
Costs and expenses:
Cost of product and other revenue 12,018 13,639 32,236 52,075
Cost of service revenue 9,565 11,899 34,283 35,729
Research and development 7,697 7,694 23,771 25,027
Selling, general and administrative 14,970 15,743 45,847 50,770
Restructuring and other charges -- -- 18,345 31,500
--------- --------- --------- ----------
Total costs and expenses 44,250 48,975 154,482 195,101
--------- --------- --------- ----------
Operating (loss) ( 7,807) ( 5,989) (54,593) (47,942)
Other income (expense), net (552) (291) (1,327) (1,688)
--------- --------- --------- ----------
Loss before provision (benefit)
for income taxes ( 8,359) ( 6,280) (55,920) (49,630)
Provision (benefit) for income taxes 427 -- 541 (1,575)
--------- --------- --------- ----------
Net (loss) $( 8,786) $( 6,280) $(56,461) $ (48,055)
========= ========= ========= ==========
Net (loss) per common and
common equivalent share $ ( .33) $ ( .25) $ (2.18) $ (1.91)
========= ========= ========= ==========
Weighted average number of common and common
equivalent shares outstanding 26,321 25,324 25,846 25,125
The accompanying notees are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
CONVEX COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
----------------------
1994 1993
Operating activities: --------- ---------
<S> <C> <C> <C>
Net income (loss) $(56,461) $(48,055)
Adjustments to reconcile net income to net cash (used for)
provided by operating activities:
Depreciation and amortization 13,483 19,336
Deferred income taxes 256 1,177
Foreign currency (gains) losses (629) 192
Changes in assets and liabilities:
Decrease in receivables 21,628 16,862
Decrease in inventory 2,502 5,856
Decrease (incease) in prepaid expenses and other current assets 8,164 (4,091)
Decrease in long-term receivables 7,428 7,715
Decrease in accounts payable (2,185) (10,430)
(Decrease) increase in income taxes payable (1,136) 305
(Decrease) increase in other current liabilities (3,710) 11,077
(Decrease) increase in deferred revenue (8) 1,395
--------- --------
Total adjustments 45,793 49,394
--------- --------
Net cash (used for) provided by operating activities (10,668) 1,339
--------- --------
Investing activities:
(Additions) to fixed assets, net (5,400) (9,879)
Decrease in short-term investments 7,846 9,377
Decrease in long-term investments 3,360 3,621
(Increase) in other assets (2,871) (968)
Foreign currency hedging activity (1,195) (178)
--------- --------
Net cash provided by investing activities 1,740 1,973
--------- --------
Financing activities:
Issuance of common stock under stock option and purchase plans, net 2,693 3,148
Proceeds from long-term debt 310 4,657
Principal payments on long-term debt (8,947) (10,021)
--------- --------
Net cash (used for) financing activities (5,944) (2,216)
--------- --------
Effect of exchange rate fluctuations on cash and cash equivalents 1,832 747
--------- --------
(Decrease) increase in cash and cash equivalents (13,040) 1,843
Cash and cash equivalents, beginning of period 43,094 52,599
--------- --------
Cash and cash equivalents, end of period $ 30,054 $ 54,442
========= ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
CONVEX COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation of Interim Financial Statements
The accompanying unaudited consolidated financial statements
of Convex Computer Corporation and subsidiaries (the "Company")
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information in
footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted pursuant to
those rules and regulations. However, the Company believes that
the disclosures contained herein are adequate to make the
information presented not misleading. It is suggested that these
financial statements be read in connection with the financial
statements and notes thereto included in the Company's most recent
annual report to shareholders.
While the financial information furnished is unaudited, the
financial statements included in this report reflect all
adjustments (consisting of normal, recurring adjustments except
those provided for during 1993 and 1994 as part of the
restructuring) which the Company considers necessary for a fair
presentation of the results of operations for the interim periods
covered and of the financial condition of the Company at the
interim balance sheet dates. In order to maintain consistency and
comparability between periods presented, certain amounts have been
reclassified from the previously reported 1993 financial
statements in order to conform to 1994 presentation.
Revenue Recognition
Product revenue is recognized at the time of shipment except in
those cases where (a) specified functional and performance
criteria cannot be factory tested or otherwise verified prior to
shipment, or (b) contract terms or funding contingencies would
render the earnings process not substantially complete. In cases
where revenue is deferred at the time of shipment, revenue will be
recognized when the product functionality can be verified or when
contract terms or funding contingencies are resolved.
Service revenue is recognized ratably over the term of each
maintenance contract or for other services as those services are
provided. For maintenance contracts, 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 the twelve month period.
Inventory
Inventory is recorded at the lower of cost (on a first-in,
first-out basis) or market. Cost includes purchased materials,
manufacturing labor and manufacturing overhead. Inventory
consists of the following (in thousands):
September 30, December 31,
1994 1993
-------- ---------
Raw material $15,243 $ 9,489
Work-in-process 2,061 5,044
Finished goods 9,600 14,617
--------- ---------
$26,904 $29,150
========= =========
Income Taxes
The provision for income taxes for the three months ended
September 30, 1994 is $427,000 on a pretax operating loss of
$8,359,000. There was no provision for the same period of 1993 on
a pretax operating loss of $6,280,000. The Company estimates that
it will have no tax benefit for the year from domestic operating
losses, but certain foreign subsidiaries with operating income
will have tax expense. The Company has unused foreign and
domestic net operating losses available to offset future income.
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 period. For
the periods presented, the computation of fully diluted earnings
per share resulted in no significant additional dilution. In
periods of net loss, common stock equivalents have been excluded
from the computation since the effect of their inclusion would be
anti-dilutive.
The number of shares used in the computation of primary
earnings per share is determined as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1994 1993 1994 1993
--------- --------- --------- --------
Weighted average
common shares
outstanding during
the period 26,321 25,324 25,846 25,125
Dilutive common share
equivalents related to
outstanding stock options -- -- -- --
--------- --------- --------- --------
Weighted average shares
used in computations 26,321 25,324 25,846 25,125
========= ========= ========= =========
Legal Proceedings
On August 1, 1994, the United States District Court for the
Northern District of Texas approved an agreement to settle the
consolidated class action lawsuit filed against the Company in
August 1991. The court's approval has become final and the period
to appeal the judgement has expired. In the third quarter of
1994, the Company paid $2.2 million to fund its share of claims
made under this agreement through the end of the claims period.
Restructuring and Other Charges
A summary of the Company's restructuring and other charges is
as follows (in millions):
1994 Quarters 1993 Quarters
Item 3rd 2nd 1st 4th 3rd 2nd 1st
- ---- --- --- --- --- --- --- ---
Severance and related
employee costs $ $2.1 $ $ $ $7.5 $
Fixed asset write-
downs/write-offs 2.9 7.0
Demo equipment write-
downs 1.6 0.7
Sales office closures 1.1
--- --- --- --- --- --- ---
Restructuring charges 0.0 6.6 0.0 0.0 0.0 16.3 0.0
C3 inventory write-
downs/write-offs 11.7 1.5 10.0
Unfavorable purchase
commitment 0.5 2.4
Long-term investments
write-downs 1.9
Class action litigation
settlement 2.5
Other 0.9
--- --- --- --- --- --- ---
Other charges 0.0 11.7 0.0 4.5 0.0 15.2 0.0
--- --- --- --- --- --- ---
RESTRUCTURING AND OTHER
CHARGES $0.0 $18.3 $0.0 $4.5 $0.0 $31.5 $0.0
==== ===== ==== ==== ==== ===== ====
The Company implemented restructuring actions in 1993 and
1994 primarily as a result of the substantial decline in order
rates and revenues of the Company's C3 product line. These
actions were designed to reduce operating costs and to increase
the efficiency of the Company's operations. These actions
included reductions of the Company's workforce and resulted in
payments to terminated employees for salaries and severance
benefits during the severance period and outplacement services.
Additionally, the restructuring actions resulted in write-downs of
certain of the Company's assets which were either obsolete or
lacked future utility to the Company. The fixed asset write-downs
included costs related to the retirement of fixed assets,
principally assets used in the assembly and test of both hardware
and software products for the C3 product lines, and charges to
accelerate the end of the depreciable lives of certain C3
production assets to mid-1994. In addition, the Company wrote-
down the carrying value of its C3 sales demonstration and
marketing equipment. The restructuring charges also included the
estimated costs of closing certain of the Company's sales offices
around the world in locations where the Company determined such
offices not to be economically justifiable in light of declines in
sales. These closing costs related primarily to the early
termination of leases and the disposal of the related office
equipment.
The Company recorded other charges aggregating $31.4 million
in 1993 and 1994. The majority of these charges related to the
write-downs of the carrying values of the Company's inventories.
The 1993 inventory write-downs related to C3 inventories held in
excess of manufacturing requirements due to the unusual and
dramatically reduced demand for this product line. The additional
write downs in 1994 were the result of the continued decline in
demand for C3 products below levels estimated in the second
quarter of 1993 and the resulting reductions in sales prices for
the entire C3 family of products.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Company reported revenues of $36 million in the third
quarter of 1994 and a net loss of $9 million. While customer
demand was below the levels of a year ago, product revenue grew $4
million over the level achieved in the second quarter of 1994.
With a higher contribution from new products, margins reached 41%
for the quarter, a 10 point improvement over the second quarter of
1994 and equal to the level achieved in the same quarter a year
ago. Excluding the restructuring and other charges, expenses were
down $1 million from the second quarter of 1993. While the
Company is encouraged by the sequential increase in revenue,
improving margins and lower expense levels, the Company
nonetheless experienced a large loss for the quarter.
Shipments of the C4600, the fourth generation C Series system
introduced in June of 1994, increased from one to five, including
a full-scale C4640. Unit shipments of the Company's new PA-RISC
based Exemplar systems, introduced in March of 1994, increased
approximately 50% over the second quarter of 1994. However, the
Company experienced a decline in service revenue due to lower
integration revenue from the data management business. The
Company expects to increase the level of shipments of the Exemplar
products in the fourth quarter of 1994, but has limited visibility
on both C4600 order closures and the ongoing level of integration
activity. As a result, the Company expects revenue for at least
the next quarter to remain below the level needed to achieve
break-even operating results.
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 addition, in the
high-performance technical marketplace, customers 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 throughout 1994 and
1995.
Cash and investments decreased $10 million in the third
quarter of 1994 to $40 million. The Company expects cash to
continue to decrease as a result of below break-even operating
results and the working capital requirements associated with the
anticipated increase in production of both the C4600 and the
Exemplar product families.
Revenue
Total revenue for the third quarter of 1994 was $36 million,
a 15% decrease from the $43 million reported for the third quarter
of 1993 and a 4% increase from the $35 million reported for the
second quarter of 1994, as shown in the table below:
Quarter ended
Revenue ($000,000) 9/30/94 9/30/93 6/30/94
------------------ ------- ------- -------
Product and Other 21 25 16
Service 16 18 19
Total 36 43 35
9/30/94 Quarter Revenue -
Percent change from quarter ended
---------------------------------
Product and Other Revenue - -18% 25%
Service Revenue - -11% -15%
Total Revenue - -15% 4%
Quarter ended
Unit Shipments 9/30/94 9/30/93 6/30/94
------------------ ------- ------- -------
C4600 5 - 1
C3800 - 6 1
C3400/3200 5 19 5
Meta Series 2 8 3
Exemplar SPP 17 - 11
The 18% decline in product revenue versus the third quarter
of 1993 and the 25% increase versus the previous quarter reflect
the shift from the C3 product lines to the new C4 and Exemplar
scalable parallel SPP products. The Company continues to
experience a high level of competition from workstations in the C3
series compute-server markets, and generally has not been able to
increase the revenue levels from new product shipments fast enough
to offset declining revenues from the C3 product lines. Product
revenues in the third quarter of 1994 did increase from the low
levels experienced in the first and second quarters of 1994, but
remain below the levels of a year ago.
The Company introduced the C4600, the fourth generation of
the C Series product line in June 1994. Initial customer
shipments were single processor systems and, during the third
quarter of 1994, all the initial customers were upgraded to
multiple processor configurations as previously planned.
Shipments during the third quarter included one full-scale, four
processor system. The C4600 uses high density gallium arsenide
technology, scales up to four processors, and is fully compatible
with all C Series software and peripherals.
Shipments of the Company's new PA-RISC based Exemplar SPP
increased approximately 50% over the second quarter of 1994. The
Exemplar product line is the Company's new scalable parallel
product, first announced and shipped in mid-March of this year.
Shipments of the Company's CD (Compact Design) model were first
made in the second quarter of 1994 and 11 of the 17 Exemplar SPP's
shipped in the third quarter of 1994 were CD models. While the XA
(Extended Architecture) model consists of eight processor
hypernodes, the CD models scale from two to sixteen processors and
both the smallest and the largest configurations were shipped in
the quarter. Larger configuration XA systems are planned for
shipment in the fourth quarter of 1994 based on the anticipated
completion of product enhancements which add scalability and
flexibility features.
Service revenue declined 11% in the third quarter of 1994
versus the same quarter in 1993 and was 15% below the second
quarter of 1994. The decrease in service revenue versus both the
second quarter of 1994 and the third quarter of 1993 is due to a
decline in the volume of systems integration business. Service
revenue includes both maintenance contracts as well as systems
integration revenue and accounted for 44% of the Company's total
revenue in the third quarter of 1994. 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 third party integration
components of both the data management business and the Meta
Series product line. The change in the service revenue across
these periods is primarily due to the fluctuations in the level of
systems integration business. 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 for
the balance of 1994 and through 1995, maintenance contract revenue
will show little or negative growth unless 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. While
the Company has introduced two new product families in 1994, the
Company expects customers to continue their conservative buying
habits and to link their commitments to the availability of full
product features and third party software availability, both of
which are expected to improve through the balance of 1994 and
early 1995.
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 results for the
third quarter of 1994 reflect revenue for five C4600 systems
including two delivered to customers in the second quarter of 1994
for which revenue was delayed until final product configurations
were achieved this quarter. For the Exemplar family, the Company
delivered 12 Exemplar SPP hypernodes to customers in the third
quarter of 1994 in addition to the 17 shown in the Unit Shipment
Table. Revenue on the shipments of these additional SPP nodes and
an additional 6 nodes delivered in the second quarter of this year
are dependent on product enhancements which are expected to be
available in the fourth quarter of 1994. The Company's future
financial performance will depend to a large degree on its ability
to complete these product enhancements and 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
Gross margins reached 41% of revenue in the third quarter of
1994 versus 41% in the third quarter of 1993 and 31% in the first
quarter of 1994. Margin on both product and service revenue
improved from the second quarter of 1994 although product margin
is still below the levels of the same quarter a year ago.
Quarter ended
Gross Margins % Revenue 9/30/94 9/30/93 6/30/94
----------------------- ------- ------- -------
Product Margin 41 46 27
Service Margin 40 33 33
Total Margin 41 41 31
Product margin improved to 41% in the third quarter of 1994
versus the 27% achieved in the second quarter of 1994 but is still
below the 46% achieved in the third quarter of 1993. Absorption
of fixed factory overhead has improved versus both prior periods
and start up costs for the Exemplar SPP product line have declined
versus the second quarter of 1994. Improvement in the Company's
product margin is dependent on two factors: market acceptance and
the general competitiveness of the new products and higher total
product volume which would improve fixed overhead absorption
compared to the third quarter.
Gross margin on the service business has improved versus both
prior periods. The increased margin is due to reductions in
service overhead expenses as a result of the recent restructuring
actions and due to a lower percentage of lower margin integration
business in the current quarter's results.
Expenses
Expenses for the third quarter of 1994 were $1 million below
the previous quarter, after adjusting for Restructuring and Other
charges. Expenses were also $1 million below the same quarter in
1993, with reductions coming from the S,G&A area. The Company
intends to tightly manage resources and overhead expense levels
through the balance of 1994. The restructuring actions taken in
July are intended to achieve a $12 million reduction in Company
expenses on an annual basis. The results of these actions will
reduce the expenses shown here as well as the expenses for service
and manufacturing.
Quarter ended
Expenses ($000,000) 9/30/94 9/30/93 6/30/94
- ------------------- ------- ------- -------
Research and Development 8 8 8
Selling, General and Administrative 15 16 15
Restructuring and Other - - 18
Quarter ended
Expenses % Revenue 9/30/94 9/30/93 6/30/94
- ------------------- ------- ------- -------
Research and Development 21 18 23
Selling, General and Administrative 41 37 44
Restructuring and Other - - 52
Research and Development
Research and development expenditures were $8 million in the
third quarter of 1994, the same as the third quarter of 1993 and
6% below the second quarter of 1994. These expenditures have
decreased as a percentage of revenue versus the second quarter of
this year but are still above the rate of a year ago. The Company
has achieved the aggressive goal of bringing two new product
families to market in the first half of 1994 and remains committed
to aggressive efforts to complete the enhancements needed to reach
full product capability on the Exemplar SPP family.
The Company's new scalable parallel Exemplar product family,
announced in mid-March and based on Hewlett-Packard Company's
PA-RISC technology, introduced 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. These efforts will continue throughout 1994 and
early 1995 as the development efforts for the top-end of the
product line are completed. 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.
In June the Company announced the C4600, the next generation
C Series. This generation is intended to replace the existing C3
Series products. The C4600 is compatible with existing C Series
products and delivers improved performance at approximately the
same prices as the existing products. Delivery of this product
line is dependent on the Company receiving a number of key leading
edge semiconductor components from its supplier. While the
Company believes that it will receive the necessary devices, there
can be no assurance that the supplier will be capable of
manufacturing these devices in quantities sufficient to allow the
Company to achieve volume production.
There are still significant technical and manufacturing
uncertainties involved in the Company successfully bringing these
new products to the market. There can be no assurance that the
Company's new 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 the third
quarter of 1994 were slightly below the expense level in the
second quarter of 1994 and $1 million below the third quarter of
1993. The $.5 million decrease from second quarter of 1994 is
approximately equal to the expected result of the restructuring
actions taken in 1994, after taking into account the higher
expenses incurred for product sales commissions and the increased
costs due to European currency rates. These expenses as a
percentage of revenue have decreased in the third quarter of 1994
versus the second quarter of 1994 but are still above the rate of
a year ago.
The Company believes the current selling resources are
sufficient to support the new products introduced in 1994. In
addition, in early October, Hewlett-Packard Company (HP) and the
Company announced a strategic worldwide agreement under which HP
will become a value-added reseller of the Company's Exemplar SPP
Systems and will resell the product family through its worldwide
sales force. It is expected that initial sales of the Exemplar
SPP systems to HP for resale to end-users will be made during
calendar year 1995. Implementation of the agreement between the
Company and HP is subject to definition of final manufacturing and
product quality assurance procedures for the Exemplar SPP and
documentation of various support agreements covering the Exemplar
SPP systems.
Restructuring and Other Expenses
The Company implemented restructuring actions in 1993 and
1994 primarily as a result of the substantial decline in order
rates and revenue in the C3 product line. The C3 product line,
launched in 1991, was the third generation of systems introduced
by the Company. The previous two generations had driven the
Company to grow at compounded rates exceeding 20% between 1984 and
1990. The C3 product family was expected to have a market life of
three to five years, but by the first half of 1993, 24 months
after introduction, the product line's order rates were in a
significant decline which continued through early 1994. The
Company believes the dramatic and unusual decline in C3 orders was
significantly impacted by the rapid emergence of RISC-based
workstation products. In addition, demand for C3 products was
adversely impacted by the significant reductions in expenditures
made by the U.S. government and related commercial companies in
light of the recent deep cutbacks in defense-related spending.
The restructuring actions were designed to reduce operating
costs and to increase the efficiency of the Company's operations
and reduce ongoing operating expenses to be in line with
anticipated future business levels. Specifically, the
restructuring actions implemented in July 1993 were designed to
lower the Company's break-even point by reducing annualized
operating costs by approximately $22 million and the second
quarter 1994 restructuring actions were designed to further reduce
annualized operating costs by $12 million. The anticipated
expense reductions include payroll, benefits and other
compensation related costs of approximately $16 million, $5
million of other people related costs, $7 million of depreciation
and amortization, $2 million of facilities and related costs, and
$4 million of other miscellaneous expense.
The following table summarizes, by category, the
restructuring and other charges and the subsequent changes in the
related accrual balances.
Asset Asset
6/30/93 Write- 9/30/93 Write- 12/31/93
Bal. Pmts offs Bal. Charge Pmts. offs Bal.
Severance
and Related
Employee
Cost $ 7.5 $-3.2 $ - $ 4.3 $ - $-1.5 $ - $ 2.8
Fixed Asset
Write-downs/
Write-offs 7.0 -7.0
Demo
Equipment
Write-down 0.7 -0.7
Sales
Office
Closures 1.1 1.1 1.1
---- ----- ----- ----- ---- ----- ---- ----
Restructuring
Charges 16.3 -3.2 -7.7 5.4 0.0 -1.5 0.0 3.9
C3 Inventory
Write-downs/
Write-offs 10.0 -10.0 1.5 -1.5
Unfavorable
Purchase
Commitment 2.4 2.4 0.5 2.9
Long-term
Investments
Write-downs 1.9 -1.9
Class Action
Litigation
Settlement 2.5 2.5
Other 0.9 -0.4 0.5 0.5
--- ---- ----- --- ---- --- ----- ----
Other
Charges 15.2 -0.4 -11.9 2.9 4.5 0.0 -1.5 5.9
RESTRUCTURING AND
OTHER
CHARGES $31.5 $-3.6 $-19.6 $8.3 $4.5 $-1.5 $-1.5 $9.8
===== ===== ====== ==== ==== ===== ===== =====
Asset Asset
12/31/93 Write-3/31/94 Write-6/30/94
Bal. Charge Pmts offs Bal. Charge Pmts. offs Bal.
Severance
and Related
Employee
Costs 2.8 -0.3 2.5 2.1 -1.0 3.6
Fixed Asset
Write-downs/
Write-offs 2.9 -2.9
Demo
Equipment
Write-downs 1.6 -1.6
Sales Office
Closures 1.1 -0.1 1.0 -0.1 0.9
--- --- ---- --- --- ---- ---- ---- ----
Restructuring
Charges 3.9 0.0 -0.4 0.0 3.5 6.6 -1.1 -4.5 4.5
C3 Inventory
Write-downs/
Write-offs 11.7 0.0 -11.3 0.4
Unfavorable
Purchase
Commitments 2.9 2.9 -1.8 1.1
Long-term
Investments
Write-downs
Class Action
Litigation
Settlement 2.5 2.5 2.5
Other 0.5 -0.2 0.3 0.3
--- --- ---- ---- ---- ---- ---- ---- ----
Other
Charges 5.9 0.0 -0.2 0.0 5.7 11.7 -1.8 -11.3 4.3
--- --- ---- ---- ---- ---- ---- ---- ----
RESTRUCTURING AND
OTHER
CHARGES 9.8 0.0 -0.6 0.0 9.2 18.3 -2.9 -15.8 8.8
==== === ==== === === ==== ==== ==== ===
Asset
6/30/94 Write- 9/30/94
Bal. Charge Pmts offs Bal.
Severance and
Related
Employee
Costs 3.6 -1.0 2.6
Fixed Asset
Write-downs/
Write-offs
Demo
Equipment
Write-downs
Sales Office
Closures 0.9 0.9
--- --- ---- --- ---
Restructuring
Charges 4.5 0.0 -1.0 0.0 3.5
C3 Inventory
Write-downs/
Write-offs 0.4 0.4
Unfavorable
Purchase
Commitments 1.1 -0.5 0.6
Long-term
Investments
Write-downs
Class Action
Litigation
Settlement 2.5 -2.2 0.3
Other 0.3 0.3
--- ---- ---- --- ---
Other
Charges 4.3 0.0 -2.7 0.0 1.6
--- ---- ---- --- ---
RESTRUCTURING
AND OTHER
CHARGES 8.8 0.0 -3.7 0.0 5.1
=== === ==== === ===
The Company provided $36 million of restructuring and other
charges in 1993, with $31.5 million of the total provided in the
second quarter of 1993. The charge was comprised of $7.5 million
for severance of approximately 185 employees in the North
America, Europe and the Asia Pacific regions. Payments for salary
and severance, benefits, and outplacement services aggregating
$4.7 million were made by the Company in 1993 resulting in a $2.8
million accrual for further severance and related payments at
December 31, 1993 related primarily to severance actions in
various foreign locations not completed until 1994 due, in part,
to statutory restrictions on the termination of employees. The
restructuring actions also resulted in the write-down of certain
of the Company's assets which were either obsolete or lacked
future utility to the Company. The fixed asset write-downs
included charges related to the retirement of fixed assets,
principally assets used in the assembly and test of both hardware
and software products for the C3 product line, and charges to
accelerate the end of the depreciable lives of certain C3
production assets to mid-1994. In addition, the Company
wrote-down the carrying value of its C3 sales demonstration and
marketing equipment. The restructuring charge also included the
estimated costs of closing certain of the Company's sales offices
around the world in locations where the Company determined such
offices not to be economically justifiable in light of declines in
sales. These closing costs related primarily to the early
termination of leases and the disposal of related office
equipment.
The second quarter 1993 charge also included $10 million for
the write-down of C3 inventory in excess of manufacturing
requirements as a result of the dramatically reduced demand for
the product line. The inventory write-down included provisions
for virtually all components used in the manufacture of the C3
product line and sole source items that were held as safety stock
to ensure an orderly production flow. Other charges were recorded
for $2.4 million to accrue the Company's obligations to a
third-party vendor related to manufacturing equipment deemed to
have no future utility to the Company. Additionally, long-term
investments aggregating $1.9 million were written-off based upon
the Company's determination that such assets were permanently
impaired.
In the fourth quarter of 1993, the Company recorded
additional restructuring and other charges to accrue expenses for
the settlement of the 1991 class action lawsuit and to increase
the provision taken for the write-down of C3 inventories based on
a continued reduction in projected demand for the C3 product line.
The class action settlement was paid in the third quarter of 1994.
The charge for restructuring and other expenses taken in the
second quarter of 1994 reflected the write-down of certain of the
Company's assets, primarily inventories and fixed assets. The
inventory write-downs of $11.7 million were the result of the
continued decline in demand for C3 products below levels
estimated in the second quarter of 1993 and the resulting
reductions in sales prices for the C3 family of products. The
fixed asset and sales demonstration equipment write-offs of $4.5
million were the result of the phase out of C3 production during
the second quarter as well as a significant reduction in the
development resources devoted to the C3 product family. The $18
million charge also included $2.1 million for additional severance
of approximately 65 employees in North America and Europe.
Severance payments of approximately $1 million were made in the
third quarter resulting in a recorded severance accruals at
September 30, 1994 of approximately $2.6 million related to
severance actions to be completed by year end.
The 1993 charges required cash expenditures of $17 million.
The 1994 charge required cash expenditures of approximately $3
million. Of the $20 million total amount, approximately $15
million has been spent as of the end of the third quarter of 1994.
The Company expects the remaining balance of $5 million to be
substantially expended by the end of 1994. The Company ended the
third quarter of 1994 with 872 employees, compared to 957
employees in the previous quarter and 1012 at the end of the third
quarter of 1993.
Other Income and Expense
Other expense for the third quarter of 1994 was $.6 million,
which is slightly higher than the expense levels in both the third
quarter of 1993 and the second quarter of 1994. This item
consists primarily of interest earned less interest expense
incurred. Interest income will continue to decline in line with
the decreasing cash and investment balances.
Income Taxes
The operating loss for the Company in the third quarter of
1994 is anticipated to result in no U.S. tax benefit in the
current year. The Company believes it may incur tax expenses in
various foreign subsidiaries which could result in a net tax
expense for the year. At September 30, 1994 the Company had
foreign and domestic operating loss carryforwards which are
available to offset future taxable income. The realization of the
tax benefits related to the loss carryforwards is dependent on the
future profitability of the Company and its foreign subsidiaries.
Liquidity and Capital Resources
During the third quarter of 1994 the Company's cash and
investments balance declined by $10 million. This follows a
decline of $8 million in the second quarter of 1994. The Company
made progress in reducing the utilization of current assets from
the rates reported in the second quarter of 1994, including a
reduction in receivable days from 111 to 100. The Company spent
$3 million during the quarter for fixed asset additions, somewhat
below the rate of expenditure in the first two quarters of 1994.
In addition, the Company retired $8 million of gross assets.
Total fixed asset additions for the first three quarters of 1994
were $13 million.
The Company's cash, cash equivalents and investment balances
totaled approximately $40 million at the end of the third quarter
of 1994, including $4 million reported as long-term investments.
With financial performance in the near term expected to be below
break-even, the Company expects cash balances to decrease. At
present, the Company does not have an established borrowing
facility. While the Company has discussed establishing such a
borrowing facility with several financial institutions, no
agreement or commitment presently exists. The Company may
experience liquidity problems if it is unable to significantly
reduce or eliminate the losses from operations in the near term,
if its activities to improve asset productivity prove unsuccessful
or if it is unable to establish a borrowing facility. In
addition, the Company may require additional working capital if
the Company were to experience significant revenue growth. There
can be no assurance that the Company will be able to obtain
sufficient additional funding or, if available, that such funding
would be on terms acceptable to the Company. The Company is
working to secure lines of credit or other funding sources in the
fourth quarter of 1994 to fund possible additional working capital
requirements that would result from higher than anticipated new
product revenues.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
EXHIBIT NO. DESCRIPTION
----------
- --------------------------------------------------------
3.1 Restated Certificate of Incorporation of the
Company.
10.2 Form of Severance Agreement entered into
between the Company and each of its officers
10.4 Consulting Agreement dated February 7, 1992
between the Company
and Sam K. Smith, a director.
10.8.1 Second Amendment to Lease Agreement dated
October 1991.
10.8.2 Third Amendment to Lease Agreement dated July
13, 1994.
b) Reports on Form 8-K
A report on Form 8-K was filed with the Securities and
Exchange Commission on October 10, 1994 with respect to an
agreement where Hewlett-Packard Company will become a value-added
reseller of the Company's Exemplar SPP systems.
No financial statements were filed with the Form 8-K. No
other reports on Form 8-K were filed by the Company during the
fiscal quarter ended September 30, 1994.
SIGNATURE
Pursuant to the requirements 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: J CAMERON MCMARTIN
J. Cameron McMartin
Chief Financial Officer and
Vice President, Finance
(Principal Finance and
Accounting Officer)
Dated: November 9, 1994
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
CONVEX COMPUTER CORPORATION
CONVEX COMPUTER CORPORATION, originally incorporated as
PARSEC SYSTEMS CORP., a corporation duly organized and existing
under the laws of the State of Delaware (the "Corporation"), does
hereby certify as follows:
FIRST: The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of
Delaware on September 8, 1982.
SECOND: This Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Section 245 of
the General Corporation Law of the State of Delaware by the Board
of Directors of the Corporation.
THIRD: This Restated Certificate of Incorporation only
restates and integrates and does not further amend the provisions
of the Corporation's Restated Certificate of Incorporation as
theretofore amended, and no discrepancy exists between those
provisions and the provisions of this Restated Certificate of
Incorporation.
FOURTH: The Certificate of Incorporation of this
Corporation is restated in its entirety to read as follows:
1. The name of the Corporation is CONVEX COMPUTER
CORPORATION.
2. The address of its registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address
is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware.
4. The total number of shares of stock which the Corporation
shall have authority to issue is forty-five million (45,000,000)
which shall be divided into two (2) classes as follows: forty
million (40,000,000) shares of Common Stock, par value One Cent
($0.01) per share, amounting in the aggregate to four hundred
thousand dollars ($400,000) ("Common Stock"), and five million
(5,000,000) shares of Preferred Stock, par value One Cent ($0.01)
per share, amounting in the aggregate to fifty thousand dollars
($50,000) ("Preferred Stock").
The designations and the powers, preferences and rights, and
the qualifications, limitations or restrictions thereof are as
follows:
The Preferred Stock may be issued from time to time in one or
more series pursuant to a resolution or resolutions providing for
such issue duly adopted by the Board of Directors (authority to do
so being hereby expressly vested in the Board) and such resolution
or resolutions shall also set forth voting powers, full or
limited, or none, of each such series of Preferred Stock and shall
fix the designations, preferences and relative participating,
optional or other special rights and qualifications, limitations,
or restrictions of each such series of Preferred Stock.
5. The Corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly
authorized to make, alter or repeal the by-laws of the
Corporation.
7. Elections of directors need not be by written ballot
unless the by-laws of the Corporation shall so provide.
Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the
Corporation may be kept (subject to any provision contained in the
statutes) outside the State of Delaware at such place or places as
may be designated from time to time by the board of directors or
in the by-laws of the Corporation.
8. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
9. (a) The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative, or investigative (other
than an action by or in the right of the Corporation) by reason of
the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit, or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the
best interest of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue, or
matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or
agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to
in subparagraphs (a) and (b), or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
(d) Any indemnification under subparagraphs (a) and (b)
(unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is
proper in the circumstances because he has met the applicable
standard of conduct set forth in subparagraphs (a) and (b). Such
determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel
in a written opinion, or (3) by the stockholders. Notwithstanding
the foregoing, a director, officer, employee or agent of the
Corporation shall be able to contest any determination that the
director, officer, employee or agent has not met the applicable
standard of conduct set forth in subparagraphs (a) and (b) by
petitioning a court of appropriate jurisdiction.
(e) Expenses incurred in defending or settling a civil or
criminal action, suit or proceeding by an individual who may be
entitled to indemnification pursuant to subparagraphs (a) and (b)
of this Article 9 shall be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as
authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the director, officer, employee or
agent to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as
authorized in this Article 9.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subparagraphs of
this Article shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may
be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office.
(g) The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under
the provisions of this Article 9.
(h) For purposes of this Article 9, references to "the
Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officer, and
employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article 9 with
respect to the resulting or surviving corporation as he would have
with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this Article 9, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in
good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to
in this Article 9.
(j) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article 9 shall, unless
otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and
administrators of such a person.
IN WITNESS WHEREOF, said CONVEX COMPUTER CORPORATION has
caused this Certificate to be signed by Robert J. Paluck, its
Chairman of the Board, and attested by Philip N. Cardman, its
Secretary, this 27th day of October, 1994.
CONVEX COMPUTER CORPORATION
By: /s/ Robert J. Paluck
Robert J. Paluck
Chairman of the Board
ATTEST:
By: /s/ Philip N. Cardman
Philip N. Cardman
Secretary
EXHIBIT 10.2
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT is entered into as of , 19
(the "Effective Date"), between CONVEX COMPUTER CORPORATION, a
Delaware corporation ("Convex") and
(the "Officer").
RECITAL
The Officer serves as Convex' . Convex and
the Officer desire to set forth the terms of the Officer's
compensation if his employment is ended as a result of a Change in
Control. If a Change in Control occurs, the Officer and other key
employees will be more vulnerable to dismissal without regard to
the quality of their service. Because key employees are in a
unique position to affect the efforts of third parties, the Board
of Directors (the "Board") believes that it is in the best
interests of Convex and its stockholders to ensure their fair
treatment and to reduce the adverse effects upon their performance
inherent in an acquisition or change in control.
AGREEMENT
The parties agree as follows:
1. Definitions. For purposes of this Agreement, the
following terms will have the meanings set forth below.
A "Change in Control" will occur if (a) any person, as
that term is used in Section 13(d) and 14(d)(2) of the Securities
and Exchange Act of 1934 (the "Exchange Act"), other than Convex,
is or becomes the beneficial owner, as defined in Rule 13(d)3
under the Exchange Act, directly or indirectly (including by
holding securities which are exercisable for or convertible into
shares of capital stock of Convex), of 50 percent or more of the
combined voting power of the outstanding shares of capital stock
of Convex entitled to vote generally in the election of directors
(calculated as provided in Rule 13(d) under the Exchange Act in
the case of rights to acquire capital stock), whether by means of
a tender offer or exchange offer, Transaction or otherwise; (b) a
Transaction is consummated; (c) Continuing Directors will at any
time during the term of this Agreement, for any reason including,
but not limited to, resignation, removal, death or disability of
any Continuing Director or an increase in the number of members of
the Board, fail to constitute a majority of the Board; or (d) a
majority of the Convex' Outside Directors determine that a Change
of Control has occurred.
"Compensation" of the Officer includes all wages, salary,
bonus and incentive compensation paid by Convex as consideration
for the Officer's service that are included in the gross income of
the Officer for federal income tax purposes, but excludes any
taxable income recognized upon the exercise of stock options or
disposition of shares acquired upon the exercise of stock options.
"Continuing Director" is (a) a member of the Board serving on
June 1, 1992; (b) a person thereafter elected by the stockholders
or appointed by the members of the Board who are serving on June
1, 1992; or (c) a person thereafter elected by the stockholders or
appointed by the Board whose election, appointment or
recommendation by the Board for election by Convex' stockholders
was approved by at least a majority of the Continuing Directors
then serving on the Board.
"Disability" means that the Officer, in the reasonable
judgment of the Board, is incapable of performing the duties of
his office by reason of illness or physical or mental disability,
where the condition has continued for a period of more than three
consecutive months.
"Good Reason" includes any of the following:
(a) the assignment to the Officer of duties inconsistent
with, or a substantial alteration in the nature or status of, the
Officer's responsibilities immediately before a Change in Control;
(b) a reduction in the Officer's salary or other benefits
as in effect on the date of a Change in Control;
(c) a relocation of Convex' principal executive offices
outside of Collin County, Texas;
(d) the Officer's relocation to any place other than the
principal offices of Convex, except for reasonably required travel
by the Officer on Convex' business;
(e) a breach by Convex of this Agreement, if the breach
has not been cured within 30 days after written notice by the
Officer to Convex setting forth with specificity the nature of the
breach; or
(f) a failure by Convex to obtain the assumption of this
Agreement by any successor or assign of Convex.
"Outside Director" is a person who is not, and who, during
the past six months was not, an employee or officer of Convex.
"Termination for Cause" is termination of the Officer's
employment as a result of (a) the Officer's willful dishonesty
towards, fraud upon, crime against or deliberate or attempted
injury or bad faith action with respect to Convex; or (b) the
Officer's conviction for a felony (whether in connection with
Convex' affairs or otherwise).
"Termination Upon a Change in Control" is (a) termination by
the Officer of his employment for Good Reason within two years
after the occurrence of a Change in Control; or (b) termination by
Convex of the Officer's employment within two years after the
occurrence of a Change in Control other than a Termination for
Cause or a termination resulting from his death or Disability.
A "Transaction" is (a) a consolidation or merger of Convex,
other than a merger solely to effect a reincorporation or a merger
as to which stockholder approval is not required under Sections
251(f) or 253 of the Delaware General Corporation Law; (b) a sale,
lease, exchange or other transfer (in one transaction or a series
of related transactions) of 50 percent or more of the assets of
Convex; or (c) the adoption of any plan or proposal for the
liquidation or dissolution of Convex.
2. Term. If no Change in Control has occurred, this
Agreement will expire five years from its Effective Date. This
Agreement will be automatically renewed for successive one-year
periods unless either party has given the other six months prior
written notice of its election not to renew. If a Change in
Control occurs, this Agreement will continue in effect, and will
not terminate, until the Officer has received the severance
compensation provided for below.
3. Termination Upon a Change in Control. If a Termination
Upon a Change in Control occurs, the Officer will immediately be
paid all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension plan or profit
sharing plan benefits, which will be paid in accordance with the
applicable plan), any benefits then due under any plans of Convex
in which the Officer is a participant, accrued vacation pay and
any appropriate business expenses incurred by the Officer in
connection with his duties, all to the date of termination
("Accrued Compensation"). The Officer will also be entitled to
the severance compensation described in Section 4.
4. Severance Compensation. If a Termination Upon a Change
in Control occurs, Convex will pay severance compensation to the
Officer in an aggregate amount equal to the Officer's Compensation
for a period of 12 months. This Compensation will be computed
with reference to the Compensation paid to the Officer for the
last full calendar month coinciding with or immediately preceding
the month in which the Change in Control occurs or the month in
which the Officer's employment terminates, whichever is higher.
Compensation as to any month will include one-twelfth of the
amount of any bonus or other lump sum compensation received by
Officer during the preceding 12 months and all amounts accrued
with respect to that month under any deferred compensation plan.
Severance compensation will be without prejudice to the Officer's
right to receive Accrued Compensation earned and unpaid up to the
time of termination. Severance compensation payments to the
Officer will, at Convex' sole option, be paid in a lump sum, or in
equal semimonthly installments for 12 months following the
termination.
5. Other Severance Provisions. In addition to the severance
payments described above, the Officer will receive 100 percent
Convex-paid health and life insurance in the same plans as
provided to the Officer immediately before the Termination Upon a
Change in Control. If the Officer's health insurance coverage
included the Officer's dependents, those dependents will also be
covered at Convex' expense. Coverage under this Section will
continue for 12 months after termination; provided, however, that
this continuation of coverage will end on the date the Officer
becomes covered under any other group health or life plan that is
not maintained by Convex.
6. Acceleration of Options. If a Termination Upon Change of
Control occurs, all stock option agreements will be amended to
provide that the stock options held by the Officer immediately
before the termination will become exercisable, even if the
vesting conditions set forth in those agreements have not been
satisfied in full, and will remain exercisable for a period of 12
months after the Termination Upon Change in Control and for a
period of 24 months if termination results from the Officer's
Disability.
7. Other Benefits. Neither this Agreement nor the severance
compensation that it provides for will reduce any amounts
otherwise payable, or in any way diminish the Officer's rights as
an employee of Convex, whether existing now or hereafter, under
any benefit, incentive, retirement, stock option, stock bonus or
stock purchase plan or under any employment agreement or other
plan or arrangement.
8. Employment Status. This Agreement does not constitute a
contract of employment. It does not impose on Convex any
obligation to retain the Officer as an employee, to change the
status of the Officer's employment or to change Convex' policies
regarding termination of employment.
9. Miscellaneous.
a. Severability. If a court or other body of competent
jurisdiction determines that any provision of this Agreement is
invalid or unenforceable, that provision will be adjusted rather
than voided, if possible, so that it is enforceable to the maximum
extent possible, and all other provisions of the Agreement will be
deemed valid and enforceable to the fullest extent possible.
b. Withholding. Compensation and benefits to the Officer
under this Agreement will be reduced by all federal, state, local
and other withholdings or similar taxes as required by applicable
law.
c. Arbitration. The parties will submit all
controversies, claims and matters of difference in any way related
to this Agreement, its performance or breach, to arbitration in
Dallas, Texas, according to the rules and practices of the
American Arbitration Association from time to time in effect. If
those rules and practices conflict with the Texas Rules of Civil
Procedure or any other provisions of Texas law, the Texas rules
and provisions will govern. Arbitration will be a condition
precedent to any legal action.
Awards will be final and binding on all parties to the extent
and in the manner provided by Texas law. Awards may be filed by
any party with the Clerk of the District Court in Collin County,
Texas, and an appropriate judgment entered and execution issued.
At the election of either party, the award may also be filed, and
judgment entered and execution issued, with the clerk of one or
more other courts, state or federal, having jurisdiction over the
party against whom the award is rendered or its property.
The arbitrators will allocate the costs of the arbitration in
such manner as they deem equitable. The arbitrators may require
the reimbursement of all or a portion of the reasonable legal fees
incurred by the prevailing party in the arbitration proceeding and
any legal proceedings which are taken to enforce the arbitral
award.
d. Entire Agreement: Modifications. This Agreement is
the entire agreement between the parties and may be amended,
modified, superseded or canceled, or its terms waived, only by a
written instrument executed by each party or, in the case of a
waiver, by the party waiving compliance. Failure of a party at
any time to require performance of any provision of this Agreement
will not affect the right at a latter time to enforce the same.
No waiver of a breach of this Agreement, whether by conduct or
otherwise, in any one or more instances will be construed as a
further or continuing waiver of the breach or of any other term of
this Agreement.
e. Applicable Law. This Agreement will be construed
under and governed by the laws of the State of Texas.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
, 19 .
CONVEX COMPUTER CORPORATION
By:
OFFICER
EXHIBIT 10.4
CONVEX COMPUTER CORPORATION
CONSULTING AGREEMENT
THIS AGREEMENT is made between CONVEX COMPUTER CORPORATION,
having offices at 3000 Waterview Parkway, Richardson, Texas 75080
("Convex"), and SAM K. SMITH, having offices at 6811 Midcrest,
Dallas, Texas 75240 ("Consultant").
1. ENGAGEMENT
In consideration of the mutual covenants set forth below,
Convex engages Consultant as an independent contractor, and
Consultant accepts this engagement, on the following terms and
conditions.
2. CONSULTATION
Consultant will serve as a consultant to Convex regarding
various aspects of Convex' business, all as described in Exhibit A
and directed by Convex ("Consulting Services"). While this
Agreement is in effect, Consultant will devote to Convex that
percentage of his working time and efforts as is set forth in
Exhibit A. Consulting Services will be at the general direction
of the individual listed on Exhibit A or as otherwise designated
by Convex may from time to time.
3. TERM
Unless earlier terminated, this Agreement will begin on the
date it is executed by Convex and will expire on the earlier of
the date the Consulting Services are completed or the date
specified in Exhibit A.
4. PAYMENT FOR SERVICES RENDERED.
While this Agreement is in effect, Convex will pay Consultant
the amounts, and according to the schedule, set forth in Exhibit
A. In addition, Convex will reimburse Consultant for all direct,
properly accounted, out-of-pocket business expenses, reasonably
incurred in the performance of his duties for Convex. In no event
will Convex be obligated to pay Consultant for services and/or
related expenses in excess of the Ceiling Dollar Amount specified
in Exhibit A.
5. CONSULTANT'S WARRANTIES.
Consultant warrants that (a) no one else has exclusive rights
to his services in the specific area or areas described in Exhibit
A, (b) by performing the Consulting Services he is not
compromising any rights or relationships of trust with another
party, creating a conflict of interest or creating the possibility
of either for himself or for Convex, and (c) all Consulting
Services will be performed in accordance with applicable Federal,
State and local laws. Consultant will promptly notify Convex of
potential conflicts of interest. Consultant will also indemnify
and hold Convex harmless from any claims caused by a breach of
these warranties.
6. PROPRIETARY INFORMATION.
During the course of the Consulting Services, Consultant may
be exposed to confidential information or trade secrets relating
to the business of Convex ("Proprietary Information"). Consultant
acknowledges that (a) the Proprietary Information is unique and
valuable to Convex, and (b) Convex would suffer irreparable injury
if it were divulged to third parties. Proprietary Information
covered by this Agreement will include, but will not be limited
to, information concerning inventions, processes, plans, devices,
compilations of information, technical data, mailing lists,
distribution methods, suppliers and customers, marketing
strategies and business plans of Convex.
While this Agreement is in effect, and thereafter, Consultant
will not, without the prior consent of Convex, either (a) directly
or indirectly disclose to anyone, except authorized personnel of
Convex, Proprietary Information that Consultant acquires (or to
which he has had access) until such time as the Information has
been publicly disclosed by Convex or has become a matter of common
knowledge, or (b) use Proprietary Information in any way except in
connection with the Consulting Services.
Within 48 hours after this Agreement has been terminated,
whether voluntary or involuntary, Consultant will deliver to
Convex all documents, records or other memorializations in his
possession or under his control that contain Proprietary
Information or that otherwise relate to Convex' business.
7. INVENTIONS.
Consultant will fully and promptly disclose to Convex, and
only to Convex, all ideas, methods, plans, improvements or
inventions of any kind, whether or not patentable ("Inventions"),
which are (a) made or discovered, in whole or in part, by
Consultant during the performance of the Consulting Services, or
(b) the result of any aid, support or assistance by Convex.
Consultant will also fully and promptly disclose to Convex,
and only to Convex, all Inventions which are otherwise created by
Consultant while this Agreement is in effect. After disclosure,
Consultant and Convex will jointly and reasonably determine the
extent, if any, to which Convex is properly entitled to rights in
the Invention. Only after a determination that Convex does not
have any rights in an Invention will Consultant disclose it to a
third party.
Consultant will promptly assign to Convex all right, title
and interest in or to any Invention that falls within the first
paragraph of this Section or in respect of which Convex is
determined to have rights under the second paragraph of this
Section. If requested to do so, Consultant will cooperate fully
with Convex to secure a patent, shop right or license in the
United States and/or any other country for an Invention. Nothing
in this Agreement will require an assignment otherwise prohibited
by law.
8. INDEMNITY.
Consultant will indemnify and hold Convex harmless from any
liability for injury or damage caused by Consultant to people or
property during the performance of this Agreement. Neither the
existence of, nor Convex' assent to, the types or limits of
insurance carried by Consultant will be deemed a waiver or release
of Consultant's liability or responsibility under this Agreement.
9. NATURE OF RELATIONSHIP.
Consultant is an independent contractor. Consultant will not
incur any obligations on Convex' behalf, or commit Convex in any
manner without Convex' prior consent. Consultant will be
responsible for the payment of all withholding, self-employment,
social security or other taxes attributable to amounts paid by
Convex under this Agreement.
Consultant is solely responsible for the control and
supervision of the means by which the Consulting Services are
completed. Supplies which, in the opinion of Consultant, may be
necessary to complete the Consulting Services are Consultant's
responsibility.
Consultant may not subcontract any part of the Consulting
Services without the prior consent of Convex.
10 TERMINATION.
Without prejudice to any rights or claims which Convex has by
reason of Consultant's default, Convex may terminate this
Agreement, in whole or in part and at its convenience, by notice
to Consultant. Termination will be effective in the manner and
upon the date specified in the notice. Aside from any continuing
work, Convex' sole obligation following of termination will be to
reimburse Consultant for services actually performed and expenses
actually incurred up to the effective date of termination.
Termination will not relieve Consultant of its continuing
obligations under this Agreement, particularly the requirements of
Sections 5, 6 and 7, each of which will survive the expiration or
earlier termination of this Agreement.
11. MISCELLANEOUS
This Agreement contains the total understanding between the
parties and supersedes all other agreements, understandings or
promises, written or oral, between them.
This Agreement may not be amended except by a written
agreement signed by both parties.
This Agreement and the rights and obligations it creates are
personal to Consultant and may not be assigned, transferred or
alienated.
This Agreement will be deemed to have been executed in Dallas
County, Texas, and the interpretation and construction of this
Agreement will be governed by the laws of the State of Texas.
All notices and consents given under this Agreement will be
in writing and will be deemed to have been duly given if delivered
by hand or mailed by certified mail, return receipt requested, to
the address indicated on Exhibit A. Either party may change the
address to which notices or consents will be sent by notice to the
other party.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
CONVEX COMPUTER CORPORATION SAM K. SMITH
By: /s/ John P. O'Loughlin Name:/s/ Sam K. Smith
Name: John P. O'Loughlin Date: 2-17-92
Title: Vice President - HR Social Security No.: ***********
Date: 02-07-92
CONSULTING AGREEMENT
Exhibit A
Consultant's Name and Notice Address:
Sam K. Smith
6811 Midcrest
Dallas, Texas 75240
Percentage of Time to be Spent on Convex Business:
Term of Agreement: Indefinite
Consulting Services to be rendered:
Compensation: $40,000 annually; payable /quarterly
Ceiling Dollar Amount:
Convex Representative and Notice Address:
CONVEX COMPUTER CORPORATION SAM K. SMITH
By: /s/ John P. O'Loughlin Name: /s/ Sam K. Smith
Name: John P. O'Loughlin Date: 2-17-92
Title: Vice President - HR Social Security No.: ***********
Date: 02-07-92
EXHIBIT 10.8.1
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT (the "Second
Amendment") is made and entered into this day of October,
1991 by and between CONVEX COMPUTER CORPORATION, a Delaware
corporation ("Lessee"), and CHAMANSYNERGY LIMITED PARTNERSHIP, an
Illinois limited partnership ("Lessor").
A. Lessee leases certain real property and related
improvements located in Richardson, Texas (the "Premises")
pursuant to the terms of that certain Lease Agreement by and
between Lessee and Synergy Park Associates No. 1 limited
Partnership, A Texas limited partnership ("Synergy Park
Associates"), executed by Lessee as of January 26, 1989 (the
"Initial Lease"), as affected by that certain Supplemental Lease
Agreement dated April, 1989 (the "First Supplemental Agreement"),
that certain Supplement to Lease Agreement dated May 3, 1989(the
"Second Supplemental Agreement"), that certain Third Supplement to
Lease Agreement dated August 21, 1989 (the "Third Supplemental
Agreement"), and that certain First Amendment to Lease Agreement
dated May 9, 1990 (the "First Amendment"). The Initial Lease, the
First Supplemental Agreement, the Second Supplemental Agreement,
the Third Supplemental Agreement, and the First Amendment are
sometimes collectively referred to herein as the "Lease".
Pursuant to that certain Assignment to Lease and Service Contracts
and Assumption Agreement dated June 5, 1989, Synergy Park
Associates assigned to Lessor all of its right, title and interest
in and to the Lease.
B. Lessor and Lessee desire to enter in to this Second
Amendment in order to correct the effective date for calculating
rental payments due under the Lease.
NOW THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Lessor and Lessee agree to amend
the Lease as follows:
1. All terms not otherwise defined herein shall have the
meaning ascribed to such term in the Lease.
2. Paragraph 3 is hereby amended by deleting the last
grammatical sentence thereof in its entirety and substituting the
following language therefor:
"Notwithstanding the foregoing, however, for purposes of
calculating rent pursuant to the terms of Paragraph 4.A. hereof,
this lease shall be deemed to have commenced on April 1,
1989."
3. Except as expressly amended by the terms of this Second
Amendment, the Lease is and remains unmodified and in full force
and effect.
4. This Second Amendment may be executed in any number of
counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be
an original and all of which when taken together shall constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Second
Amendments as of this date first written above.
LESSEE:
CONVEX COMPUTER CORPORATION,
a Delaware corporation
By: /s/ Terrence L. Rock
Its Vice President,
Operations
By: /s/ Jimmie L. Mayhew
Its Corporate Facilities
Manager
LESSOR:
CHAMANSYNERGY LIMITED
PARTNERSHIP, an Illinois
limited partnership
By: Chamantex Inc, a
Delware corporation, its
general partner
By: /s/ David F. Flynn
Its Attorney in Fact
EXHIBIT 10.8.2
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT (the "Third
Amendment" is made and entered into this 13th day of July, 1994 by
and between Convex Computer Corporation, a Delaware corporation
("Lessee") and AMBVEX, LTD., a Texas limited partnership
("Lessor").
A. Lessee leases certain real property and related
improvements located in Richardson, Texas (the "Premises")
pursuant to the terms of that certain Lease Agreement by and
between Lessee and Synergy Park Associates No. 1 Limited
Partnership, a Texas limited partnership ("Synergy Park
Associates"), executed by Lessee as of January 26, 1989 (the
"Initial Lease"), as affected by that certain Supplemental Lease
Agreement dated April, 1989 (the "First Supplemental Agreement"),
that certain Supplemental Lease Agreement dated May 3, 1989 (the
"Second Supplemental Agreement"), that Third Supplement to Lease
Agreement dated August 21, 1989, (the "Third Supplemental
Agreement"), that Fourth Supplement to Lease Agreement dated
October 30, 1990 (the "Fourth Supplemental Agreement"), that
certain First Amendment to Lease Agreement dated May 9, 1990 (the
"First Amendment"), and that certain Second Amendment to Lease
Agreement dated October 11, 1991 (the "Second Amendment"). The
Initial Lease, the First Supplemental Agreement, the Second
Supplemental Agreement, the Third Supplemental Agreement, the
Fourth Supplemental Agreement, the First Amendment and the Second
Amendment are incorporated herein by reference and are
collectively referred to herein as the "Lease." Pursuant to that
certain Assignment of Lease and Service Contracts and Assumption
Agreement dated June 5, 1989, Synergy Park Associates assigned to
Chamansynergy Limited Partnership all of its right, title and
interest in and to the Lease.
B. Pursuant to that certain Assignment of Lease and Service
Contracts and Assumption Agreement dated of even date herewith,
Chamansynergy Limited Partnership assigned to Lessor all of its
right, title and interest in and to the Lease.
C. Lessor and Lessee wish to enter into this Third Agreement
in order to accurately set forth the terms of their extension and
modification of the Lease.
NOW THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Lessor and Lessee have agreed and
do agree to amend the Lease as follows:
(1) Any term not otherwise defined herein shall have the
meaning ascribed to such term in the Lease.
(2) Paragraph 3.is hereby amended by deleting the last two
grammatical sentences thereof in their entirety and substituting
the following language therefor:
The term of this Lease shall commence on the date hereof and
shall end one hundred and twenty (120) months thereafter on July
31, 2004.
(3) Paragraph 4.A is hereby amended and restated in its
entirely as follows:
A. Each month during the term hereof, Lessee shall pay
Lessor, as rental for the Premises, in advance, without demand,
deduction or set off, the amounts set forth below (provided that
all rental payment due hereunder for any fractional calendar month
shall be prorated). The monthly rent for the premises shall be
1/12th of the product of (a) the total number of Rentable Square
Feet contained in the Buildings constructed no the Property and
(b) for the periods set forth in the following schedule,
commencing on August 1, 1994, the dollars per Rentable Square Feet
per year set forth in such schedule. As of the date hereof, the
Buildings on the Property contain 300,820 Rentable Square Feet.
SCHEDULE
Dollars Per Rentable
Months Square Foot Per Year
1 - 12 $ 9.63
13 - 36 $ 9.92
37 - 48 $10.22
49 - 60 $10.53
61 - 72 $10.84
73 - 84 $11.17
85 - 96 $11.50
97 - 108 $11.85
109 - 120 $12.20
(4) Paragraph 4.B of the Lease is hereby amended and
restated in its entirety as follows:
B. (1) Lessee agrees to deposit, as a security deposit,
with Lessor on the date hereof one or more irrevocable standby
letters of credit (the "Letter of Credit") issued by national
banking institutions acceptable to Lessor containing terms and
conditions acceptable to Lessor, in the aggregate amount of
$965,000. The Letter of Credit shall not expire earlier than one
hundred eighty (180) days after the expiration of the Lease term.
If, at least ninety (90) days prior to expiration of the Lease
term, Lessee shall replace the Letter of Credit with cash, Lessor
shall return the Letter of Credit to Lessee. Lessee shall be
deemed to be in default hereunder if Lessee fails to comply with
the foregoing terms and the Letter of Credit shall provide that
Lessor can draw against the full amount of the Letter of Credit at
such time.
(5) Except as expressly amended by the terms of this Third
Amendment, the Lease is and remains unmodified and in full force
and effect.
* * * * *
IN WITNESS WHEREOF, the parties have executed this Third
Amendment as of the date first written above.
LESSEE: LESSOR:
CONVEX COMPUTER CORPORATION, AMBVEX, LTD., A
Texas limited
a Delaware Corporation partnership
By: Mantax (America) Inc.,
a Delaware corporation,
its general partner
By: /s/ J. Cameron McMartin By: /s/ M. Brooks Savage
J. Cameron McMartin Name: M. Brooks Savage
Vice President--Finance Title: Secretary
Chief Financial Officer
SIGNATURE
Pursuant to the requirements 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: J. CAMERON MCMARTIN
---------------------------
J. Cameron McMartin
Chief Financial Officer and
Vice President, Finance
(Principal Finance and
Accounting Officer)
Dated: November 9, 1994
<PAGE>
