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, 1994 or
_________Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _______________ to ___________________
Commission file number : 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 whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X _ No____
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates
of the registrant as of March 6, 1995 was $122,883,239 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
executive 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 6, 1995, registrant had outstanding 26,687,496 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 11,
1995, (the "Proxy Statement").
PART I
ITEM 1. BUSINESS
GENERAL
Convex Computer Corporation ("Convex" or the "Company") was incorporated under
the laws of the State of Delaware on September 8, 1982. Its principal
corporate and administrative offices are located at 3000 Waterview Parkway,
Richardson, Texas 75080 (telephone 214/497-4000).
The Company designs, manufactures, markets and services high performance
computers for engineering, scientific and technical users. The Company's
current products include single and multiple processor scalar/vector systems
and multiple processor scalable parallel processing (SPP) systems and related
software. The price of these systems ranges from under $160,000 to more than
$10 million. During 1994, Convex introduced its fourth generation
scalar/vector supercomputer, the C4 series, and its first generation Exemplar
scalable parallel processing supercomputer, the SPP1000 series.
Since 1985, the Company has installed 1397 systems for 677 customers in 48
countries. During 1994, the Company shipped 107 systems, including 14 C4600
systems and 62 SPP1000 systems.
MARKETS AND CUSTOMERS
The Company's products are used by scientists, engineers and other technical
users to design and develop new products and structures, to simulate physical
and other phenomena, to perform advanced research, and to manage and analyze
the volumes of data generated or collected by modern computer networks. The
Company's products are used with third party applications software to analyze
and solve computationally intensive problems. For example, mechanical
computer-aided engineering (MCAE) applications, such as MSC/NASTRAN and ANSYS,
are used to perform structural analysis of automobile components and other
products. Researchers supplement traditional laboratory environments with
complex numerical simulations to advance the state-of-the-art in medicine,
environmental science, oceanography, chemistry and other fields. Government
and defense industry customers use the Company's products in a variety of
areas, including computational fluid dynamics, signal and image processing,
telemetry, cryptography, and pattern recognition. In the oil and gas
industry, Convex computers are used to process and interpret seismic data, to
analyze well logs and to model reservoir behavior.
Historically, the MCAE, general research, government/defense, and oil and gas
geophysical segments have represented approximately 26%, 21%, 18% and 15%,
respectively, of the Company's unit shipments. During 1994, these segments
represented approximately 18%, 48%, 6% and 13%, respectively, of the Company's
unit shipments. Data management applications are a growing market in which
the Company's products are integrated with high performance software and
peripherals, including RAID disk technology, tape robots, and multiple network
connections, to manage large volumes of data. Data management systems
accounted for approximately 7% of the Company's 1994 unit shipments.
The Company believes that the shift in unit shipments toward general research
has been, in part, the result of interest from universities and other early
adopters of technology in the architecture of the Company's Exemplar SPP
products. These early technology adopters include Ford Motor Company and
Lockheed Missiles and Space Company in the U.S.; NCHC in Taiwan; PROTEUS in
the U.K.; and SEKISUI in Japan. As the Exemplar product family and its
operating system mature, and the number of third party applications qualified
on and optimized for this platform grows, the Company expects the proportion
of commercial customers in relation to research customers to grow, although
there can be no assurance that this will occur.
The availability of third-party software applications is especially important
to most of the Company's customers. The Company believes that there are over
1,300 application software packages offered for use on its C Series systems,
many of which can be compatible with Exemplar systems. In addition, there are
thousands of application software packages offered for use on workstations
manufactured by Hewlett-Packard Company which the Company expects to be
compatible with Exemplar systems.
PRODUCTS AND SERVICES
Convex designs, manufactures, markets and services two principal families of
high performance computer systems: The Exemplar family of scalable parallel
processing (SPP) systems and the C Series family of vector/parallel
supercomputers. Exemplar systems provide a productive development and
computing environment that is easily integrated with other computing resources
through its distributed, scalable operating system which have a shared view of
distributed memory and its compatibility with Hewlett-Packard Company's HP-UX
operating system. Convex C Series supercomputers use 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. The price of Exemplar systems range from
under $160,000 to more than $10 million and the price of C Series systems
range from under $130,000 to more than $10 million.
In March 1994, Convex introduced its Exemplar family of SPP systems. The
Exemplar systems family is based on PA-RISC microprocessors, which are
available only from the Hewlett-Packard Company, and a hardware and operating
system architecture different from the Company's previous products. First and
second generation Exemplar SPP systems are planned to scale from 2 to 128
processors with scalable memory, input/output capability and operating system
features that are balanced with the processing capability of a specific
configuration. The Company delivered seven Exemplar SPP systems in March
1994, each of which had eight processors. Larger system configurations were
delivered throughout the year and, in the fourth quarter, the Company
delivered 27 systems configured with up to 32 processors. In 1995 the Company
may, depending on market demand, deliver larger configurations of first
generation Exemplar systems but there can be no assurance that this will
occur.
In 1995 the Company plans to introduce second generation Exemplar SPP products
which will be based on Hewlett-Packard's 7200 PA-RISC processor. The Company
expects to be able to deliver this new generation soon after Hewlett-Packard's
introduction of this new processor. However, there can be no assurance that
this processor will be available on a timely basis or in production quantities
or that the processor will perform at the expected level. In addition, there
can be no assurance that the Company will complete development of the second
generation of Exemplar products.
The operating system for Exemplar products is compatible with application
software written for Hewlett-Packard Company's PA-RISC-based workstation
products. However, the integration and performance tuning of the operating
system and these application programs is critical to the overall success of
the Exemplar product. During 1994, the Company introduced its sub-complex
manager, which allows customers to configure an Exemplar system's processors,
memory and I/O capabilities easily and dynamically, and PVM (parallel virtual
machine), an operating system feature important to scalability in certain
applications. In the fourth quarter, the Company introduced Globally Shared
Memory (GSM), an operating system feature unique to the Exemplar family that
could make these systems easier to use and configure than most competing
parallel systems. The Company plans to continue development on these and
other software features throughout 1995. However, while the Company believes
that its development efforts will be successful, there can be no assurance
that overall performance or stability of the new operating system will reach
satisfactory levels.
In June 1994, the Company introduced its fourth generation of C Series
scalar/vector supercomputers, the C4 family. The C4 family is intended to
replace, and is compatible with, the Company's previous supercomputer systems
and offers a variety of performance price points for its customers.
The Company continues to offer its C3 family of supercomputers for use with
certain applications and as part of its DataSeries data management systems.
The availability of third-party application software is often a critical
element of a customer's decision criteria when evaluating computer systems.
Accordingly, market acceptance of the Exemplar family and continued acceptance
of the C Series family is highly dependent on the availability of
third-party software applications, especially those that have been optimized
for the product. While the Company is working with several vendors to make
these applications available, there can be no assurance that the vendors will
undertake the necessary efforts or that the efforts, if undertaken, will yield
products that perform competitively on the Company's products.
Integration Service and Support. The Company integrates third party hardware
and software with its Exemplar and C Series systems for its DataSeries and
Meta Series customers. Approximately 29% of the Company's 1994 service
revenue was derived from integration products and services relating to Meta
Series and DataSeries systems. Service revenue declined 7% in 1994 to
approximately $68 million, primarily as a result of the transition from the
Meta Series product line to the Exemplar product line and the decision of a
major data management vendor to sell its products directly to customers,
rather than through the Company.
Convex maintains a direct service organization which has 47 offices located
around the world. The Company's hardware and software experts provide
telephone, remote diagnostic, and on-site support and service for customer
problems. The services provided by this organization include installation,
training, and preventative maintenance.
SALES AND DISTRIBUTION
Convex maintains direct sales offices in 14 countries, including the United
States, France, Germany, Japan, Taiwan, and the United Kingdom. In addition,
the Company has distribution arrangements with independent distributors and
other value added resellers in several countries, including France and Japan.
In October 1994, Hewlett-Packard Company announced its agreement to resell
Exemplar SPP products through its worldwide sales force.
The Company manufactures and ships its products as soon as practicable after
receipt of a purchase order. Accordingly, the Company generally does not have
a significant backlog and revenues in any quarter are substantially dependent
on orders booked in that quarter. In addition, 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 high performance computer business.
As a result, financial results may fluctuate from quarter to quarter depending
upon the timing of orders and shipments.
Agencies of the U.S. government collectively accounted for approximately 11%,
16% and 13% of the Company's total revenue in 1994, 1993 and 1992,
respectively. However, no single customer has accounted for more than 10% of
total revenues in any of the last five years.
MANUFACTURING AND QUALITY
The Company manufactures its products in Richardson, Texas. Whenever
practicable Convex uses standard off-the-shelf components available from
multiple vendors. Accordingly, the Company's manufacturing operations consist
primarily of assembly and test of sub-assemblies and final assembly of the
Company's products. During 1994, the Company's manufacturing facility was
certified to comply with ISO 9002, an international quality standard.
Certain components of the Company's products are currently available only from
a single or a limited number of sources. These components include the PA-RISC
microprocessor modules used in the Exemplar family, which are only available
from Hewlett-Packard Company, and custom gallium arsenide gate arrays designed
by Convex that are manufactured for C Series products by Vitesse Semiconductor
Corporation and for the Exemplar family by Fujitsu Microelectronics
Incorporated. The Company's ability to manufacture and ship its products to
meet customer demands requires that the Company receive sufficient quantities
of all these semiconductor devices.
In 1994, the Company successfully implemented processes to reduce inventory
and manufacturing cycle times. As a result, the Company has become more
dependent on timely delivery of sufficient quantities of semiconductor devices
and other components. While the Company believes that it will continue to
receive the necessary devices and other components, there can be no assurance
that the suppliers will be capable of delivering them in quantities sufficient
to allow the Company to meet production demands.
RESEARCH AND PRODUCT DEVELOPMENT
The Company's research and development programs are currently focused on
completing first generation Exemplar products and developing pre-production
models of second generation Exemplar products. A significant portion of these
programs is 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,
1994, 1993 and 1992, research and development expenses were $32 million, $33
million and $33 million, respectively.
COMPETITION
The high performance computer business is intensely competitive and
characterized by rapid technological advances in both hardware and software.
To maintain or improve its position in its markets, the Company must continue
to enhance its current products and develop new products in a timely fashion.
Convex competes on the basis of price, performance, ease of use and the
availability of third party application software.
The Company's current products are facing increasingly difficult competition.
The products competing with the Exemplar product line are based on processors
introduced more recently than those on which the first generation Exemplar
systems are based. As a result, the Company believes that introduction and
market acceptance of the second generation Exemplar products planned for 1995
are critical to the Company's future financial performance. The Company's
future financial performance is substantially dependent upon the timely
introduction of competitive microprocessors by the Hewlett-Packard Company,
the timely integration of such microprocessors into the Company's product
line, and the continued technical cooperation with Hewlett-Packard. There can
be no assurance that such processors will be introduced or successfully
incorporated into the Company's product line or that such cooperation will
continue.
The entire Convex product line competes with that of Cray Research, Inc. The
Company's Exemplar products also compete with IBM's SP2 product and Silicon
Graphics Inc.'s Power and Power Challenge products. Each of these competitors
has significantly greater financial, technical, sales, marketing and other
resources than the Company. The Company also competes against several vendors
who offer high-performance workstation and server products at relatively low
prices. Finally, computer companies are continually evaluating new
technologies, such as massively parallel architectures, which could be
targeted at Convex' markets.
The potential impact on the Company's business of new products from Cray, IBM,
SGI or others is not known. However, the introduction of new products by any
of these competitors could cause delays in customer orders as customers
evaluate the new product offerings before reaching a final purchase decision.
PROPRIETARY RIGHTS AND LICENSES
The Company has been issued numerous patents, has a number of patent
applications pending, and will continue to seek patent protection for its
inventions in both the United States and, when appropriate, other countries.
The Company also holds various trademark registrations in the United States
and in other countries. The Company will continue to seek protection for its
inventions, trademarks and copyrights where appropriate. However, 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 licenses a wide range of third-party software and other technology for
use by the Company and its customers. For example, the Company licenses, with
the right to sublicense, the UNIX operating system from Novell Incorporated.
Convex also licenses, with the right to sublicense, the HP-UX operating system
and certain compiler technology from Hewlett-Packard Company. In addition,
Convex and Hewlett-Packard have entered into a non-exclusive cross-license
covering certain of current and future computer-related products of each
company.
The Company's ability to compete may be affected by its ability to protect its
proprietary information and to obtain necessary licenses on commercially
reasonable terms. Intellectual property laws in the United States and other
countries have been evolving significantly in recent years, particularly as
they apply to software. As a result, the computer industry has seen a
substantial increase in litigation with respect to intellectual property
matters. There can be no assurance that the Company will not become involved
in such litigation in the future or that it would not have a material adverse
effect on the Company.
RELATIONSHIP WITH THE HEWLETT-PACKARD COMPANY
In March 1992 the Company entered into a series of technology and commercial
agreements with Hewlett-Packard Company pursuant to which the companies
cross-licensed certain core technologies. At that time, Hewlett-Packard
acquired approximately 5% of the Company's Common Stock. Under the terms of
the Stock Purchase Agreement, the companies agreed to meet in 1994 and again
in 1996 to discuss possible increases in ownership, although no right or
obligation to purchase additional shares was established. No additional
shares were purchased by Hewlett-Packard in 1994. Hewlett-Packard also has
the right under the Stock Purchase Agreement, in certain circumstances, to
acquire additional shares if the Company sells shares of Common Stock to third
parties and to designate one nominee for election to the Company's Board of
Directors. Finally, the Company granted HP certain registration rights.
Convex purchases key PA-RISC components for its Exemplar products from
Hewlett-Packard. The Company is substantially dependent upon the timely
availability and competitiveness of these components.
In October 1994, Hewlett-Packard announced its agreement to resell the
Exemplar product through its worldwide sales force although there can be no
assurance that this agreement will result in significant additional revenue
for the Company.
EMPLOYEES
As of December 31, 1994, the Company had approximately 857 full-time
employees, of whom 225 were employed in research and development, 423 in
sales, support and marketing, 132 in manufacturing and quality and 77 in
finance and administration. The Company's future success will depend, in
part, on its ability to continue to attract, retain and motivate highly
qualified technical, marketing and management personnel, who are in great
demand. None of the Company's employees is represented by a labor union and
Convex believes its employee relations to be good.
ITEM 2. PROPERTIES
The Company's corporate headquarters and its research and manufacturing
facilities are located in Richardson, Texas. This facility has approximately
300,000 square feet and is subject to a written lease expiring in 2004.
During 1994, the Company renegotiated the terms of the lease to reduce the net
expense to the Company, and acquired an indirect minority ownership position
in the facility. Land is available at this site to accommodate total office
and manufacturing space of over 500,000 square feet.
The Company also leases 47 sales and service offices in other locations
throughout North America, Europe and the Pacific Rim. The Company believes
that, while it currently has sufficient facilities to conduct its operations
during 1995, if necessary, the Company will add additional sales and service
offices as required.
ITEM 3. LEGAL PROCEEDINGS
In 1994 the Company settled the consolidated class action lawsuit filed
against the Company in August 1991. The court's approval of that settlement
has become final and the period to appeal the judgment has expired. The
Company included a charge for the $2.5 million estimated cost of settlement in
the 1993 results. In the third quarter, the Company paid $2.2 million to fund
its share of claims made under this agreement through the end of the claims
period. No additional payments are required in connection with the
settlement.
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 47 Chairman of the Board
and Chief Executive Officer
Steven J. Wallach 49 Senior Vice President, Technology; Director
Terrence L. Rock 48 President
James A. Balthazar 41 Vice President, Marketing
Matthew S. Blanton 54 Vice President, Advanced Development
Philip N. Cardman 47 Vice President, General Counsel
and Secretary
David W. Craig 50 Vice President, Finance
and Chief Financial Officer
Thomas M. Jones 48 Vice President, Data Management Systems
Daniel N. McQuay 50 Vice President, Manufacturing
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.
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.
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. In May 1993,
Mr. Rock was named President.
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.
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, a telecommunications equipment
company. In 1990, Vadis, Inc. filed a petition for liquidation under Chapter
11 of the United States Bankruptcy Code.
Mr. Cardman joined Convex in July 1989 as Vice President, General Counsel and
Secretary.
Mr. Craig joined Convex in November 1984. He has held a number of financial
roles, serving as Corporate Controller from 1989 to 1993, when he assumed the
position of Corporate Treasurer. He was named Vice President, Finance and
Chief Financial Officer in October 1994.
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, Data
Management Systems.
Mr. McQuay joined Convex in February 1984, as Material Operations Manager. In
April 1993, Mr. McQuay was named Vice President, Manufacturing.
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 table below presents the range of high and low prices for
the Common Stock for the period indicated. On December 31, 1994, there were
1,757 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.
1994 Quarters 1993 Quarters
4th 3rd 2nd 1st 4th 3rd 2nd 1st
Price range
per share
High $8 7/8 $8 1/2 $7 1/8 $7 5/8 $6 1/8 $5 7/8 $6 7/8 $8 5/8
Low $5 1/2 $5 1/4 $4 3/8 $5 3/8 $5 $3 5/8 $4 1/4 $5 1/4
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Financial Summary
(In thousands, except per share data)
Years Ended December 31,
1994 1993 1992 1991 1990
Operating data:
Revenue $144,180 $193,119 $231,819 $198,099 $209,327
Operating income (loss) (58,771) (60,861) 6,194 (8,977) 25,057
Income (loss) before
extraordinary credit (61,022)(2)(63,804)(1) 2,788 (6,891) 18,432
Net income (loss) (61,022)(2)(63,804)(1) 2,788 (6,891) 18,432
Income (loss) per share
before extraordinary
credit (2.35)(2) (2.53)(1) .11 (.31) .88
Net (loss) income
per share (2.35)(2) (2.53)(1) .11 (.31) .88
Shares used in computing
earnings per share 25,982 25,222 24,577 22,122 20,899
Balance sheet data :
Working capital 64,436 104,204 151,421 143,682 151,208
Total assets 186,190 254,276 312,194 272,648 266,992
Total long-term debt 63,178 67,593 71,076 63,757 64,433
Shareholders' equity $ 58,135 $112,385 $173,754 $145,925 $142,809
The accompanying notes to the consolidated financial statements and
Management's Discussion and Analysis should be read in conjunction with this
Five-Year Summary.
(1) Includes restructuring and other charges of $36 million.
(2) Includes restructuring and other charges of $18 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
During 1994, the Company introduced and shipped its first Exemplar scalable
parallel processing (SPP) systems and its first fourth generation C Series
scalar/vector system, the C4 supercomputer. Unit shipments and revenues for
both products increased from quarter to quarter after their introduction.
However, revenue from these new products has been insufficient to offset the
decline in revenue from older products.
Revenue in the first quarter of 1994 was dramatically below the rates achieved
in the last two quarters of 1993. Product revenue dropped from approximately
$25 million per quarter in the second half of 1993 to $10 million in the first
quarter of 1994. Product revenue improved throughout the year, rising to $28
million in the fourth quarter. Total revenue of $44 million in the fourth
quarter of 1994 was $2 million below the fourth quarter of 1993 due to
decreased integration revenues, but the Company is encouraged by the pattern
of sequential increases in revenue and margins experienced during the year.
Despite the improved fourth quarter results, however, the Company experienced
a loss for the quarter.
The Company continued a restructuring program in the second quarter to reduce
operating costs. Selling, general and administrative expenses, and research
and development expenses are 12% and 5%, respectively, below those of 1993.
At the end of 1994, the Company had 857 full-time employees, a 15% reduction
from the previous year.
In the fourth quarter, the Company introduced Globally Shared Memory (GSM), a
software feature unique to the Exemplar family, which would make the systems
easier to use and configure than most competing systems. The Company believes
that the availability of this feature will allow independent software vendors
to accelerate their efforts to port and optimize their applications for the
Exemplar family and will encourage customers to move to larger system
configurations. Also in the fourth quarter, Hewlett-Packard Company announced
its agreement to resell Exemplar products through its worldwide sales force.
Improved system capabilities and a new distribution channel for Exemplar
products increase the potential for financial performance improvements in
1995. However, the Company expects the first quarter of 1995 to be weak, with
revenue and profit levels at or below the levels achieved in the fourth
quarter of 1994. During the fourth quarter of 1994, the Company recognized
revenue that was deferred in previous quarters until certain product features
became available. Recognition of previously deferred revenue is not expected
to contribute significantly to the Company's first quarter results. The
Company also expects customers in the high performance technical marketplace
will continue to be faced with a wide array of technology choices, resulting
in delayed buying decisions, lengthened sales cycles and intense price
competition throughout 1995 and the foreseeable future.
The Company achieved improvements in working capital ratios by improving
receivables and inventory ratios and tightly controlling capital expenditures
for the year. This resulted in a cash and short term investment balance of
$40 million at the end of 1994, approximately equal to the third quarter
level.
RESULTS OF OPERATIONS
Revenue
For the year ended December 31, 1994, total revenue decreased 25% to $144
million after a 17% decrease to $193 million in 1993, as shown below.
Revenue ($000,000) 1994 1993 1992
Product and Other 76 120 178
Service 68 73 54
Total 144 193 232
Percent Change - Annual
Product and Other Revenue -37% -32% 12%
Service Revenue -7% 35% 37%
Total Revenue -25% -17% 17%
Unit Shipments
C3400 11 37 68
C3800 3 30 48
C4600 14 - -
Meta Series 11 37 2
Exemplar SPP 62 - -
The 37% decline in product revenue in 1994 is primarily due to decreased order
rates for the C3 product line. Revenue from C3 products peaked in 1992 and
has declined steeply through 1993 and 1994, as the Company experienced
increased competition from workstations and workstation clusters in the
compute-server markets and order delays from customers anticipating the
Company's new products and features. As anticipated, sales of Meta Series
products have declined sharply since the introduction of the Exemplar
products, which replace the Meta Series products, and are not expected to
recover.
Product revenue in the first quarter of 1994 was $10 million as compared to an
average of $25 million per quarter in the second half of 1993. The first
quarter results include revenue from the shipment of the first seven Exemplar
SPP systems. The Company expanded capabilities and added features to the
Exemplar family throughout 1994. In the second quarter, the Company
introduced and shipped the first Exemplar 1000-CD (Compact Design) models. In
the third and fourth quarters, respectively, the Company introduced two new
scalability features: PVM (Parallel Virtual Machine, a message passing
operating system feature) and GSM. The result has been an increase in both
the number of systems shipped each quarter (from 7 in the first quarter to 27
in the fourth quarter), and the average number of processors shipped per
system (from 8 in the first quarter, ranging up to 32 in the fourth quarter).
The C4 supercomputer was introduced in June 1994, and shipments increased to
eight units in the fourth quarter. The C4 product essentially replaces the
C3800 product by offering significantly better performance for its price. As
a result, no C3800s were sold in the second half of 1994. The average price
for a C4 system has been in excess of $1 million. Customer response to the C4
family has been encouraging, however, the Company had no order backlog for C4
systems at the end of 1994.
Service revenue decreased 7% in 1994 after a 35% increase in 1993 and a 37%
increase in 1992. Service revenue includes revenue from maintenance contracts
and systems integration. It now accounts for 47% of the Company's total
revenue. Systems integration revenue includes the integration components for
both the Data Management business and the Meta Series product line. The
growth in service revenue during 1993 and 1992 was attributable to the
increase in the systems integration business, with revenue from systems
integration of $8 million in 1992 and $23 million in 1993. In 1994 the
systems integration business declined to $20 million with the second half of
the year running at a $14 million annual rate. Part of this decline is
attributable to the replacement of the Meta Series product line with the
Exemplar product line. In addition, during 1994 a major data management
vendor chose to sell equipment directly, rather than through the Company. The
Company believes this will result in a decline in systems integration revenue
available for recognition without a corresponding increase in the number of
data management systems sold. The Company also believes that systems
integration revenue will fluctuate from quarter to quarter and will depend to
a large degree on the success of the Data Management business.
The Company's markets continue to be intensely competitive. The Company's
major competitors are shipping products based on processors introduced more
recently than those on which the Company's products are based. As a result,
the Company's products face intense competition on a price for performance
basis. To respond to this competition, Convex introduced the C4 family, which
contains an updated processor and other components, and plans to introduce a
second generation Exemplar SPP based on an updated PA-RISC microprocessor
during 1995. However, the Company expects to see continued pressure on its
products. Accordingly, the Company's future success depends to a substantial
extent upon the timely introduction of competitive PA-RISC microprocessors by
the Hewlett-Packard Company.
The Company believes that some customers, particularly government agencies and
research laboratories, have reduced their capital spending levels in response
to, or anticipation of, funding cutbacks. In addition, some customers have
delayed, and may continue to delay, purchases in anticipation of enhanced
functionality and improved price for performance that may become available
from newer products.
The Company manufactures and ships its products as soon as practicable after
receiving a purchase order, and generally does not maintain a significant
backlog. At the end of 1994, a few Exemplar systems had been delivered
without certain required system features for which some revenue has been
deferred. The Company expects these features to become available in the first
quarter of 1995, at which time deferred revenue will be recognized. 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 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 fell to 36% in 1994, down from 45% in 1993, and 50% in 1992.
The Company believes a number of factors accounted for the year-over-year
margin decline. Primarily, the recent introduction of the SPP product line,
new operating system capabilities and the availability of only early releases
of third-party codes have resulted in a high percentage of the systems being
sold to research organizations where pricing is very competitive. The
combination of new product start-up costs for the Exemplar and C4 products and
the absorption of fixed manufacturing costs over significantly lower unit
volumes during the first three quarters also added to the margin decline.
In the fourth quarter, with product revenue at $28 million, product margins
rose to 42%. The Company believes that its revenue rates and product margins
have recovered to the levels experienced in both the second half of and for
the year 1993, but there can be no assurance that this is the case.
Gross Margins % Revenue 1994 1993 1992
Product Margin 36% 45% 50%
Service Margin 36% 32% 37%
Total Margin 36% 40% 47%
Gross margin on service rose to 36% in 1994, an improvement from 32% in 1993,
and near the 37% achieved in 1992. Margins improved on both contract
maintenance and systems integration revenue. The Company's systems
integration business typically has lower margins than its maintenance
business; and it has fallen to approximately 29% of service revenues after
reaching approximately 32% in 1993 and 14% in 1992.
Expenses
Expenses for the Company are summarized in the table below.
Expenses ($000,000) 1994 1993 1992
Research and Development 32 33 33
Selling, General and Administrative 60 69 69
Restructuring and Other 18 36 -
Expenses - % Revenue 1994 1993 1992
Research and Development 22% 17% 14%
Selling, General and Administrative 42% 36% 30%
Restructuring and Other 13% 19% -
Research and Development
Research and development expenditures of $32 million in 1994 were down
slightly from 1993, although the decline in revenue increased these
expenditures as a percentage of revenue for the year. Fourth quarter research
and development expenditures were 18% of corresponding revenue. The Company
remains committed to aggressive efforts to bring additional product
capabilities to market in 1995, and therefore expects to maintain research and
development expenditures at approximately 1994 levels. However, some increase
in the amount of these expenditures may be necessary because the product
capabilities being developed are critical to the Company's competitiveness and
future financial results.
In 1994, the Company introduced both the fourth generation of C Series
supercomputers and the first generation Exemplar SPP computer family. The
Exemplar SPP is based on Hewlett-Packard Company's PA-RISC technology. The
Exemplar SPP includes both a completely new hardware platform and a completely
new family 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.
The Company plans to introduce additional scalability and flexibility features
for the Exemplar SPP in 1995, and to introduce new models incorporating new
PA-RISC processors. While the Company expects to introduce these new models
soon after the introduction of the new processors by the Hewlett-Packard
Company, there can be no assurance that this processor will be available on a
timely basis or in production quantities or that the processor will perform at
the expected level. In addition, there are still technical and manufacturing
uncertainties involved in bringing these new models and features to market.
There can be no assurance that the Company will be able to introduce these
models or features or that these models or features, once introduced, will
gain market acceptance.
Both the C4 and the Exemplar SPP use leading edge semiconductor devices. The
Company currently has only one source for certain key components. The
Company's ability to manufacture these products in production quantities will
require that the Company receive sufficient quantities of those semiconductor
devices from its vendors. There can be no assurance that the Company will
receive sufficient quantities of these devices.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 1994 were $9 million below
the 1993 level, although the decline in revenue increased these expenditures
as a percentage of revenue for the year. Fourth quarter selling, general and
administrative expenditures were 33% of corresponding revenue. The Company
implemented restructuring actions in 1993, and again in 1994, to reduce these
expenses. The Company believes the current selling resources will be
necessary to support the product sales planned for 1995, but the Company
continues to focus on tight expense management.
Restructuring and Other Charges
The Company implemented restructuring actions in 1993, and again in 1994,
primarily in response to 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 scalar/vector systems introduced by the Company. The C3 was
expected to have a market life of three to five years, but by the first half
of 1993, 24 months after introduction, order rates were in a significant
decline. This continued through early 1994. The Company believes the
dramatic and unusual decline in C3 product 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 deep cutbacks in defense-related spending.
The restructuring actions were designed to reduce operating costs, to increase
the efficiency of the Company s operations, and to align operating expenses
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. The second quarter 1994 restructuring actions were designed to
further reduce annualized operating costs by approximately $12 million. The
expense reductions included payroll, benefits and other compensation-related
costs of approximately $16 million, $5 million of other personnel-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
1993 Write- 12/31/93 1994 Write- 12/31/94
Charge Pmts offs Bal. Charge Pmts offs Bal.
Severance and Related
Employee Costs $ 7.5 $-4.7 $ - $ 2.8 $ 2.1 $-3.2 $ - $ 1.7
Fixed Asset
Write-downs/Write-offs 7.0 -7.0 2.9 -2.9
Demo Equipment
Write-downs 0.7 -0.7 1.6 -1.6
Sales Office Closures 1.1 1.1 -0.6 0.5
Restructuring Charges 16.3 -4.7 -7.7 3.9 6.6 -3.8 4.5 2.2
C3 Inventory
Write-downs/Write-offs 11.5 -11.5 11.7 -11.3 0.4
Unfavorable Purchase
Commitment 2.9 2.9 -2.9
Long-term Investment
Write-downs 1.9 -1.9
Class Action Litigation
Settlement 2.5 2.5 -2.2 0.3
Other 0.9 -0.4 0.5 -.2 0.3
Other Charges 19.7 -0.4 -13.4 5.9 11.7 -5.3-11.3 1.0
RESTRUCTURING AND
OTHER CHARGES $36.0 -5.1 -21.1 9.8 18.3 -9.1-15.8 3.2
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 and
$4.5 million in the fourth quarter of 1993. The $36 million charge was
comprised of $7.5 million for severance expenses associated with terminating
approximately 185 employees in 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. This
resulted in a $2.8 million accrual for further severance and related payments
at December 31, 1993. The accrual primarily involved termination 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 that offices were not 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 1993 charge also included $11.5 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 items also included a $2.9 million charge to
accrue for the Company s obligations to a third-party vendor related to
manufacturing equipment deemed to have no future utility to the Company.
Long-term investments aggregating $1.9 million were written-off based upon the
Company s determination that such assets were permanently impaired, and
additionally, the Company recorded other charges to accrue expenses for the
settlement of the 1991 class action lawsuit. The class action settlement was
paid in the third quarter of 1994.
The $18 million 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 1993 and the resulting reductions in sales
prices for C3 products. The fixed asset and 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. The charge also included
$2.1 million for additional severance related to the termination of
approximately 65 employees in North America and Europe. Severance payments of
approximately $0.9 million were made in the fourth quarter of 1994 resulting
in $3.2 million in severance payments for the year and recorded severance
accruals at December 31, 1994 of approximately $1.7 million. The Company
ended 1994 with 857 employees, 149 fewer than the 1006 at the end of 1993.
The 1993 restructuring charges required cash expenditures of $17 million. The
1994 restructuring charge required cash expenditures of approximately $3
million. Of the $20 million total amount, approximately $17 million has been
spent as of the end of 1994. The Company expects the remaining balance of $3
million to be substantially expended in early 1995.
Other Income and Expense
Other income and expense for 1994 was unchanged from the previous year at $2
million. This item consists of interest earned less interest expenses
incurred and certain costs associated with implementing the Company's foreign
currency hedging program.
Income Taxes
The operating loss for the Company in 1994 resulted in no U.S. tax benefit in
the current year. Tax expenses were incurred in various foreign subsidiaries,
with a net result of a $0.6 million tax expense for the year. At December 31,
1994 the Company had operating loss carryforwards in the U.S. and various
foreign subsidiaries which are available to offset future taxable income. The
realization of the tax benefits related to the operating loss 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
Convex experienced a $40 million decline in working capital in 1994 following
a $47 million decline in working capital in 1993. The primary reason for the
decrease in both years is the net loss of $61 million in 1994 and $64 million
in 1993.
Capital expenditures for 1994 were approximately $14 million, $3 million
higher than 1993, but down from $18 million in 1992. The Company believes
capital requirements in 1995 will be equal to or less than the capital
expenditures in 1994.
The Company's cash, cash equivalents and short-term investment balances
totaled approximately $40 million at the end of 1994. The Company has focused
on cash conservation throughout 1994. Receivables days outstanding have
decreased from 118 to 91 days. Inventory turns on revenue have increased from
6.3 to 7.5 after dropping to 3.6 at the end of the first quarter of 1994 due
to low revenue and new product inventory buildups. The Company used
approximately $10 million in cash in each of the first three quarters of 1994,
but used no cash in the fourth quarter on an $8 million increase in revenue.
With the improvements in working capital ratios, the Company believes its
current capital resources will be sufficient to meet its cash requirements for
at least the next twelve months. However, with financial performance in the
first half of 1995 expected to be below break-even, and with potential growth
in revenues in the second half of 1995, the Company expects cash balances to
decrease.
The Company will continue to pursue improvements in working capital ratios in
1995 as a high priority. 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
experiences significant revenue growth over current levels. 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 to fund possible additional working capital requirements that
would result from higher than anticipated revenues.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets
(In thousands, except share data)
December 31,
1994 1993
Assets
Current assets:
Cash and cash equivalents $34,422 $43,094
Short-term investments 5,194 13,820
Receivables, net of allowances
of $6,693 and $7,517 in 1994
and 1993, respectively 44,922 60,145
Current portion of long-term receivables 13,122 13,622
Inventory 23,655 29,150
Income taxes receivable 1,160 7,913
Prepaid expenses and other current assets 6,838 10,758
Total current assets 129,313 178,502
Fixed assets, net 29,433 38,910
Long-term receivables 16,594 20,566
Long-term investments 6,373 13,389
Other assets, net of accumulated amortization
of $5,175 and $4,694 in 1994
and 1993, respectively 4,477 2,909
Total assets $186,190 $254,276
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $10,547 $13,529
Accrued payroll and related taxes 4,327 5,358
Income taxes payable 693 1,983
Current portion of notes payable 9,884 11,347
Deferred revenue 14,207 14,387
Other current liabilities 25,219 27,694
Total current liabilities 64,877 74,298
Long-term liabilities:
Notes payable 9,678 14,093
6% convertible subordinated debentures 53,500 53,500
Total long-term liabilities 63,178 67,593
Contingencies and commitments -- --
Shareholders' equity:
Preferred stock ($.01 par value); 5,000,000 -- --
shares authorized; none outstanding
Common stock ($.01 par value); 40,000,000
shares authorized; 26,533,485 shares
and 25,522,883 shares outstanding in
1994 and 1993, respectively 265 255
Additional capital 153,574 148,973
Accumulated earnings (deficit) (94,305) (33,283)
Cumulative translation adjustment (1,399) (3,560)
Total shareholders' equity 58,135 112,385
Total liabilities and
shareholders' equity $186,190 $254,276
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Operations
(In thousands, except per share data)
Years Ended December 31,
1994 1993 1992
Revenue:
Product and other revenue $ 75,734 $120,297 $177,860
Service revenue 68,446 72,822 53,959
Total revenue 144,180 193,119 231,819
Costs and expenses:
Cost of product and other revenue 48,754 65,931 89,569
Cost of service revenue 43,793 49,819 33,981
Research and development 31,626 33,237 33,197
Selling, general and administrative 60,433 68,993 68,878
Restructuring and other charges 18,345 36,000 --
Total costs and expenses 202,951 253,980 225,625
Operating (loss) income (58,771) (60,861) 6,194
Other expense, net (1,693) (2,127) (2,092)
(Loss) income before provision
for income taxes (60,464) (62,988) 4,102
Provision for income taxes 558 816 1,314
Net (loss) income $ (61,022) $(63,804) $ 2,788
Earnings per common and
common equivalent share $ (2.35) $ (2.53) $ .11
Weighted average number of common and
common equivalent shares outstanding 25,982 25,222 24,577
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Shareholders' Equity
(In thousands)
Accumulated Cumulative
Common Additional Earnings Translation
Stock Capital (Deficit) Adjustment Total
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
Net loss -- -- (61,022) -- (61,022)
Common stock issued under
stock option and purchase
plans, net of repurchases 10 4,601 -- -- 4,611
Foreign currency translation -- -- -- 2,161 2,161
Balance at December 31, 1994 $ 265 $153,574 $(94,305) $(1,399) $58,135
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
1994 1993 1992
Operating activities:
Net (loss) income $(61,022) $(63,804) $ 2,788
Adjustments to reconcile net (loss)
income to net cash (used for)
provided by operating activities:
Depreciation and amortization 20,833 21,192 15,326
Deferred income taxes -- 2,455 (372)
Foreign currency losses 292 101 371
Changes in assets and liabilities:
Decrease (increase) in receivables 16,734 8,773 (6,596)
Decrease in inventory 7,973 9,076 791
Decrease (increase) in prepaid
expenses and other current assets 11,661 (3,574) (2,325)
Decrease (increase) in
long-term receivables 4,546 8,150 (13,104)
(Increase) decrease
in accounts payable (3,122) (4,272) 5,554
(Decrease) increase in income
taxes payable (1,290) 1,499 379
(Decrease) increase in other
current liabilities (2,037) 7,641 (1,952)
(Decrease) increase in
deferred revenue (1,367) 1,501 (28)
Total adjustments 54,223 52,542 (1,956)
Net cash (used for) provided by
operating activities (6,799) (11,262) 832
Investing activities:
(Additions) to fixed assets, net (13,531) (10,591) (17,731)
Decrease (increase) in
short-term investments 8,626 11,755 (16,941)
Decrease (increase) in
long-term investments 7,016 2,304 (15,693)
Increase in other assets (3,472) (1,668) (754)
Foreign currency hedging activity (1,060) 514 1,299
Net cash (used for) provided by
investing activities (2,421) 2,314 (49,820)
Financing activities:
Proceeds from private placement
of common stock, net -- -- 18,056
Issuance of common stock under stock
option and purchase plans, net 4,611 3,187 6,851
Proceeds from long-term debt 5,789 9,909 21,980
Principal payments on long-term debt (11,666) (13,368) (11,050)
Tax benefits realized from
stock transactions -- 61 1,247
Net cash (used for) provided by
financing activities (1,266) (211) 37,084
Effect of exchange rate fluctuations on
cash and cash equivalents 1,814 (346) (651)
(Decrease) in cash and cash equivalents (8,672) (9,505) (12,555)
Cash and cash equivalents,
beginning of year 43,094 52,599 65,154
Cash and cash equivalents, end of year $ 34,422 $ 43,094 $52,599
Supplemental disclosures of cash flow
information:
Cash paid (received) during the year for:
Interest $ 4,935 $ 6,299 $ 8,045
Income taxes, net of refunds $(4,953) $ (939) $ 808
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to Consolidated Financial Statements
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.
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.
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 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 at the end of 1994 consists of an indirect minority ownership the
Company has in its headquarters building in Richardson, Texas. In 1992 and
1993, the majority of the long-term portfolio consisted of mortgage-backed
securities either issued or guaranteed by the United States government or by
its agencies.
Interest income for the years ended December 31, 1994, 1993, and 1992 was
$3,321,000, $4,464,000, and $5,899,000, 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 up to seven
years for certain purchased software. Fixed assets include the following (in
thousands):
1994 1993
Equipment $ 98,726 $ 98,668
Furniture and fixtures 15,369 14,997
Purchased software 10,062 9,566
124,157 123,231
Less accumulated depreciation (94,724) (84,321)
$ 29,433 $ 38,910
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):
1994 1993
Raw material $ 10,119 $ 9,489
Work-in-process 2,957 5,044
Finished goods 10,579 14,617
$ 23,655 $ 29,150
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, 1994 and 1993 were as follows (in thousands):
1994 1993
Future minimum lease payments $31,429 $ 36,921
Unearned interest income (1,713) (2,733)
29,716 34,188
Less current portion (13,122) (13,622)
Long-term receivables $ 16,594 $ 20,566
As of December 31, 1994, future minimum lease payments from lease receivables
are as follows (in thousands): $13,789 in 1995, $8,497 in 1996, $4,861 in
1997, $2,079 in 1998, $1,698 in 1999, and $505 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, 1994 and 1993 were
$2,990,000 and $1,809,000, respectively. Amortization expense for 1994 and
1993 was $1,633,000 and $1,431,000, 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, 1994, the Company had contracts with major banks
maturing on February 2, 1995 in the notional amount of $14,160,000 for which
the contract purchase rates approximate 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, 1994, 1993 and 1992 is determined as follows (in
thousands):
1994 1993 1992
Weighted average common shares
outstanding during the year 25,982 25,222 24,138
Dilutive common share equivalents
related to outstanding stock options -- -- 439
Weighted average shares used in
computation 25,982 25,222 24,577
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, 1994 were approximately $19,561,502 at an interest rate of
approximately 8.0% which approximates current market rates. Outstanding
borrowings at December 31, 1993 were approximately $25,440,000 at an interest
rate of approximately 7.0%.
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 30, 1994 had an approximate fair value of
$33,170,000. 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: $9,884,000 in 1995,
$6,745,000 in 1996, $2,694,000 in 1997, $2,914,000 in 1998, and $2,675,000 in
1999.
Interest expense for the years ended December 31, 1994, 1993 and 1992 was
$4,935,000, $6,298,000, and $7,933,000, 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):
1995 $ 6,038
1996 5,413
1997 4,070
1998 3,458
1999 3,270
Later years 17,329
Total $39,578
Total rental expense was $7,348,000 in 1994, $7,107,000 in 1993 and $7,314,000
in 1992.
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." The effects of adopting Statement 109
were not material.
The provision (benefit) for income taxes for the years ended December 31,
1994, 1993 and 1992 consists of the following (in thousands):
1994 1993 1992
Current
State $ 2 $ (61) $ 152
Federal -- (3,180) 1,579
Foreign 556 1,602 (45)
558 (1,639) 1,686
Deferred
Federal -- 2,379 (216)
Foreign -- 76 (156)
-- 2,455 (372)
Total $ 558 $ 816 $ 1,314
The foreign provision for income taxes is based upon net foreign pretax losses
of $4,417,000, $1,079,000 and $3,453,000 in 1994, 1993, and 1992,
respectively.
The significant components of deferred tax assets and liabilities included on
the balance sheet at December 31, 1994, 1993 and 1992 are as follows (in
thousands):
1994 1993 1992
Revenue recognition differences $(6,165) $(9,492) $(12,285)
Other (1,586) (1,567) (1,167)
Gross deferred tax liabilities (7,751) (11,059) (13,452)
Fixed assets 5,384 5,613 3,449
Inventory valuation 637 6,108 3,515
Other accrued expenses 7,510 6,274 2,551
Tax credits 7,540 7,540 5,395
Foreign loss carryforwards 5,170 3,552 4,866
Domestic loss carryforwards 22,681 -- --
Gross deferred tax assets 48,922 29,087 19,776
Asset valuation allowance (42,797) (19,654) (5,495)
Net deferred tax asset (liability) $(1,626) $(1,626) $ 829
A reconciliation of the recorded provision to income taxes provided at the
statutory rate for the years ended December 31, 1994, 1993, and 1992 is as
follows (in thousands):
1994 1993 1992
Expected tax (benefit) provision $(20,558) $(21,416) $ 1,395
State income taxes, net of
federal benefit 1 (40) 100
Impact of foreign taxes (313) 1,317 301
Foreign sales corporation -- -- (506)
Research and development
tax credit -- -- (740)
Foreign losses without tax benefit 2,162 1,117 1,348
Domestic losses without tax
benefit 20,200 19,117 --
Utilization of foreign losses (150) (398) (884)
Other (784) 1,119 300
Provision for income taxes $ 558 $ 816 $ 1,314
At December 31, 1994, the Company has a domestic tax loss carryforward of
approximately $66.7 million that expires in years 2007 through 2009 and
foreign tax loss carryforwards of approximately $14.5 million that expire in
years 1996 through 2002. The Company has $5.5 million of research and
development credits which expire in various amounts from the year 1999 to the
year 2009 and $1.5 million of alternative minimum tax credits which have no
expiration date. For financial reporting purposes, a valuation allowance of
$42.8 million (which includes a $23.1 million increase in 1994) has been
recognized to fully offset the deferred tax assets related to the foreign
losses, tax credit carryforwards, and domestic losses without 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, 1994, a total of 12,590,158 shares of common
stock had been reserved for issuance under this plan and former plans and
options for 1,389,324 shares were available for grant. At December 31, 1993,
a total of 11,390,158 shares of common stock had been reserved for issuance
under the plans and 258,898 options were available for grant.
The following table summarizes stock option activity for the years ended
December 31, 1992, 1993 and 1994:
Number Option
Options of Shares Price
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 - 7.000
Exercised (31,899) 4.00 - 6.125
Forfeited (412,043) 4.00 - 13.875
Outstanding at December 31, 1993 5,826,531 4.00 - 11.250
Granted 631,904 5.25 - 7.625
Exercised (1,010,900) 4.00 - 7.000
Forfeited (609,253) 4.00 - 10.625
Outstanding at December 31, 1994 4,838,282 4.00 - 11.250
Of the total options outstanding at December 31, 1994 and December 31, 1993,
2,678,176 and 2,451,994, 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 had 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 were 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 could 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 had been issued under this plan at an average price of $6.65
per share. A total of 2,970,000 shares had 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. For the years ended December 31, 1994, 1993, and
1992, these purchases amounted to $10,282,000, 8,272,000 and 1,290,000,
respectively.
The Company guaranteed a $5,000,000 lease line (which terminated on December
31, 1994) 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, 1994. The Company
also purchases components from Vitesse. Amounts paid to Vitesse for the years
ended December 31, 1994, 1993, and 1992 were $3,010,000, $4,531,000 and
$14,943,000, 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, 1994, 1993, and 1992 were $719,000,
$833,000 and $217,000, 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):
1994 1993 1992
Sales to unaffiliated customers:
United States $64,661 $ 94,955 $123,123
Europe 54,719 75,057 89,811
Other international 24,797 23,106 18,885
Sales between geographic areas:
United States 40,488 55,813 70,155
Europe 933 966 883
Other international -- -- --
Eliminations (41,418) (56,778) (71,038)
Total revenue $144,180 $193,119 $231,819
Operating (loss) income:
United States $(56,543) $(59,031) $ 9,024
Europe (6,133) (4,239) (2,781)
Other international 396 (997) 406
Eliminations 3,509 3,406 (455)
Total operating (loss) income $(58,771) $(60,861) $6,194
Identifiable assets:
United States $190,695 $257,196 $309,305
Europe 50,684 58,918 75,893
Other international 23,530 23,451 21,456
Eliminations (78,719) (85,289) 94,460)
Total identifiable assets $186,190 $254,276 $312,194
Export sales--United States $ 2,112 $ 8,079 $ 18,311
Agencies of the U.S. government collectively accounted for approximately 11%,
16% and 13% of the Company's total revenue in 1994, 1993 and 1992,
respectively. However, no single customer has accounted for more than 10% of
total revenues in any of these years.
Note 8. Legal Proceedings
In 1994 the Company settled the consolidated class action lawsuit filed
against the Company in August 1991. The court's approval of that settlement
has become final and the period to appeal the judgment has expired. The
Company included a charge for the $2.5 million estimated cost of settlement in
the 1993 results. In the third quarter, the Company paid $2.2 million to fund
its share of claims made under this agreement through the end of the claims
period. No additional payments are required in connection with the
settlement.
Note 9. Restructuring and Other Charges
A summary of the Company's restructuring and other charges is as follows (in
millions):
1994 Quarters 1993 Quarters
Item 4th 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 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 investment write-downs 1.9
Class action litigation settlement 2.5
Other 0.9
Other charges 0.0 0.0 11.7 0.0 4.5 0.0 15.2 0.0
RESTRUCTURING AND OTHER CHARGES $0.0 $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 1993 and the resulting reductions in sales
prices for the entire C3 family of products.
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, 1994 and 1993 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. 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, 1994 and 1993, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As described in Note 4 to the consolidated financial statements, effective
January 1, 1992, the Company changed its method of accounting for income
taxes.
ERNST & YOUNG LLP
Dallas, Texas
February 17, 1995
Quarterly Financial Summary (Unaudited)
(In thousands, except per share data)
1994 Quarters
4th 3rd 2nd 1st
Revenue $44,291 $36,443 $35,027 $28,419
Gross margin 18,263 14,860 10,686 7,824
Operating income (loss) (4,178) (7,807) (31,305)(2) (15,481)
Net income (loss) (4,561) (8,786) (31,843)(2) (15,832)
Earnings (loss) per share: (0.17) (0.33) (1.23) (0.62)
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
(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.
(2) Includes restructuring and other charges of $18.3 million in the second
quarter of 1994.
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, 1994 and 1993, 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, 1994,
together with the notes thereto.
The report of Ernst & Young LLP, independent auditors, dated February 17,
1995.
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 II Valuation and Qualifying Accounts S-1
Report of Ernst & Young LLP, independent S-2
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 No. Description
3.1 Restated Certificate of Incorporation of the Company. Incorporated by
reference from Exhibit 3.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994.
3.2 Restated Bylaws. Incorporated by reference from Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993.
4.1 Indenture between the Company and The First National Bank of Boston,
Trustee, covering $53,500,000 of 6% Convertible Subordinated Debentures
due 2012 (including form of Debenture). Incorporated by reference from
Exhibit 4.1 to the Company's Registration Statement on Form S-1 (No.
33-12106).
10.1 Form of Indemnification Agreement entered into between the Company and
each of its officers and directors. Incorporated by reference from
Exhibit 10.1 to the Company's Registration Statement on Form S-1 (No.
33-6109).
10.2 Form of Severance Agreement entered into between the Company and each
of its officers. Incorporated by reference from Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994.
10.3 Consulting Agreement dated February 7, 1992 between the Company and Sam
K. Smith, a director. Incorporated by reference from Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994.
10.4 1983 Stock Option Plan, as amended, and forms of Stock Option
Agreements. Incorporated by reference from the Company's
Registration Statement on Form S-8 (Registration No. 33-33700).
10.5 1986 Employee Stock Purchase Plan, as amended, and form of Subscription
Agreement. Incorporated by reference from Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990.
*10.6 1991 Stock Option Plan, as amended, and form of Non-Statutory Stock
Option Agreement.
10.7 Commercial Lease dated January 26, 1989, as amended, between the
Company and Synergy Park Associates covering property located at
Synergy Park, Richardson, Texas. Incorporated by reference from
Exhibit 10.15 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990.
10.7.1 Second Amendment to Lease Agreement dated October 1991, amending the
Commercial Lease included as Exhibit 10.8. Incorporated by
reference from Exhibit 10.8.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994.
10.7.2 Third Amendment to Lease Agreement dated July 13, 1994, amending the
Commercial Lease included as Exhibit 10.8. Incorporated by
reference from Exhibit 10.8.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994.
*10.8 Agreement of Limited Partnership dated March 21, 1994 of Ambvex, Ltd.
*10.8.1First Amendment to Limited Partnership Agreement dated June 10, 1994 of
Ambvex, Ltd. amending the Agreement of Limited Partnership included as
Exhibit 10.8.
*10.8.2Second Amendment to Limited Partnership Agreement dated July 13, 1994
of Ambvex, Ltd. amending the Agreement of Limited Partnership
included as Exhibit 10.8.
*10.9 Software Agreement dated December 6, 1993 between the Company and
Novell, Inc. (successor in interest to Unix System Laboratory,
, Inc.), and Sublicensing Agreement dated December 6, 1993 between
the Company and Novell, Inc. (successor in interest to Unix System
Laboratory, Inc.).
10.10 Cross License Agreement dated May 29, 1986 between the Company and Cray
Research, Inc. Incorporated by reference from Exhibit 10.12 to the
Company's Registration Statement on Form S-1 (No. 33-6109).
10.11 Common Stock Purchase Agreement dated March 18, 1992 between the
Company and Hewlett-Packard Company. Incorporated by reference
from Exhibit 10.11 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991.
10.12 Registration Rights Agreement dated March 18, 1992 between the Company
and Hewlett-Packard Company. Incorporated by reference from
Exhibit 10.12 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991.
11.1 Computation of Per Share Earnings.
13.1 Annual Report to Shareholders for the year ended December 31, 1994 (to
be deemed filed only to the extent required by the instruction to
exhibits for reports on Form 10-K).
21.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (See page 36).
* Filed herewith
(b) Reports on Form 8-K
On October 11, 1994 the Company filed a Current Report on Form 8-K relating to
an agreement with the Hewlett-Packard Company to resell the Company's Exemplar
product line.
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 15, 1995
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert J. Paluck and David W. Craig, 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 15, 1995
(Robert J. Paluck) and Chief Executive
Officer (Principal Executive
Officer) and Director
David W. Craig Chief Financial Officer and March 15, 1995
(David W. Craig) Vice President, Finance
(Principal Finance and
Accounting Officer)
Steven J. Wallach Director March 15, 1995
(Steven J. Wallach)
H. Berry Cash Director March 15, 1995
(H. Berry Cash)
Sam K. Smith Director March 15, 1995
(Sam K. Smith)
Howard D. Wolfe Director March 15, 1995
(Howard D. Wolfe)
Erich Bloch Director March 15, 1995
(Erich Bloch)
SCHEDULE II
CONVEX COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Charged Deductions Balance at
Beginning to from End of
Description of Period Expenses Reserve Period
- - ----------------------- -------- ----------- -------- --------
Year Ended December 31, 1994
Accounts receivable allowances $ 7,517 $ 1,113 $ 1,937 $6,693
Long-term receivable allowances 52 -- -- 52
$ 7,569 $ 1,113 $ 1,937 $6,745
Year Ended December 31, 1993:
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
S-1
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Convex Computer
Corporation as of December 31, 1994 and 1993, and for each of the three years
in the period ended December 31, 1994, and have issued our report thereon
dated February 17, 1995. 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 LLP
Dallas, Texas
February 17 , 1995
S-2
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit Description Page
- - ------------- ---------------------------------------- --------
10.6 1991 Stock Option Plan, as amended, and form of
Non-Statutory Stock Option Agreement.
10.8 Agreement of Limited Partnership dated March 21, 1994 of
Ambvex, Ltd.
10.8.1 First Amendment to Limited Partnership Agreement dated
June 10, 1994 of Ambvex, Ltd. amending the Agreement of
Limited Partnership included as Exhibit 10.8.
10.8.2 Second Amendment to Limited Partnership Agreement dated
July 13, 1994 of Ambvex, Ltd. amending the Agreement of
Limited Partnership included as Exhibit 10.8.
10.9 Software Agreement dated December 6, 1993 between the
Company and Novell, Inc. (successor in interest to Unix
System Laboratory, Inc.), and Sublicensing Agreement
dated December 6, 1993 between the Company and Novell,
Inc. (successor in interest to Unix System Laboratory,
Inc.).
23.1 Consent of Ernst & Young LLP
EXHIBIT 10.6
CONVEX COMPUTER CORPORATION
AMENDED AND RESTATED
1991 STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of the CONVEX COMPUTER CORPORATION 1991 STOCK OPTION PLAN ( Plan )
is to advance the interests of CONVEX COMPUTER CORPORATION ( Convex ) and its
stockholders, by (a) enabling Convex to attract and retain the best available
personnel for positions of substantial responsibility, (b) encouraging
Employees, Consultants and Directors to acquire and retain a proprietary
interest in Convex, and (c) promoting the long-term success of Convex.
At the discretion of the Board, and as reflected in written option agreements,
options granted under this Plan may be either incentive stock options, as
defined in Section 422 of the Code or non-statutory stock options.
2. Definitions.
(a) Board: The Committee, if one has been appointed, or the Convex Board of
Directors if there is no Committee.
(b) Code: The Internal Revenue Code of 1986, as amended.
(c) Common Stock: Convex Common Stock, $.01 par value per share.
(d) Committee: The Committee appointed by the Board of Directors under
Section 3, if one has been appointed. If no Committee has been appointed,
this term will refer to the Board of Directors as a whole.
(e) Consultant: Any person who is engaged by Convex or any Subsidiary to
render consulting services for compensation.
(f) Continuous Status: As an Employee, Consultant or Director is the absence
of any interruption or termination of service. Service will not be considered
interrupted for sick leave, military leave or other leave approved by the
Board provided that either the leave does not exceed 90 days or reemployment
on expiration of the leave is guaranteed by contract or statute.
(g) Date of Grant: The date an Option is granted under the Plan, which will
be the date the Board authorized the Option unless the Board has specified a
later date.
(h) Date of Exercise: The date on which an Option is validly exercised under
the Plan.
(i) Director: A member of the Convex Board of Directors.
(j) Employee: Any person, including Officers and Directors, who is employed
by Convex, its Parent or any of its Subsidiaries. The payment of Directors
fees is not sufficient to constitute employment.
(k) Exchange Act: The Securities Exchange Act of 1934, as amended.
(l) Incentive Stock Option: An Option intended to qualify as an incentive
stock option under Section 422 of the Code.
(m) Option: A stock option granted under the Plan.
(n) Optionee: An Employee, Consultant or Director who has been granted an
Option which has not expired.
(o) Outside Director: A Director who is not an Employee.
(p) Parent: A parent corporation, whether now or hereafter existing, under
Section 424(e) of the Code.
(q) Rule 16b-3: Rule 16b-3 under the Exchange Act, or any successor rule
thereto.
(r) Share: A share of Common Stock, as adjusted under Section 9 of the Plan.
(s) Subsidiary: A subsidiary corporation, whether now or hereafter
existing, under Section 424(f) of the Code.
(t) Successors: The legal representatives of a deceased Optionee s estate or
the persons who acquire the right to exercise an Option by bequest,
inheritance or the death of the Optionee.
3. Administration of the Plan.
(a) Procedure. The Plan will be administered by (1) the Board, if the Board
may administer the Plan as one which qualifies under Rule 16b-3 as a
discretionary plan, or (2) a Committee designated by the Board. If a
Committee is designated by the Board, it will be constituted to permit the
Plan to be a discretionary plan under Rule 16b-3. Once constituted, the
Committee will continue to exist until otherwise directed by the Board. From
time to time the Board may increase or decrease the size of the Committee,
appoint additional members, remove members (with or without cause) and appoint
new members in their place, fill vacancies and remove all members of the
Committee (thereafter directly administering the Plan), all to the extent
which Rule 16b-3 permits in respect of plans intended to qualify as
discretionary.
(b) Authority. Subject to the terms of the Plan and the direction of the
Board, the Committee will have full power to implement the Plan including, but
not limited to, the power to determine:
(1) The Employees and Consultants to whom Options may from time to time be
granted.
(2) Whether, and to what extent Options are granted.
(3) The number of Shares to be covered by each Option.
(4) The forms of agreements to be used under the Plan.
(5) The terms of any Option (including the share price, any restrictions or
limitations, any vesting or exercise acceleration, any waiver of forfeiture
restrictions affecting an Option and/or the Shares covered by that Option,
based in each case on such factors as the Committee determines, in its sole
discretion, to be appropriate).
(6) The forms of payment that will be acceptable consideration for exercise of
an Option.
(7) Whether, to what extent and under what circumstances Common Stock will be
deferred, either automatically or at the election of the Optionee (including
providing for and determining the amount of any deemed earnings on deferred
amounts during a deferral period).
(8) The fair market value of the Common Stock under Section 6(c).
(9) Whether the exercise price of an Option should be reduced to the
then-current fair market value of the Common Stock if that value has declined
since the date the Option was granted.
The Committee will have the authority to construe and interpret the Plan, to
authorize the execution of such instruments on behalf of Convex as any be
required to effectuate the grant of Options, to prescribe, amend and rescind
rules and regulations relating to the Plan and to make all other
determinations necessary or advisable for the administration of the Plan.
4. Stock Subject To Options.
Subject to Section 9, no more than 3,760,000 Shares (plus, in the case of
non-statutory stock options, the number of additional shares that are
reacquired under the Plan) may be issued upon the exercise of Options. If an
Option terminates or expires, or is canceled or surrendered, the unpurchased
Shares subject to that Option will again be available for grants under the
Plan unless Convex reacquired the Shares by exercising its repurchase rights
or the Plan has been terminated.
5. Eligibility.
(a) Contribution. Any Director, Employee or Consultant deemed by the
Committee to have the potential to contribute to the future success of Convex
will be eligible to receive Options; provided, however, that (1) Options
granted to Outside Directors will only be made in accordance with Section 8,
and (2) Incentive Stock Options will be granted only to Employees.
(b) Designation. Each Option will be designated in the written option
agreement as either an Incentive Stock Option or a non-statutory stock option.
Notwithstanding this designation, Options will be treated as non-statutory
stock options to the extent the aggregate fair market value of the Shares
under Options that have been designated as Incentive Stock Options and that
can be exercised for the first time by an Optionee during any calendar year
(under all plans of Convex) exceeds $100,000.
For purposes of this Section 5(b), Options will be taken into account in the
order in which they were granted, and the fair market value of the shares will
be determined as of when the Option was granted.
(c) Rights. Neither the Plan nor the granting of an Option will alter the
right of Convex, its Parent or its Subsidiaries to terminate an individual s
status as an Employee, Consultant or Director at any time and for any reason.
Nor does either confer any rights or privileges to continue as an Employee,
Consultant or Director, or any other rights and privileges, except as
specifically provided in the Plan.
6. Terms and Conditions of Options.
Options will be evidenced by an agreement that is executed by Convex and the
Optionee ( Agreement ). The Agreement will be in the form as the Committee
may from time to time approve, subject to the following:
(a) Designation. The Committee will cause each Option, at the time of grant,
to be clearly designated in the Agreement as either an Incentive Stock Option
or a non-statutory Stock Option.
(b) Price. The per Share exercise price for Shares to be issued on exercise
of an Option will be the price as determined by the Committee, subject to the
following:
(1) In the case of Incentive Stock Options, the per share exercise price will
be set at 110% (or more) of fair market value on the date of the grant for
Employees who, at the time of the grant, own more than 10% of the voting power
of all classes of stock of Convex, any Parent or any Subsidiary, and will be
set at 100% (or more) of fair market value on the date of grant for all other
Employees.
(2) In the case of non-statutory stock options, the per share exercise price
will be set at 110% (or more) of fair market value on the date of the grant
for any person who, at the time of the grant, owns more than 10% of the voting
power of all classes of stock of Convex, any Parent or any Subsidiary, and,
subject to Section 8, will be set at 85% (or more) of fair market value on the
date of grant for all others.
(c) Fair Market Value. The Committee will determine fair market value by
reference to the per share closing price of the Common Stock on the New York
Stock Exchange, as reported in the Wall Street Journal.
(d) Payment of Option Price. Consideration for Shares to be issued on
exercise of an Option, including the method of payment, will be determined by
the Committee and may consist of cash, check, delivery of previously owned
Common Stock which, on the date of surrender, has (1) been owned by the
Optionee for more than six months or not acquired directly from Convex, and
(2) has a fair market value equal to the aggregate exercise price of the
Shares under the Option being exercised, or any combination of the foregoing
and/or other consideration or method of payment as may be permitted by law.
(e) Option Term. In the case of an Option granted to an Employee who, at the
time of grant, owns more than 10% of the voting power of all classes of the
stock of Convex, any Parent or any Subsidiary, the term of the Option will be
as set by the Committee but will in no event exceed five years. In the case
of all other Options, the term of the Option will be as set by the Committee
but will in no event exceed 10 years from the date of grant.
(f) Rights as a Stockholder. Neither an Optionee nor his Successors will have
any of the rights of a Convex stockholder until the certificates evidencing
Shares that they have purchased are properly delivered. Except as provided in
Section 9, no adjustment will be made for a dividend or other right whose
record date occurs before the stock certificate is issued.
(g) Exercise. Subject to Section 8, Options may be exercised at any time,
from time to time and in no particular order (if the Optionee holds more than
one Option) from the Date of Grant through the earliest of expiration,
cancellation, surrender or termination of the Option. Notwithstanding the
foregoing, no Option may be exercised before shareholder approval of the Plan
has been obtained.
The exercise of each Option will be subject to the condition that if, at any
time, Convex believes the satisfaction of withholding tax or other withholding
liabilities, or the listing, registration or qualification of any Share on any
securities exchange or under any state or federal law, or the consent or
approval of any regulatory body, is necessary or desirable as a condition of,
or in connection with, the issuance of the underlying Shares, then the
exercise will not be effective unless the same has been effected or obtained
free of any conditions not acceptable to Convex.
(h) Non-transferability. No Option may be transferred or assigned by an
Optionee, whether voluntarily or by operation of law, other than by will or
the laws of descent and distribution. During an Optionee s lifetime, Options
may only be exercised by the Optionee. No Option or the Shares covered
thereby will be (1) pledged or hypothecated in any way, or (2) subject to
execution, attachment or similar process except with the prior written consent
of the Committee.
(i) Termination of Status. If an Employee, Consultant or Director ceases to
serve as such for any reason other than permanent disability or death, he may
exercise his Option to the extent that he was entitled to do so at the date of
termination, but only within 30 days (or such other period of time as is
determined by the Committee which, in the case of an Incentive Stock Option,
is determined at the time of grant and will not exceed 90 days) after the date
his service ceases. To the extent he was not entitled to exercise an Option
on the date of termination, or if he does not exercise an Option which he was
entitled to exercise within the time specified, the Option will terminate.
(j) Permanent Disability. If an Employee, Consultant or Director is unable
to continue as such due to his total and permanent disability (as defined in
Section 22(e)(3) of the Code), he may exercise his Option to the extent that
he was entitled to do so at the date he became disabled, but only within six
months (or such other period of time as is determined by the Committee which,
in the case of an Incentive Stock Option, is determined at the time of grant
and will not exceed 90 days) after the date his service ceases. To the extent
he was not entitled to exercise an Option on the date of disability, or if he
does not exercise an Option which he was entitled to exercise within the time
specified, the Option will terminate.
(k) Death While Employed. If an Optionee dies while still an Employee,
Consultant or Director, and if that Optionee has had Continuous Status as an
Employee, Consultant or Director since the date the Option was granted, the
Option may be exercised by the Optionee s Successor at any time within six
months after the day the Optionee dies, but only to the same extent that would
otherwise have applied had the Optionee not died and continued to maintain
Continuous Status through the date of exercise.
(l) Death After Termination of Continuous Status. If an Optionee dies within
30 days (or, with respect to Optionees other than Outside Directors, such
other period of time as is determined by the Committee which, in the case of
an Incentive Stock Option, is determined at the time of grant and will not
exceed 90 days) after his Continuous Status as an Employee, Consultant or
Director has terminated, the Option may be exercised by the Optionee s
Successor at any time within six months after the day the Optionee dies, but
only to the same extent that the Option could have been exercised on the date
of termination.
(m) Rule 16b-3. Options granted to individuals who are subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3. They must also contain
any additional conditions or restrictions required by Rule 16b-3 for Plan
transactions to qualify for the maximum exemptions allowable under the
Exchange Act.
7. Allotment of Shares.
The Committee will determine the number of Option Shares that will from time
to time be offered to Employees, Consultants and Directors. The grant of an
Option will not entitle the Optionee to, or disqualify him from, participating
in any other grant under the Plan.
8. Outside Directors.
This Section 8 may not be amended more than once every six months, other than
to comport with changes in the Code, the Employee Retirement Income Security
Act of 1974, as amended, or the rules under either. Grants of Options under
this Section will be automatic, non-discretionary and strictly in accordance
with the following:
(a) No Discretion. No one will have any discretion in selecting which Outside
Directors will be granted Options or in determining the number of Option
Shares which they are granted; provided, however, that nothing in this Plan
will prevent an Outside Director from declining to receive an Option.
(b) Automatic Grant. On the December first of every year during the life of
the Plan, each person who is then an Outside Director will automatically be
granted an Option to purchase 5,000 Shares of Common Stock.
(c) Option Terms. The terms of Options granted to Outside Directors will be
as follows:
(1) The term of the Option will be 10 years.
(2) Subject to Section 6(i), the Option can be exercised only so long as the
Outside Director remains a Director or within three months after termination
as an Outside Director.
(3) he exercise price per Share will be 100% of the fair market value on the
date the Option is granted.
(4) The Option will vest as to 25% of the Shares subject to the Option on each
anniversary of the date of grant.
(5) In no event will an Option be capable of being exercised before
shareholder approval of the Plan has been obtained.
9. Adjustments Upon Changes in Capitalization or Merger.
(a) Adjustments. Subject to required action by the Convex stockholders, (a)
the number of Shares covered by each Option, (b) the number of Shares
authorized for issuance under the Plan and as to which either Options have not
yet been granted or Shares have been returned to the Plan following
cancellation or expiration of an Option, and (c) the price per Share covered
by outstanding Options, will be proportionately adjusted to reflect increases
or decreases in the number of issued shares of Common Stock effected without
Convex receiving consideration. Conversion of convertible securities will not
be treated as having been effected without Convex receiving consideration.
(b) Board Decision. This adjustment will be made by the Board, whose
determination will be final. Except as provided in this Section, the issuance
of shares of any class of stock (or the issuance of securities which are
convertible into shares of any class of stock) will not affect the number or
price of Shares subject to an Option.
(c) Winding Up. If a dissolution or liquidation of Convex is proposed,
Options will terminate immediately before the dissolution or liquidation is
consummated unless the Board has provided otherwise. The Board, in its
discretion, may declare that an Option will terminate on another date and may
give an Optionee the right to exercise Options as to any part of the Optioned
Shares, including those which could not otherwise be exercised.
(d) Sale or Merger. If Convex proposes to sell all or substantially all of
its assets or to merge with or into another corporation, Options will be
assumed or an equivalent option will be substituted by the successor
corporation (or a parent or subsidiary of the successor corporation) unless
the Board, in its discretion and in lieu of the assumption or substitution,
permits the Optionee to exercise the Option as to all of the Optioned Shares,
including those which could not otherwise be exercised. If the Board so
permits, it will notify the Optionee that the Option can be exercised for 30
days from the date of the notice.. The Option will terminate on expiration of
the 30-day period.
10. Amendment and Termination .
(a) Amendment and Termination. The Board may amend the Plan at any time, or
from time to time, and may terminate it without stockholder approval.
Notwithstanding the foregoing, approval of the holders of a majority of the
outstanding shares entitled to vote is required for amendments which increase
the number of shares for which options may be granted, materially change the
standards of eligibility or constitute an amendment for which shareholder
approval is required to comply with Rule 16b-3 or Section 422 of the Code.
(b) Effect. No amendment or termination of the Plan will unilaterally affect
or impair Options already granted or any existing option or shareholder
agreements. These will remain in full force and effect as if the Plan had not
been amended or terminated, unless mutually agreed otherwise in a written
document signed by all affected parties.
11. Adoption of the Plan.
The adoption of the Plan, and any action of the Board with respect to it, will
not be deemed to give an Employee, Consultant or Director the right to be
granted an Option to purchase Shares or any other rights. The only exception
will be rights evidenced by an Agreement, or an amendment thereto, which has
been duly authorized by the Board and executed on behalf of Convex and then
only to the extent and on the terms which are contained in that Agreement or
amendment.
12. Term of the Plan.
No Options will be granted more than ten years from the earlier of the date
the Plan is adopted or the date the Plan has been approved by the Convex
shareholders.
13. Conditions on Issuance of Shares.
Shares will not be issued on exercise of an Option unless, in the opinion of
counsel for Convex, the exercise and the issuance and delivery of the Shares
complies with all relevant provisions of law. This will include, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations under both, and the requirements of the New York Stock
Exchange.
14. Reservation of Shares.
During the term of the Plan, Convex will at all times have available a
sufficient number of Shares to satisfy the requirements of the Plan. If
Convex is unable to obtain the necessary authority from any regulatory body
having jurisdiction, Convex will have no liability for failing to issue or
sell Shares which, in the opinion of counsel for Convex, require such
authority.
15. Shareholder Approval.
Required approvals of Convex shareholders will be solicited substantially in
accordance with Section 14(a) of the Exchange Act and the rules and
regulations promulgated thereunder. Approval of amendments will be solicited
on or before the first annual meeting of shareholders held after an Option is
granted under the Plan, as then amended, to an Officer or Director. If
shareholder approval is obtained at a duly held shareholders meeting, it must
be obtained by the affirmative vote of those holding a majority of Convex
outstanding shares. If shareholder approval is obtained by written consent,
it must be obtained by the unanimous written consent of all Convex
shareholders. Notwithstanding the foregoing, a lesser degree of shareholder
approval at a meeting or by written consent will be sufficient if the Board
determines, in its discretion after consultation with counsel, that doing so
will comply with all applicable laws and will not adversely affect the
qualification of the Plan under Rule 16b-3 or Section 422 of the Code.
16. Information to Optionees.
Notice that an Option has been granted to an Optionee will be given to the
Optionee within a reasonable period of time after the grant date. During the
period an Optionee has one or more Options outstanding, Convex will provide
the Optionee with copies of its annual reports and all other information which
it provides to its shareholders. Convex need not provide this information if
Options under the Plan are only granted to key employees whose duties assure
their access to equivalent information.
Adopted by the Board of Directors of
Convex Computer Corporation
on the 14th of March, 1991,
and approved by the shareholders of
Convex Computer Corporation
on the 9th of May 1991.
Amended by the Board of Directors of
Convex Computer Corporation
on the 12th of March 1992,
and approved by the shareholders of
Convex Computer Corporation
on the 14th of May 1992.
EXHIBIT 10.8
AMBVEX LTD.
LIMITED PARTNERSHIP AGREEMENT
THIS LIMITED PARTNERSHIP AGREEMENT (the "Agreement") is made and entered into
as of this 21st day of March, 1994, by and between Mantax (America), Inc., a
Delaware Corporation, as General Partner, and Amber Realty, Inc., a Delaware
Corporation, as a Limited Partner and Convex Computer Corporation, a Delaware
Corporation, as a Limited Partner.
WHEREAS, Amber Realty, Inc., is the owner of a 49% limited partnership
interest in the Chamansynergy Limited Partnership holding title to the Project
(as hereinafter defined) and has exercised its right of first refusal to
purchase the entire Project; and
WHEREAS, Mantax (America), Inc .. and Amber Realty, Inc., have agreed to form
a limited partnership to acquire and hold title to the Project; and
WHEREAS, Convex Computer Corporation desires to acquire a 49% limited
partnership interest in the entity holding title to the Project; and
WHEREAS, the parties hereto desire to form and associate together as the
partners of Ambvex, Ltd., a Texas limited partnership (the "Partnership"); and
WHEREAS, the Partnership desires to proceed to purchase the Project from the
Chamansynergy Limited Partnership and thereafter to operate the Project; and
WHEREAS, the parties hereto desire to set out their respective positions,
rights and duties with respect to the Partnership and to set forth the terms
and conditions under which the Partnership shall be operated;
NOW THEREFORE, in consideration of the foregoing and of the respective mutual
covenants and agreements herein contained, the parties hereto agree as
follows:
1.DEFINITIONS
"Act" shall mean the Texas Revised Limited Partnership Act.
"General Partner" shall mean Mantax (America), Inc., or any person who
succeeds to its interest as general partner.
"Limited Partner(s)" shall mean the individuals or entities who execute this
Agreement or counterparts hereof as limited partners and who are admitted as
Limited Partners pursuant to the terms hereof and any substituted limited
partners admitted in accordance with the terms hereof.
"Majority in Interest" shall mean, with respect to any agreement or vote of
the Partners, the Partners whose combined Partnership Interests at the time of
the agreement or vote, exceed 50% of the total Partnership Interests
participating in such agreement or vote; provided always that the Partnership
Interest held by or on behalf of Convex Computer Corporation, its successors
or assigns, shall not be entitled to participate in any agreement or vote with
respect to actions to be taken by the Partnership for so long as Convex
Computer Corporation, its successors or assigns (with the exception of
sublessees approved by the General Partner), is the lessee under the Lease or
any subsequent lease.
"Majority Consent" shall mean the consent of a Majority in Interest of the
Partners.
"Partners" shall refer collectively to the General Partner and to the Limited
Partners, and reference to a "Partner" shall be to any one of the Partners.
"Partnership" shall mean the Limited Partnership created under this Agreement.
"Partnership Interest" shall mean the respective interests of the Partners in
and to the Partnership and its assets, as shown in Exhibit A.
"Project" shall mean the Convex Building located at 3000 Waterview Parkway in
the UTD Synergy Park, Phase II, Richardson, Texas, and on the real estate
legally described in Exhibit B and, in addition, any improvements at any time
situated thereon.
"Condition Precedent" shall mean the execution of a contract for the Purchase
of the Project from the Chamansynergy Limited Partnership and the written
approval of such Purchase by Allstate Life Insurance Company, the holder of
that certain Deed of Trust Note secured by the Project, on terms satisfactory
to the General Partner.
"The Purchase" shall mean the acquisition by the Partnership of good,
marketable and indefeasible fee title to the Project, insured by a current
form ATLA owner's policy of title insurance satisfactory to the General
Partner, and the assignment of the Lease to the Partnership.
"The Lease" shall mean the July 1989 Lease Agreement by and between
Chamansynergy Limited Partnership as successor to Synergy Park No. 1 Limited
Partnership, as landlord, and Convex Computer Corporation, as tenant, as
subsequently amended, modified or supplemented.
"Capital Event" shall mean any capital contributions to the Partnership and,
with respect to the property of the Partnership, the sale or other disposition
of any property which constitutes capital assets, the receipt of insurance and
other proceeds derived from the involuntary conversion or condemnation of such
property, or the borrowing or refinanced borrowing upon the security of such
property, or from a similar event with respect to such property.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Regulations" shall mean the temporary, final and proposed Treasury
regulations promulgated under the Code, as in effect from time to time.
2. FORMATION
The parties do hereby form a limited partnership under the Act for the limited
scope and limited purpose set forth herein and upon all of the terms and
conditions hereof.
3. NAME AND PLACE OF BUSINESS, AGENT FOR SERVICE OF PROCESS; CERTIFICATE
The name of the Partnership shall be "Ambvex Ltd.". The principal place of
business of the Partnership shall be the Project, or at such other place or
places as the General Partner shall designate in writing from time to time.
The registered agent and registered office of the Partnership shall be C.T.
Corporation Systems, 350 North St. Paul Street, Dallas, Texas 75201. Such
agent is and shall be the agent of the Partnership upon whom any process,
notice or demand required or permitted by law to be served on the Partnership
may be served. If the person acting as registered agent at any time ceases to
so act, the General Partner shall have the right to appoint a substitute in
accordance with the Act. If required, the General Partner shall arrange for
the prompt filing of a Certificate of Limited Partnership ("Certificate") ,
and any amendments thereto as required by the Act. The General Partner may,
but shall not be required to, deliver a copy of the Certificate, or any
amendments thereto, to the Limited Partners.
4. LIMITED PURPOSE
The sole and only purpose of the Partnership shall be to acquire, hold,
operate, lease and sell the Project. This Agreement shall not be deemed to,
and does not, create a partnership between the parties with respect to any
activity whatsoever other than activities within the express purposes of the
Partnership set forth in this Section 4. Except as expressly provided in this
Agreement, no Partner shall have any authority to bind, act for, or assume any
obligations or responsibilities on behalf of the other Partners or the
Partnership.
5. TITLE
Title to the Project shall be held of record by the Partnership. Any other
assets of the Partnership may be held in the name of the Partnership, or in
such other name as shall be determined by the General Partner with the prior
written consent of the Limited Partners.
6. DURATION OF THE PARTNERSHIP
The term of the Partnership shall commence on the filing of the Certificate
(the "Commencement Date") and shall expire on the first to occur of the
following events:
(a) September 30, 2035;
(b) the sale or other disposition of all or substantially all of the
Partnership's interest in the Project and the termination of all obligations
relating thereto in accordance with the terms hereof;
(c) written consent of all Partners to terminate the Partnership;
(d) an event of withdrawal of the General Partner unless at the time
there is at least one other General Partner; provided, however, that the
Partnership is not dissolved and is not required to be wound up by reason of
any event of withdrawal if, within 90 days after the withdrawal, all remaining
Partners agree in writing to continue the business of the Partnership and to
the appointment of one or more additional general partners; and
(e) the date on which the Partnership is otherwise dissolved pursuant to
the terms hereof or by judicial decree.
Upon the dissolution of the Partnership, the General Partner, or, if there is
no General Partner, a person appointed by a Majority in Interest of the
remaining Partners, shall proceed with dispatch and without any unnecessary
delay to sell or otherwise liquidate the assets of the Partnership and, after
paying or making due provision for all liabilities to creditors of the
Partnership, to promptly distribute the net proceeds thereof and liquidate
assets in accordance with the provisions of Section 13 hereof.
7. PARTNERSHIP INTERESTS
The respective partnership interest of the Partners in and to the Partnership
(the "Partnership Interests") are as shown on Exhibit A hereto.
8. PARTNERS; CAPITAL CONTRIBUTIONS; LOANS; DEFAULT
8.1 Partners. The Partners are Mantax (America), Inc., who shall serve as
General Partner, and the persons designated on Exhibit A as Limited Partners.
A person may hold both a general and a limited Partnership Interest.
8 2 Initial Capital Contribution. Each Partner has simultaneously with the
execution of this Agreement contributed its proportionate share (determined in
accordance with its Partnership Interest) of the Partnership's initial capital
of $1,000 (one thousand dollars).
8.3 Capital Contributions By The Limited Partners.
A. The two Limited Partners shall within 7 days of the execution by the
Partnership of a contract for the purchase of the Project from the
Chamansynergy Limited Partnership for an aggregate value not to exceed $21.7
million each make a capital contribution of $2,000,000 (two million dollars)
for an aggregate amount of $4,000,000 (four million dollars), such aggregate
amount hereinafter referred to as the "Refinancing Funds."
B. The Refinancing Funds shall be held on behalf of the Partnership by
the General Partner in an interest-bearing account. The Refinancing Funds
shall be used to replace and reduce the first-mortgage indebtedness on the
Project at such time as the General Partner may elect but in no event before
the issuance of a mortgage commitment to the Partnership in the amount of at
least $10,000,000 (ten million dollars) by a lender on terms acceptable to the
General Partner.
C. Additionally, each Limited Partner shall contribute its proportionate
share (determined in accordance with its Partnership Interest) of any and all
costs associated with the refinancing of the Project (including, without
limitation, application fees, loan origination fees, brokerage fees, title
insurance fees and professional fees) within 10 days of receiving written
notice from the General Partner requiring it to do so.
D. In the event the Condition Precedent is not satisfied, the General
Partner may at its sole option elect to dissolve the Partnership or elect to
pursue all and any reasonable alternative for the purchase of the Project.
E. In the event the Condition Precedent is not satisfied and the General
Partner elects to pursue alternatives for the purchase of the Project, the
General Partner shall return the Refinancing Funds to the Limited Partners;
provided, however, that the Limited Partners shall remain obligated to
re-contribute the Refinancing Funds to the Partnership immediately upon
execution of a subsequent contract intended to vest title to the Project in
the Partnership for an aggregate value not to exceed $21. 7 million. (The
amount of the Refinancing Funds required of the Limited Partners under this
Clause E shall be reduced proportionately to the extent that the Project is
acquired for an aggregate value of less that $21. 7 million).
F. In the event the General Partner elects to dissolve the Partnership
pursuant to paragraph 8. 3. D above, the Refinancing Funds (and all interest
earned thereon) less all out of pocket expenses incurred by the Partnership
shall be returned to the Limited Partners, pro rata.
8.4 Capital Contributions By The Partners Upon Satisfaction of The Condition
Precedent.
A. Subject to and simultaneously with the satisfaction of the Condition
Precedent, but not more than 7 days prior to the closing date set forth in the
contract for the Purchase of the Project from the Chamansynergy Limited
Partnership, the Partners shall make the following capital contributions,
hereinafter the "Purchase Funds" to the Partnership:
(1) The General Partner shall contribute the amount of $154,000 (one
hundred and fifty four thousand dollars).
(2) Amber Realty, Inc. shall contribute a non-interest-bearing
promissory note, payable upon demand, in the amount of $3,773,000 (three
million seven hundred and seventy three thousand dollars) bearing such
restrictive endorsement as General Partner shall deem appropriate.
(3) Convex Computer Corporation shall contribute the amount of
$3,973,000 (three million nine hundred and seventy three thousand dollars).
B. The Purchase Funds shall be held on behalf of the Partnership by the
General Partner in an interest-bearing account and shall be used to fund the
Purchase and all expenses associated therewith, including the transaction
costs of Amber Realty, Inc.
C. If, for any reason, the Purchase is not made by July 1, 1994, the
General Partner shall proceed to dissolve the Partnership in accordance with
the terms of Paragraphs 6 and 13 hereof, unless all Partners otherwise agree
in writing.
8.5 Additional Capital Contributions.
A. If, at any time and from time to time, the General Partner determines
in its sole discretion that there has been an event of default as defined in
the Lease as a result of which the Partnership requires additional capital in
order to (i) meet its operating expenses including debt service; or (ii) to
refit, refinish, improve or relet the Project (including all expenses
attendant thereto) , the General Partner, after first having made demand upon
lessee's security deposit under the Lease, may give notice of such fact to the
Partners (the "Capital Call"). Each request for an Additional Contribution
shall set forth: (a) the aggregate amount of Additional Contributions
requested from the Partners and (b) the intended use of the Additional
Contribution together with a copy of the Partnership's current financial
statements and a good faith projection of the Partnership's financial
requirements for the following 6 months. The Partners shall have the
obligation to contribute funds (the "Additional Contribution") within 15 days
of such notice in proportion to the Partners' Partnership Interest.
B. If a Partner does not make an Additional Contribution in accordance
with a Capital Call it shall be deemed a "Defaulting Partner". In such event,
the General Partner may request the other Partners to loan the amount of the
unpaid Additional Contribution as a first priority loan (the "Default Loan")
to the Partnership, with interest payable thereon, compounded quarterly, based
on the number of days such loan is outstanding at a per annum rate of 3% over
the rate which is announced from time to time by The Chase Manhattan Bank, N.
A. as its prime lending rate. All Default Loans plus interest thereon shall
be repaid prior to any other distributions to the Partners hereunder.
C. If a Partner does not make an Additional Contribution in accordance
with a Capital Call, the Partnership may, at the election of the General
Partner, either (i) sell the Defaulting Partner's Partnership Interest to
satisfy the Defaulting Partner's obligation to make an Additional
Contribution, or (ii) adjust each Partner's Partnership Interest to be equal
to the quotient (expressed as a percentage) of the book value of that
Partner's Capital Account divided by the aggregate book value of all the
Partners' Capital Accounts after increasing those Capital Accounts for the
Additional Contributions that have been made. The General Partner will give
the Defaulting Partner 10 days prior written notice of its election under this
Section C, and Quill treat all Defaulting Partners the same with respect to a
particular Capital Call. (An example of the calculation required by clause
(ii) above is set forth in Exhibit C.).
D. Except as set forth in paragraph B above, all funds contributed to
the Partnership pursuant to this section 8. 5 shall be deemed contributions
to Partnership capital and not loans to the Partnership.
E. Each Partner hereby pledges to the Partnership its Partnership
Interest and grants to the Partnership a security interest therein to secure
the obligations to make Additional Contributions provided for in this Section
8.5. The Partnership, acting through its General Partner, shall have all the
rights and remedies of a secured party under the Uniform Commercial Code as
adopted in the State of Texas, including the right to sell such Partnership
Interest, and each Partner shall execute a UCC financing statement to perfect
such security interest, and agrees to execute such other instruments as the
General Partner may reasonably from time to time require to perfect such
security interest.
F. In no event shall the General Partner be personally or otherwise
liable for repayment of any such Additional Contributions made pursuant to
Paragraphs A, B or C above.
8.6 No Additional Obligations. Except as provided in this Section 8, no
Partner shall have any obligation to make any additional contribution to the
Partnership or guarantee any indebtedness of the Partnership. No Limited
Partner shall be liable for any debts or obligations of the Partnership in
excess of its contribution to the capital of the Partnership (which has not
been returned to it) plus, to the extent required by law, such returned
capital and interest thereon.
8.7 Intent of Sections 8.3 and 8.8. Sections 8.3 and 8.8 hereof are not
intended to be for the benefit of any creditor (other than a Partner) of, or
any person (other than a Partner) to whom any debts, liabilities or
obligations are owed by (or who otherwise has a claim against the Partnership
or the Partners), the Partnership and no such creditor or other person shall
obtain any rights under such provisions or shall by reason of such provisions
make any claim in respect to the aforesaid debts, liabilities or obligations
(or otherwise) against the Partnership or any Partner.
8.8 Loans. Any Partner may make loans or advance money to the Partnership if
requested to do so in writing by the General Partner. These loans or advances
shall not constitute an increase in the Capital Account or Partnership
Interest of the lending Partner. The amount of the loan or advance shall be a
liability of the Partnership to the lending Partner and shall be repayable
upon such terms and conditions as may be agreed by the lending Partner and the
General Partner. Such loans or advances shall be on such terms as the General
Partner shall approve, provided that such terms shall be as if they were
negotiated at arm's length and shall otherwise be commercially reasonable.
Except as otherwise provided in this Section 8, no Partner shall have any
obligation to make any loan or advance to the Partnership and all Partners
shall have the opportunity, in proportion to their respective Partnership
Interests, to make any loan that shall be required by the Partnership. The
Partnership shall make no loans to any Partner without the consent of the
other Partners (notwithstanding the definition of Majority in Interest
contained herein).
8.9 Withdrawal of Capital. No Partner shall have any right to withdraw or
make demand for withdrawal of such Partner's capital contribution or the
capital interest reflected in such Partner's Capital Account, and no interest
shall be paid on capital contributions except as otherwise provided herein.
9. CAPITAL ACCOUNTS
Individual Capital Accounts shall be maintained for each Partner in accordance
with the rules of the Regulations Section 1.704-l(b)(2)(iv). No interest
shall be paid or shall accrue on the Capital Accounts of the Partners.
10. MANAGEMENT OF BUSINESS
10.1 Management. Subject only to the limitations contained below in this
Section 10, the General Partner is hereby granted the right, power and
authority to manage the affairs of the Partnership, to act on behalf of the
Partnership, and to bind the Partnership. The General Partner is hereby
granted the right, power and authority to do, on behalf of the Partnership,
all things which are reasonable, proper and desirable to carry out its duties
and responsibilities set forth in this Section and elsewhere in this
Agreement, including, without limitation, the right, power and authority: (i)
to borrow money in the name of the Partnership (whether secured or unsecured)
and to mortgage or pledge Partnership assets as security thereof; (ii) to
sell, option, exchange or otherwise dispose of any Partnership assets,
including all or substantially all of such assets; (iii) to lease all or any
portion of the Partnership's property without limit as to the term thereof,
whether or not such term (including renewal terms) shall extend beyond the
date of termination of the Partnership and whether or not the portion so
leased is to be occupied by the lessee or, in turn subleased in whole or in
part to others; (iv) to negotiate the terms of all debt and equity financing
for the Project; (v) to make all expenditures required in connection with the
operation of the Partnership; (vi) to select, employ, dismiss, supervise and
coordinate the activities of suppliers, attorneys, accountants, managers,
insurance carriers, brokers, agents and other employees or contractors
necessary, appropriate or desirable for the efficient and profitable operation
of the Partnership's business (regardless of whether any of the foregoing are
also performing services for the General Partner in a capacity unrelated to
this Partnership); (vii) to negotiate, execute and terminate all contracts
necessary for the development and operation of the Project, including
construction contracts, architectural and engineering contracts, for the
Project; (viii) to make all decisions with regard to when to distribute
Partnership Revenues available for distribution in accordance with Section 12;
(ix) to take all actions necessary in connection with the liquidation of the
Partnership and the winding-up of the Partnership's affairs at such time as
the Partnership terminates; (x) to alter, improve, repair, replace or rebuild
any property; (xi) to obtain the replacements of any mortgage or mortgages
related in any way to the property owned by the Partnership and to prepay in
whole or in part, refinance, recast, modify, consolidate or extend any
mortgages affecting any such property; (xii) to do any and all of the
foregoing at such price, rental or amount, for cash, securities or other
property, and upon such terms as the General Partner deems proper, in each
case subject only to the limitations specifically set forth in this Agreement;
provided, however, that so long as lessee is not in default under any material
term of the Lease, the General Partner shall obtain the consent of Convex
Computer Corporation before engaging in the activities described in clauses
(vii) and (x) hereinabove.
10.2 General Duties of General Partner. The General Partner shall perform,
or cause to be performed, at the expense of the Partnership, in as economical
a manner as is reasonably possible under the circumstances, the following
services:
A. Establishment of books of account, record and payment procedures,
including individual Capital Accounts of the Partners.
B. Provision of bookkeeping and other related services for the
Partnership.
C. Provision of overall management services to the Partnership.
D. Disbursement of all receipts and making of all necessary payments and
expenditures in accordance with the terms of this Agreement.
E. Making of all reports to the Limited Partners required by this
Agreement or by law.
F. All other duties of a general partner under the Act.
10.3 Partner Meetings. The General Partner may, in its sole discretion, call
Partner meetings from time to time on no less than 10 days prior written
notice except in the event of an emergency, in which case the General Partner
shall call a meeting on no less that two days prior written notice to the
Partners. Any such Partner meeting shall be conducted telephonically when so
requested by any Partner. A Majority in Interest shall constitute a quorum at
any such meeting. All such meetings will be held at the Partnership's office
or such other place as the General Partner may designate. In lieu of holding
formal meetings, the Partners may act by written consent executed by Partners
holding the Partnership Interests required for any Partnership action.
10.4 Limited Partner Activities. No Limited Partner shall participate in the
operation or management of the business of the Partnership or transact any
business for or in the name of the Partnership, nor shall any Limited Partner
have the right or power to sign for or bind the Partnership in any manner.
The right of the Limited Partners to consent to and approve certain matters
hereunder shall not be deemed a participation in the management or business of
the Partnership or the exercise of control over the Partnership's affairs.
10.5 General Partner's Compensation. Except as otherwise provided herein, no
salaries, fees, commissions or other compensation shall be paid to any Partner
by the Partnership for any services rendered to or on behalf of the
Partnership or in connection with its business, affairs, operations, assets or
properties. The General Partner shall be entitled to obtain reimbursement of
reasonable out-of-pocket expenses incurred by it on behalf of the Partnership,
but, except as set forth in Section 10. 2 hereof, such expenses shall not
include such Partner's overhead or salaries and benefits of its employees.
10.6 Asset and Property Management. The Limited Partners hereby authorize
the General Partner to charge an asset management fee of 2% of the
Partnership's gross revenues. Such fee shall be paid quarterly in arrears to
the General Partner, provided that any and all property managers or property
management companies which the General Partner may, in its sole discretion,
elect to employ shall also be paid from this fee.
10.7 Partners' Cooperation. Each Partner hereby agrees to execute any and
all instruments and documents and to take such actions as are necessary or
proper to carry out the intentions and purposes of this Agreement.
10.8 Bank Accounts. The General Partner shall, on behalf of the Partnership,
open and maintain such bank accounts for the Partnership as shall be deemed
necessary with such banks as are satisfactory to the General Partner and all
funds of the Partnership shall be Inept in such accounts. All withdrawals
from, or transactions relating to, such accounts shall be made by the General
Partner or its agent subject to the terms hereof, and all funds shall be
disbursed from such accounts in accordance with this Agreement. There shall
be no commingling of the property and assets of the Partnership with the
property and assets of any other person.
10.9 Insider Agreements. Except as specifically provided herein, the
Partnership shall not enter into any contract, arrangement or other course of
dealing with any Partner or any affiliate of any Partner except on terms that
are no less favorable to the Partnership than would be obtainable from an
unaffiliated party.
10. 10 Indemnification. Subject to the provisions of the last sentence of
this paragraph, the Partnership shall indemnify and hold harmless the General
Partner, its affiliates, and their agents, employees and directors, if any,
from any loss, liability or damage incurred or suffered by the General
Partner, its affiliates, their agents, employees or directors by reason of an
act performed or omitted to be performed by them or their agents, employees or
directors in connection with the business of the Partnership, including
attorney's fees incurred by it in connection with the defense of any claim or
action based on any such act or omission, which attorney's fees may be paid as
incurred, except to the extent indemnification is prohibited by law. All
judgments or other assessments against the Partnership wherein the General
Partner, its affiliates or their agents, employees or directors are entitled
to indemnification pursuant to this Section 10. 10 shall be satisfied solely
from the Partnership assets. Any indemnification required herein to be made
by the Partnership shall be made promptly following the fixing of the loss,
liability or damage incurred or suffered by a final judgment of any court,
settlement, contract or otherwise. The General Partner, its affiliates, their
agents, employees and directors (a) shall be entitled to the foregoing
indemnification, and (b) shall not be liable to the Partnership for any loss,
liability or damage suffered or incurred by the Partnership, directly or
indirectly, in connection with its or their activities; provided that no
person whose action or omission to act caused the loss, liability or damage
incurred or suffered may receive indemnification or avoid liability by virtue
of this Section 10. 10 if such course of conduct constituted fraud, gross
negligence or willful misconduct and provided that the General Partner does
not willfully violate its fiduciary duties to the Partners.
The indemnification rights contained in this paragraph 10. 10 shall be
cumulative of, and in addition to, any and all rights, remedies and recourses
to which the General Partner shall be entitled, whether pursuant to the
provisions of this Agreement at law or in equity.
10.11 Right To Rely Upon The Authority of General Partner. Persons dealing
with the Partnership may rely upon the representation of the General Partner
that it has the authority to male any commitment or undertaking on behalf of
the Partnership. No person dealing with the General Partner shall be required
to determine its authority to make any such commitment or undertaking, nor to
determine whether any other Partner concurs in the commitment or undertaking
or any other fact or circumstance bearing upon the existence of its authority.
In addition, no purchaser of any property or interest therein owned by the
Partnership shall be required to determine the sole and exclusive authority of
the General Partner to sign and deliver on behalf of the Partnership any
instrument of transfer with respect thereto or to see to the application or
distribution of revenues or proceeds paid or credited in connection therewith,
unless such purchasers shall have received written notice from the Partnership
affecting the same.
10.12 Sale of the Project.
A. If the General Partner desires to sell, option, exchange or otherwise
dispose of the Project (the "Sale"), it shall first give notice (the "Notice")
to the Partners of its desire to make the Sale, and the terms on which it
wishes to make the Sale. Each Partner shall then have 10 days from the date
of the Notice (the "Notice Date") within which to notify the General Partner,
in writing, that it wishes to purchase the entire Project on said terms. If
more than one Partner gives such notification to the General Partner, then
such Partners shall purchase the entire Project pro rata in proportion to the
ratio that each such Partner's Partnership Interest bears to the total
Partnership Interests of all Partners desiring to purchase the Project, or in
such other proportion to which they may agree. The closing of such purchase
shall occur at the Partnership's office no later than the 30th day after the
Notice Date (unless such 30th day falls on a Saturday, Sunday or holiday, in
which case it shall occur on the next business day).
B. If the General Partner desires to make the Sale and it receives an
offer to purchase the Project (the "Offer") and either the terms of the Offer
are less favorable than those contained in the Notice or the Notice has not
been sent to the Partners, the General Partner shall immediately give written
notice by facsimile (the "Notice of Offer") to the Partners of its receipt of
the Offer and the terms thereof. The General Partner shall negotiate in good
faith with such offeror for a minimum acceptable period of 15 days for the
Offer, if possible. Each Partner shall then have until the earlier to occur
of: (i) 10 days from the date of the Notice of Offer (the "Offer Notice
Date"), or (ii) the day prior to the date on which the Offer expires, within
which to notify the General Partner, in writing, that it wishes to purchase
the entire Project on said terms. If more than one Partner gives such
notification to the General Partner, then such Partners shall purchase the
entire Project pro rata in proportion to the ratio that each such Partner's
Partnership Interest bears to the total Partnership Interests of all Partners
desiring to purchase the Project, or in such other proportions to which they
may agree. The closing of such purchase shall occur at the Partnership's
office no later than the earlier to occur of: (i) the 30th day after the Offer
Notice Date (unless such 30th day falls on a Saturday, Sunday or holiday, in
which case it shall occur on the next business day), or (ii) the proposed date
of closing set forth in the Notice of Offer.
C. In lieu of purchasing the Project pursuant to Sections 10.12.A or B
hereof, the Partners may otherwise agree that the Partner(s) desiring to
purchase the Project can purchase the Partnership Interests of the Partners
that do not desire to purchase the Project at a price equal to the amount
which would have been distributed to the other Partners upon the Sale of the
Project.
D. If any Partner that notifies the General Partner pursuant to Sections
10.12.A or B hereof fails to purchase the Project on the date required in the
applicable Section, such Partner failing to purchase (i) shall have no further
rights under this Section 10.12, for a period of 3 years from the date of such
failure, and the General Partner shall have the right to sell the Project
without further offering it to such Partner during such 3 year period; and
(ii) shall pay all out of pocket expenses and costs incurred by the
Partnership relating to or in connection with the proposed sale of the Project
or such failure to purchase the Project.
E. If the Project is not purchased by a Partner pursuant to the terms of
Section 10.12.A or B hereof, the General Partner may sell the Project to a
third party on terms no less favorable to the Partnership than the terms
contained in the Notice or the Notice of Offer, as the case may be; provided
that (x) a contract to sell the Project is entered into by the Partnership and
such third party within 180 days from the Notice Date or the Offer Notice
Date, as the case may be, and (y) the closing of such sale occurs within 240
days from the Notice Date or the Offer Notice Date, as the case may be.
ll. BOOKS AND RECORDS
11.1 Maintenance.
A. The General Partner shall maintain accurate books and records for the
Partnership in accordance with generally accepted accounting principles
consistently applied, showing all of its assets, liabilities, capital, income,
expenses, operations, transactions and financial condition.
B. The Partnership shall maintain at its registered office as set forth
in Section 3 hereof, or such other office as it may designate from time to
time, the following: (i) a current list of the full name and last known
address of each Partner separately identifying, in alphabetical order, the
General Partners and the Limited Partners and setting forth the amount of cash
and a description and statement of the agreed value of the other property or
services contributed by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a Partner; (ii) a
copy of the Certificate, and all certificates of amendment thereto or
restatement thereof, together with executed copies of any powers of attorney
pursuant to which any such certificate has been executed; (iii) copies of the
Partnership's federal, a state and local income tax returns and reports, if
any, for the three most recent fiscal years; and (iv) copies of any then
effective written partnership agreements and any amendments thereto and of any
financial statements of the Partnership, if any, for the three most recent
fiscal years.
11.2 Accounting and Tax Returns. As soon as practicable after the end of
each fiscal year (but in no event later than 90 days thereafter), the General
Partner shall provide (i) financial statements, reviewed by a certified public
accountant, covering the assets, properties, liabilities and capital of the
Partnership and its income, expenses, transactions and operations during the
preceding fiscal year, and all matters and things customarily included in such
statements. At the (i) request and expense of any Partner, or (ii) expense of
the Partnership, if the General Partner deems it advisable, such statements
shall be audited by an independent certified public accountant selected by the
General Partner. The General Partner shall cause an independent certified
public accountant to prepare at the expense of the Partnership all tax returns
for the Partnership which shall be furnished to each Partner no later than (i)
90 days, or (ii) if the Partnership has extended the due date for filing its
tax return, 120 days, after the end of each fiscal year of the Partnership.
If the tax returns of the Partnership are not prepared in final form within 90
days after the end of any fiscal year of the Partnership, the Partnership will
provide to each Partner an estimate of the Partnership's taxable income for
such immediately preceding fiscal year. Subject to the terms of this
Agreement, the General Partner shall be the "tax matters partner" for the
purpose of Sections 6221-6232 of the Code and the Regulations. As such, the
General Partner will communicate with the Internal Revenue Service and take
actions on behalf of the Partnership in connection with tax matters, but, in
all events, shall obtain Majority Consent of the other Partners before taking
any action, or failing to take any action, which would affect the interests of
the other Partners.
11.3 Fiscal Year of Partnership; Method of Accounting. The fiscal year of
the Partnership shall end on September 30 of each year. The Partnership shall
use the accrual method of accounting for financial accounting and federal
income tax purposes.
11.4 Examination of Books. Each Partner and the duly authorized
representative of each Partner shall have the right and power to inspect and
copy, at the reasonable request and expense of such Partner, during ordinary
business hours, the books and records of the Partnership. The General Partner
will provide to the Partners all information reasonably requested by them
concerning the Partnership.
11.5 Section 754 Election. The General Partner may, in its sole discretion,
cause the Partnership to make timely election, or revoke such election, in
accordance with Section 754 of the Code to adjust the basis of the Partnership
property as described in Sections 734 and 743 of the Code; provided, however,
that any Partner may require the General Partner to make or take appropriate
actions to revoke such an election so long as that Partner pays any and all
costs, fees and expenses (including, without limitation, attorneys' fees and
any initial and any ongoing additional bookkeeping costs) incurred by the
Partnership in connection with such an election or actions relating to such
revocation.
12. DISTRIBUTIONS
Except as provided in Section 13, all Partnership Revenues, as hereinafter
defined, shall be used first to pay the costs and expenses of the Partnership,
including but not limited to debt service, taxes assessed on the Partnership
or its property, operating expenses and charges (including all fees authorized
in Section 10 hereof and other expenses relating to the Project), capital
costs and the establishment of such reserves not to exceed $250,000 as the
General Partner shall, in its sole discretion, deem necessary, and then will
be distributed, not less frequently than quarterly, to the Partners in
accordance with their respective Partnership Interests. For purposes hereof,
"Partnership Revenue" shall mean all revenues of any kind received by the
Partnership, including the net proceeds of financing or sale of the Project
and of termination of the Partnership, and all receipts from the operation of
the Project, but shall not include capital contributions or loans by the
Partners.
13. LIQUIDATING DISTRIBUTIONS
Notwithstanding the provisions of Section 12 hereof but subject to Section
14.8 hereof, on liquidation of the Partnership (or any Partner's Partnership
Interest), liquidating distributions shall be made in accordance with the
positive Capital Account balances of the Partners, as determined after taking
into account adjustments for the Partnership taxable year during which such
liquidation occurs, by the end of such taxable year (or, if later, within 90
days after the date of such liquidation), provided, that if the amount
available upon liquidation exceeds the amount available upon balances (as
adjusted), such excess shall be distributed in accordance with Section 12.
14. ALLOCATION OF TAXABLE INCOME AND LOSSES
14.l Allocation of Taxable Income and Losses. Except as set forth in Section
14.2 hereof, all income, gain, loss and deductions of the Partnership shall be
allocated to each Partner in accordance with such Partner's respective
Partnership Interest as set forth in Section 7 hereof.
14.2 Special Allocations.
A. Minimum Gain Chargeback. Notwithstanding any other provision of this
Agreement, if there is a net decrease in Partnership minimum gain (as defined
in Regulations Section 1.704-lT(b)(4)(iv)(c)), items of income and gain shall
be allocated to all Partners in accordance with Regulations Section
1.704-lT(b)(4)(iv)(e), and such allocations are intended to comply with the
minimum gain chargeback requirements of Regulations Section 1.704
lT(b)(4)(iv) and shall be interpreted consistently therewith.
B. Section 704(c) Allocation. Solely for Federal, state, and local
income tax purposes and not for book or Capital Account purposes,
depreciation, amortization, gain, or loss with respect to property that is
properly reflected on the Partnership's books at a value that differs from its
adjusted basis for federal income tax purposes shall be allocated in
accordance with the principles and requirements of Code Section 704(c) and the
Regulations promulgated thereunder, and in accordance with the requirements of
the relevant provisions of the Regulations issued under Code Section 704(b).
For Capital Account purposes, depreciation, amortization, gain or loss with
respect to property that is properly reflected on the Partnership's books at a
value that differs from its adjusted basis for tax purposes shall be
determined in accordance with the rules of Regulations Section
1.704-l(b)(2)(iv)(g).
C. Risk of Loss Allocation. Any item of Partner Nonrecourse Deduction
(as hereinafter defined) with respect to a Partner Nonrecourse Debt (as
hereinafter defined) shall be allocated to the Partner or Partners who bear
the economic risk of loss for such Partner Nonrecourse Debt in accordance with
Regulations Section 1.704 lT(b)(4)(iv)(h)(2). The term "Partner Nonrecourse
Deduction" means any item of loss that is attributable to a Partner
Nonrecourse Debt pursuant to Regulations Section 1.704 lT(b)(4)(iv)(h)(2) and
(3). The term "Partner Nonrecourse Debt" means any nonrecourse debt of the
Partnership (within the meaning of Regulations Section
1.704-lT(b)(4)(iv)(k)(2)) for which any Partner bears the economic risk of
loss (within the meaning of Regulations Section 1.704-lT(b)(4)(iv)(k)(1)).
Subject to Section 14.2.A hereof, but notwithstanding any other provision of
this Agreement, in the event that there is a net decrease in minimum gain
attributable to a Partner Nonrecourse Debt (such minimum gain hereafter
referred to as "Partner Nonrecourse Minimum Gain") for a taxable year of the
Partnership, then, after taking into account allocations pursuant to Section
14. 2.A hereof, but before any other allocations are made for such taxable
year, each Partner with a share in the Partner Nonrecourse Minimum Gain
attributable to such Partner Nonrecourse Debt at the beginning of such year
shall be allocated items of income and gain for such year (and, if necessary,
for subsequent years) in proportion to, and to the extent of, an amount equal
to the greater of (i) the portion of such Partner's share of the net decrease
in Partner Nonrecourse Minimum Gain that is allocable under Regulations
Section 1.704-lT(b)(4)(iv)(h)(4) to the disposition of Partnership property
subject to such Partner Nonrecourse Debt or (ii) the deficit balance in such
Partner's Capital Account at the end of such year (determined before any
allocation of Partnership income, gain, loss, deduction or Code Section
705(a)(2)(ii) expenditure for such year and by excluding from such deficit
Capital Account balance any amount such Partner is obligated to restore under
Regulations Section 1.704 l(b)(2)(ii)(c) as well as any addition thereto for
such Partner's share of Partner Nonrecourse Minimum Gain and Partnership
minimum gain (as defined in Regulations Section 1.704-lT(b)(4)(iv)(c)). For
this purpose, the Partner's Capital Accounts shall be reduced by the items
described in Regulations Section 1.704-l(b)(2)(ii)(d)(4), (5) and (6). The
items to be allocated pursuant to this subparagraph shall be determined in
accordance with Regulations Section 1.704-lT(b)(4)(iv)(h)(4). A Partner's
share of the Partner Nonrecourse Minimum Gain shall be determined in
accordance with Regulations Section 1.704-lT(b)(4)(iv)(h)(5).
D. Allocation of Excess Nonrecourse Liabilities. For the purpose of
determining each Partner's share of the Partnership nonrecourse liabilities
pursuant to Regulations Section 1.752 lT(e)(l), and solely for such purpose,
each Partner's interest in Partnership profits is hereby specified to be such
Partner's Partnership Interest.
E. Unexpected Allocations and Distributions. No allocations may be made
to a Limited Partner to the extent such allocation causes or increases a
deficit balance in such Limited Partner's Capital Account in excess of any
amount that such Limited Partner is obligated to restore (taking into account
Regulations Section 1.704-l(b)(2)(ii)(d), 1.704-lT(b)(4)(iv)(h)(5) and
1.704 lT(b)(4)(iv)(f) as of the end of the taxable year to which such
allocation relates. Notwithstanding any other provision of this Agreement
except Sections 14.2.A and 14.2.C hereof, in the event that a Limited Partner
unexpectedly receives an adjustment, allocation or distribution described in
Regulations Section 1.704-l(b)(2)(ii)(d)(4), (5) or (6) which results in such
Limited Partner having a negative Capital Account balance (as determined
above), then such Limited Partner shall be allocated items of income and gain
in an amount and manner sufficient to eliminate, to the extent required by the
Regulations, such negative balance in such Limited Partner's Capital Account
as quickly as possible.
F. Capital Events. All net income, gain, loss and deductions of the
Partnership resulting from a Capital Event shall be allocated among the
Partners in proportion to their respective Partnership Interests.
G. Special Allocation of Loss. Notwithstanding any other provision of
this Agreement, in the Partnership's initial year, there shall first be
allocated to Convex Computer Corporation $200,000 of gross items of deduction
and loss, with all remaining income, gain, loss and deduction allocated to
each Partner in accordance with such Partner's respective Partnership Interest
set forth in Section 7 hereof.
14.3 Capital Accounts of Transferred Partnership Interest. Upon the transfer
of all or any part of a Partnership Interest as permitted by this Agreement,
the Capital Account (or portion thereof) of the transferor that is
attributable to the transferred interest (or portion thereof) shall carry over
to the transferee, as prescribed by Regulations Section 1.704l(b)(2)(iv)(1).
14.4 Deficit Funding Obligation. Notwithstanding anything to the contrary
contained in this Agreement, the General Partner shall be unconditionally
obligated to make contributions to the Partnership so as to restore the
deficit balance in the General Partner's Capital Account at such time or times
as are required by Regulations Section 1.704 l(b)(2)(ii)(b)(3). The
determination of the deficit balance (if any) in the General Partner's Capital
Account upon the liquidation of the Partnership or an interest in the
Partnership shall be made after consideration of all Capital Account
adjustments, including the allocation of all income, gain, loss and deductions
for such year and income, gain, loss and deductions that would be incurred if
the Partnership disposed of or distributed all of its assets to the Partners.
The parties do not intend this deficit restoration provision to cause the
General Partner to be liable, directly or indirectly, for any nonrecourse
liabilities of the Partnership. The contributions to the Partnership made
pursuant hereto shall first be used to satisfy the creditors of the
Partnership; any remaining amounts shall be distributed to the Partners in
accordance with this Agreement.
14.5 Time of Allocation. The allocations set forth above shall be made as of
the end of each fiscal year.
14.6 Transfers During Taxable Year. All taxable income, gain, loss and
deductions allocable pursuant to Section 14. 1 for a fiscal year with respect
to any Partnership Interest which may have been transferred during such year
shall be allocable between the transferor and transferee based upon the number
of days that each was recognized by the Partnership as the owner of such
Partnership Interest, without regard to the results of Partnership operations
during the particular days of such fiscal year and without regard to which
cash distributions were made to the transferor or transferee; provided
however, that all income, gain, loss and deductions so allocated as the result
of a Capital Event shall be allocated to the recognized owner of the
Partnership Interest for the day on which the Capital Event giving rise to
such gain, loss or deduction occurred.
14.7 Right to Use Alternative Method of Calculations. Notwithstanding
anything else in this Section 14, the Partnership shall have the right to use
a different method of allocating Partnership income and loss if it is advised
by the Partnership accountant or tax counsel that the method of allocation
provided herein does not comply with the Code or the Regulations. The General
Partner shall notify each Partner of any change in the method of allocating
Partnership income or loss in accordance with this paragraph promptly after
the occurrence thereof.
14.8 Adjustment of Capital Accounts. After all allocations for the taxable
year are made, Capital Accounts shall be adjusted by the Partnership to the
extent necessary to comply with applicable laws, regulations and
administrative pronouncements. The tax allocation provisions of this
Agreement are intended to produce final Capital Account balances that are at
levels ("Target Final Balances") which permit liquidating distributions that
are made in accordance with such final Capital Account balances to be equal to
the distributions that would occur under Section 12 hereof if such liquidating
proceeds were distributed pursuant to such Section 12. To the extent that the
tax allocation provisions of this Agreement would not produce the Target Final
Balances, the Partners agree to take such actions as are necessary to amend
such tax allocation provisions to produce such Target Final Balances.
Notwithstanding the other provisions of this Agreement, allocations of income,
gain, loss and deductions (including income, gain, loss and deductions from
Capital Events) shall be made prospectively as necessary to produce such
Target Final Balances (and, to the extent such prospective allocations would
not affect such result, the prior tax returns of the Partnership shall be
amended to reallocate income, gain, loss and deductions to produce such Target
Final Balances) .
15. ASSIGNABILITY OF GENERAL AND LIMITED PARTNERS' INTEREST
15.1 General Partner's Interest; Admission of Successor or Additional General
Partners.
A. Upon the General Partner's insolvency, bankruptcy, dissolution or any
other event which under law requires the dissolution of the Partnership absent
a determination to continue the Partnership (collectively, "Disabling Event"),
its personal representative, executor, administrator or trustee, as the case
may be (collectively, "Representative"), may designate one or more persons to
be the successor general partners, with such participation in the Partnership
Interest of the existing General Partner as the Representative and such
successor may agree upon. In addition, if any Disabling Event shall occur,
the Partners, by Majority Consent (upon five days notice to the
Representative), may convert the Interest of the General Partner into a
limited partnership interest, with the same economic rights previously
attached thereto, but only with the rights of a limited partner regarding the
management of the Partnership and appoint a new general partner and transfer
to it such partnership interest ( taken from all the Partners, pro rata) as
they may determine by Majority Consent. In the event of any appointment of a
new general partner as described above, the Partnership shall continue in
existence under the terms hereof; provided that, in the opinion of counsel to
the Partnership, the substitution of such new general partner will not
adversely affect the Partnership's qualification as a Partnership for tax
purposes.
B. The General Partner may substitute in its stead any affiliate of the
General Partner, which shall include any entity that controls, is controlled
by, or is under common control with, the General Partner upon the prior
written consent of the other Partners, which consent shall not be unreasonably
withheld.
15.2 Restrictions on Transferability of General Partner's Partnership
Interest.
A. Except as set forth in Section 15.1 hereof, the General Partner shall
not be permitted to sell, transfer, pledge, encumber, or otherwise dispose of,
by operation of law or otherwise (collectively, "Transfer"), the whole or any
part of its Partnership Interest without the prior written consent of the
Limited Partners.
B. Notwithstanding anything herein to the contrary, the General Partner
shall not Transfer its Partnership Interest if such proposed sale or exchange,
when added to the total of all other Transfers by all Partners of Partnership
Interests within the preceding 12 months, would, in the opinion of counsel for
the Partnership, result in the termination of the Partnership under Section
708 of the Code of 1986, as amended, unless the Partnership and the
transferring holder shall have received a ruling from the Internal Revenue
Service that the proposed sale or exchange would not cause such termination.
C. Notwithstanding anything herein to the contrary, the General Partner
shall not Transfer its Partnership Interest unless the transferee shall have
paid or, at the election of the General Partner, become obligated to pay all
reasonable expenses connected with such Transfer.
D. Notwithstanding anything herein to the contrary, the General Partner
shall not Transfer its Partnership Interest unless such proposed Transfer is,
in the opinion of counsel to the Partnership, an exempt transaction under the
Securities Act of 1933, as amended (the "Securities Act") and under any
applicable state securities laws.
15.3 Restrictions on Transferability of Limited Partners' Partnership
Interests.
A. None of the Limited Partners shall Transfer the whole or any part of
its Partnership Interest without first complying with Section 15.4 hereof and,
unless the transferee is a Partner, without the prior written consent of the
General Partner, which consent shall not be unreasonably withheld. Any
unauthorized transfer shall be void ab initio.
B. Notwithstanding anything herein to the contrary, a Limited Partner
shall not Transfer its Partnership Interest if such proposed Transfer, when
added to the total of all other Transfers by all Partners of the Partnership
Interests within the preceding 12 months, would, in the opinion of counsel for
the Partnership, result in the termination of the Partnership under Section
708 of the Code, as amended, unless the Partnership and the transferring
holder shall have received a ruling from the Internal Revenue Service that the
proposed sale or exchange would not cause such termination.
C. Notwithstanding anything herein to the contrary, no Limited Partner
shall Transfer its Partnership Interest unless the transferee shall have paid
or, at the election of the General Partner, become obligated to pay all
reasonable expenses connected with such Transfer. Any transferee of a
Partnership Interest shall be bound by this Section 15.
D. Notwithstanding anything herein to the contrary, a Limited Partner
shall not Transfer its Partnership Interest unless such Transfer is, in the
opinion of counsel to the Partnership, an exempt transaction under the
Securities Act and under any applicable state securities laws.
15.4 Right of First Refusal. If any Limited Partner shall wish to Transfer
all or any part of its Partnership Interest, the Limited Partner desiring to
make the Transfer shall first give notice (the "Notice") to the other Partners
of its desire to make such Transfer, the bona fide terms on which it wishes to
Transfer such Partnership Interest and information regarding the potential
transferee. The other Partners shall then have 30 days in which to purchase
such Partner's Partnership Interest on the terms contained in the Notice, pro
rata in proportion to their Partnership Interests or in such other proportions
as they may agree to. Any purchase of a Partnership Interest by one or more
Partners pursuant to the preceding sentence shall be, in aggregate, for the
entire portion being offered of such Partnership Interest. If such
Partnership Interest is not so purchased by one or more Partners, the Partner
desiring to make the Transfer may sell such Partnership Interest to the third
party described in the notice on terms no less favorable to such Partner than
the terms contained in such notice for a period of 120 days from the date of
such notice.
15.5 Substituted Limited Partners. Except as otherwise provided in this
Agreement, an assignee of the whole or any portion of a Limited Partner's
Partnership Interest shall not have the right to become a substituted Limited
Partner in place of its assignor unless (i) the written consent of the General
Partner to such substitution shall have been obtained, which consent, in the
General Partner's absolute discretion, may be withheld; (ii) the assignment
instrument shall have been in form and substance reasonably satisfactory to
the General Partner; (iii) the assignor and assignee named therein shall have
executed and acknowledged such other instrument or instruments as the General
Partner may reasonably deem necessary or desirable to effectuate such
admission; (iv) the assignee shall have accepted, adopted and approved in
writing all of the terms and provisions of this Agreement, as the same may
have been amended; and (v) if required, the Partnership Interest was first
offered to the Partners in accordance with Section 15.4 hereof. Assignees of
limited Partnership Interests will be recognized by the Partnership as
substituted Limited Partners as of the commencement of the first fiscal
quarter following the satisfaction of the foregoing conditions. Each Limited
Partner hereby consents to the admission of such substituted Limited Partners.
15.6 Withdrawal of Limited Partner. Except as otherwise specifically
permitted by this Agreement, no Limited Partner shall be entitled to withdraw
from the Partnership.
15.7 Insolvency, Legal Incompetency, or Dissolution of Limited Partner. The
insolvency, legal incompetency, or dissolution of a Limited Partner shall not
dissolve or terminate the Partnership. Upon the termination, bankruptcy or
dissolution of a Limited Partner, the trustee, personal representative,
guardian or other successor in interest of such Limited Partner shall have all
the rights and be liable for all the liabilities of the Limited Partner in the
Partnership to the extent of such Limited Partner's Partnership Interest,
subject to the terms and conditions of this Agreement, and, with the prior
written consent of the General Partner, which may be withheld at its sole
discretion, may be substituted for such Limited Partner.
16. DEFAULT
Except as otherwise specifically provided herein, if a Limited Partner
defaults in the performance of its obligations hereunder and such default
continues for 30 days after written notice thereof from the General Partner,
then the Partnership shall have all rights hereunder or at law or in equity.
If the General Partner materially defaults in the performance of its
obligations hereunder and such default continues for 30 days after written
notice thereof from one of the non-defaulting Partners, the non-defaulting
Partners shall have all rights hereunder at law or in equity; provided,
however, that if such default is not one of intentional wrongdoing by the
General Partner and cannot be cured within such 30 day period, but the General
Partner diligently attempts to cure such default, the non-defaulting Partners
shall not have such rights until the General Partner ceases its diligent
attempt to cure such breach.
17. NOTICES
Any notices and demands hereunder shall be in writing, shall be deemed to have
been given on receipt, and, unless otherwise provided herein, shall be
delivered by facsimile or overnight messenger service or, if to a different
country, by a recognized international courier to the addresses set forth on
Exhibit A hereto.
The Partners shall each have the right by notice in writing to the General
Partner pursuant to the provisions of this Section 17 to change, from time to
time, the respective addresses and/or parties to whom or at which said notice
hereunder shall be given.
18. NO PARTITION
No partner shall have the right to partition any property of the Partnership
during the term of this Agreement nor shall any Partner make application to
any court or authority having jurisdiction in the matter or commence to
prosecute any action or proceeding for partition and the sale thereof, and
upon any breach of the provisions of this paragraph by any Partner, the other
Partners, in addition to all rights and remedies at law and in equity it may
have or claim, shall be entitled to a decree or other restraining order
enjoining such application, action or proceedings.
19. AMENDMENT OF PARTNERSHIP AGREEMENT
Except as otherwise required by law, this Agreement contains the entire
understanding of the Partners and cannot be modified or amended without
Majority Consent; provided, however, that this Agreement may be amended by the
General Partner, from time to time in any respect to, (i) add to the
representations, duties or obligations of the General Partner or surrender any
right of control to the General Partner herein, (ii) cure any ambiguity solely
of a technical nature, correct or supplement any provisions herein which may
be inconsistent with any other provision herein, and (iii) to admit new
general and limited partners into the Partnership pursuant to Section 15
hereof; provided, further, that without the consent of each Partner to be
adversely affected by the amendment, this Agreement may not be amended so as
to (i) convert a Limited Partner to a General Partner; (ii) modify the
liability of a Limited Partner; (iii) alter the interest of a Limited Partner
in profits or losses or in cash distributions of the Partnership; (iv) cause
the disclosure of the identity of any natural person owning an interest in the
Partnership or any of the Partners or any affiliates or subsidiaries thereof;
(v) impose restrictions on the assignability or transferability of Partnership
Interests greater than the restrictions set forth in Section 15 hereof; (vi)
terminate the Partnership; (vii) materially alter the purpose of the
Partnership as set forth in Section 4 hereof; (viii) reduce any time period
set forth herein for notice and cure periods; or (ix) increase the amount of
any fees payable or permitted to be paid hereunder to the General Partner.
The General Partner shall notify each Partner of any amendment to this
Agreement effected in accordance with this Section 19 promptly after the
occurrence thereof.
20. REPRESENTATIONS AND WARRANTIES
By executing this Agreement, each Limited Partner represents and warrants as
follows:
A. It is purchasing its Partnership Interest for its own account and not
with a view towards resale or distribution thereof and does not nose have any
reason to anticipate any change in its circumstances or other particular
occasion or event which would cause it to sell its Partnership Interest.
B. It is a sophisticated investor and recognizes that real estate
investments involve certain risks and it has taken full cognizance of and
understands such risks.
C. It understands that the Partnership Interests have not been
registered under the Securities Act or applicable state securities laws (the
"State Laws") and may not be resold unless registered under the Securities Act
and State Laws or unless exemptions therefrom are available.
D. It has been afforded the opportunity to request any and all relevant
information concerning the Project and the Partnership's proposed business and
has been provided with all information it has requested and with copies of all
documents it has requested.
21. MISCELLANEOUS
21.1 Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Texas, and the Partnership shall be
subject to the Act, except as may be otherwise expressly provided herein.
21.2 Other Business Interests. Except as specifically provided herein, this
Agreement shall not be deemed to limit any Partner in engaging in any business
or venture of any kind, independently or with others, including, but not
limited to, the real estate business in all its phases.
21.3 Headings. Section headings and subheadings thereunder are for the
convenience of reference only, and shall be given no legal effect in the
interpretation of this Agreement.
21.4 Nouns and Pronouns. Unless the context otherwise requires, any pronouns
whenever used herein shall include corresponding masculine, feminine or neuter
pronouns and the singular of any noun or pronoun shall include the plural and
vice versa, as the case may be.
21.5 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument.
21.6 Severability. In the event any part or provision of this Agreement is
invalid for any reason, the remainder of this Agreement shall continue and be
deemed in full force and effect.
21.7 Withholding. The Partnership shall have the right to withhold any funds
as may be required under the laws of the United States or any state with
respect to tax obligations of any Partner.
21.8 Reproduction of Documents. This Agreement may be reproduced by any
photographic, photostatic, microfilm, microcard, miniature photographic or
other similar process and any original document so reproduced may be
destroyed. Each of the parties hereto hereby agree and stipulate that any
such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence or whether or not such reproduction was made in the regular course
of business) and that any enlargement, facsimile or further reproduction shall
likewise be admissible in evidence.
22. BINDING EFFECT
Except as otherwise expressly provided herein, each and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto
and their respective legal representatives, successors and assigns.
23. TIME OF THE ESSENCE
Time is of the essence to each and every provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Partnership Agreement as of the day and year first written above.
MANTAX (America), Inc .
By: /s/ Me. Emmanuel Ducrest
Its: President
AMBER REALTY, INC.
By: /s/ Me. Andre Gillioz
Its: President
CONVEX COMPUTER CORPORATION
By: /s/ J. Cameron McMartin
Its: Vice President, Finance and
Chief Financial Officer
EXHIBIT A
Partnership
General Partner Address Interest
Mantax (America), Inc. c/o Abed & Savage 2%
1101 Seventeenth St. N.W.
Suite 405
Washington, D.C. 20036
Facsimile: (202)452-1489
Limited Partners
Amber Realty, Inc. c/o Croisier & Gillioz 49%
61 Rue Du Rhone
1204 Geneva
Switzerland
Facsimile: (412)310-8192
Convex Computer Corporation 3000 Waterview Parkway 49%
P. O. Box 833851
Richardson, Texas 75083
Attn: Jimmie L. Mayhew
Facsimile: (214)497-4441
EXHIBIT B
Being Lot 2, Block 2 of REPLAT OF SYNERGY PARK ADDITION, an Addition to the
City of Richardson, Collin County, Texas according to the plat thereof
recorded in Volume G. Page 680, Map Records, Collin County, Texas.
EXHIBIT C
For illustrative purposes only, the Partners hereby set forth an example of
the adjustment permitted by Clause 8.5.C(ii) in the event that a Partner does
not make an Additional Contribution and the General Partner elects to adjust
the Partner's Partnership Interest.
Partner GP LP-A LP-B TOTAL
Beginning Partnership 2.000% 49.000% 49.000% 100.000%
Interest
Beg. Book Value of $2,000 $49,000 $49,000 $100,000
Capital Accounts
Additional Capital $ 200 $ 4,900 $ 0 $ 5,100
Contribution in response to
a $10,000 Capital Call
Further Capital Contribution $ 0 $ 4,900 X $ 4,900
to make up for the Defaulting
Partner*
Ending Book Value of Capital $2,200 $58,800 $49,000 $110,000
Accounts
Ending Partnership Interest 2.000% 53.455% 44.545% 100.000%
*This example is not meant to preclude the possibility that a non-defaulting
Partner might instead elect to make a Default Loan to the Partnership.
EXHIBIT 10.8.1
AMBVEX LTD.
First Amendment to Limited Partnership Agreement
WHEREAS, by Agreement dated March 21, 1994 the parties hereto have associated
together as the Partners of Ambvex Ltd., a Texas limited partnership; and
WHEREAS, pursuant to Section 19 of the March 21 Agreement, the Partners now
desire to amend certain terms of that Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements herein
contained and for other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Partners hereby agree as follows:
(1) Unless otherwise amended, terms defined in the Agreement have the same
meaning herein.
(2) Section 1. Definitions of the Agreement is amended to define "Condition
Precedent" as follows:
"Condition Precedent shall mean the execution of a contract for the Purchase
of the Project from the Chamansynergy Limited Partnership.
(3) Section 8.3.A of the Agreement is amended to provide that Convex Computer
Corporation ("Convex") shall contribute its $2 million share of the
Refinancing Funds to the Partnership in the following manner:
(a) On June 10, 1994, Convex shall transfer $2 million to an escrow
account held by Commonwealth Land Title Company of Dallas ("the Escrow
Agent").
(b) Convex shall instruct the Escrow Agent to hold these Refinancing
Funds on behalf of the Partnership until such time as the Condition Precedent
is satisfied.
(c) Immediately upon presentation to Convex by the General Partner of a
contract for the purchase and sale of the Project executed by the
Chamansynergy Limited Partnership, Convex shall instruct the Escrow Agent to
release the Refinancing Funds to the General Partner pursuant to the General
Partner's instructions.
(d) In consideration for the execution of a guaranty Agreement by Amber
Realty, Inc. in favor of Chamansynergy Limited Partnership, Convex agrees
that it shall execute a substantially identical guaranty for its proportionate
share in favor of Amber Realty, Inc. prior to satisfaction of the Condition
Precedent.
(4) Section 8.4.A. of the Agreement is amended to provide that the Partners
shall contribute the Purchase Funds to the Partnership on July 5, 1994.
(5) Section 8.4.A.(3) of the Agreement is amended to add the following
subsections (i) and (ii):
(i) Convex Computer Corporation shall also pay any interest and penalty
charges ultimately payable by any Partner to Allstate Life Insurance Company
for the period from July 1, 1994 through July 12, 1994 pursuant to the terms
of that certain Deed of Trust Note dated June 2, 1989, less the other
Partners' share of the interest expense which otherwise would have been paid
to Hartford Life Insurance Company for the same period.
(ii) The Partners shall pay their proportionate share of any of the
above-mentioned interest and penalty charges assessed for any period of time
after July 12, 1994.
(6) Section 8.4.C. of the Agreement is amended to substitute the words
"August 15, 1994" for the words "July 1, 1994".
IN WITNESS WHEREOF, the Partners have executed this First Amendment effective
as of the 10th day of June 1994.
MANTAX (AMERICA) , INC.
By: /s/ Me. Emmanuel Ducrest
Its President
AMBER REALTY, INC.
By: /s/ Me. Andre Gillioz
Its President
CONVEX COMPUTER CORPORATION
By:/s/ J. Cameron McMartin
Its Vice President, Finance and
Chief Financial Officer
EXHIBIT 10.8.2
AMBVEX LTD.
Second Amendment to Limited Partnership Agreement
WHEREAS, by Agreement dated March 21, 1994, as amended by that First Amendment
to Limited Partnership Agreement dated June 10, 1994 (collectively, the
"Agreement"), the parties hereto have associated together as the Partners of
Ambvex Ltd., a Texas limited partnership; and
WHEREAS, pursuant to Section 19 of the Agreement, the Partners now desire to
amend certain terms of that Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements herein
contained and for other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Partners hereby agree as follows:
(1) Terms defined in the Agreement have the same meaning herein.
(2) Section 12 of the Agreement is amended by adding the following text to
the end of that Section:
The Partners acknowledge that the Project is being financed, in part, by a
mortgage loan having a term of 10 years and an amortization period of 11
years. The General Partner may establish a reserve not to exceed $
1,392,957.72 to be used to repay the mortgage loan at maturity. The repayment
reserve will be invested by the General Partner in short-term United States
Treasury or similar investment grade securities. The repayment reserve will
be funded by withholding beginning not earlier than August 1, 1999, the
distribution of up to $22,000 per month of Partnership Revenues (net after
expenses).
IN WITNESS WHEREOF, the Partners have executed this Second Amendment effective
as of the 13th day of July, 1994.
MANTAX (AMERICA) , INC.
By:
Its Secretary
AMBER REALTY, INC.
By: /s/ Me. Andre Gillioz
Its President
CONVEX COMPUTER CORPORATION
By: /s/ J. Cameron McMartin
Vice President, Finance
and Chief Financial Officer
Exhibit 10.9
SS-Soft. Corp.-030184-092492 Agreement Number SOFT-02340
UNIX SYSTEM LABORATORIES INC.
SOFTWARE AGREEMENT
1. UNIX SYSTEM LABORATORIES, INC., a Delaware corporation ("USL"), having an
office at 190 River Road, Summit, New Jersey 07901, and CONVEX COMPUTER
CORPORATION, a Delaware corporation having an office at 3000 Waterview
Parkway, (P. O. Box 833851), Richardson, Texas 75083-3851, for itself and its
SUBSIDIARIES (collectively referred to herein as "LICENSEE") agree that, after
execution of this Agreement by LICENSEE and acceptance of this Agreement by
USL, the terms and conditions set forth in this Agreement shall apply to use
by LICENSEE of SOFTWARE PRODUCTS that become subject to this Agreement.
2. USL makes certain SOFTWARE PRODUCTS available under this Agreement. Each
such SOFTWARE PRODUCT shall become subject to this Agreement on acceptance by
USL of a Supplement executed by LICENSEE that identifies such SOFTWARE PRODUCT
and lists the DESIGNATED CPUs therefor. The first Supplement for a specific
SOFTWARE PRODUCT shall have attached a Schedule for such SOFTWARE PRODUCT. Any
additional terms and conditions set forth in such Schedule shall also apply
with respect to such SOFTWARE PRODUCT. Initially, Supplement(s) numbered 1 are
included in and made part of this Agreement.
3. Additional Supplements may be added to this Agreement to add additional
SOFTWARE PRODUCTS (and DESIGNATED CPUs therefor) or to add or replace
DESIGNATED CPUs for other SOFTWARE PRODUCTS covered by previous Supplements.
Each such additional Supplement shall be considered part of this Agreement
when executed by LICENSEE, if required, and accepted by USL.
4. This Agreement and its Supplements set forth the entire agreement and
understanding between the parties as to the subject matter hereof and merge
all prior discussions between them, and neither of the parties shall be bound
by any conditions, definitions, warranties, understandings or representations
with respect to such subject matter other than as expressly provided herein or
as duly set forth on or subsequent to the date of acceptance hereof in writing
and signed by a proper and duly authorized representative of the party to be
bound thereby. No provision appearing on any form originated by LICENSEE shall
be applicable unless such provision is expressly accepted in writing by an
authorized representative of USL.
Accepted by:
COMPUTER CORPORATION UNIX LABORATORIES, INC.
By: /s/ Philip N. Cardman By: /s/ A.R. DeGirlamo
Title: Vice President & General Counsel Title: Director, Licensing
and Operations
Date: 02 December 1993 Date: 12/6/93
I. DEFINITIONS
1.01 CPU means central processing unit.
1.02 COMPUTER PROGRAM means any instruction or instructions, in source-code or
object-code format, for controlling the operation of a CPU.
1.03 DESIGNATED CPU means any CPU listed as such for a specific SOFTWARE
PRODUCT in a Supplement to this Agreement.
1.04 SOFTWARE PRODUCT means materials such as COMPUTER PROGRAMS, information
used or interpreted by COMPUTER PROGRAMS and documentation relating to the use
of COMPUTER PROGRAMS. Materials available from USL for a specific SOFTWARE
PRODUCT are listed in the Schedule for such SOFTWARE PRODUCT. Certain SOFTWARE
PRODUCTS available under this Agreement may contain materials prepared by
other developers.
1.05 SUBSIDIARY of a company means a corporation or other legal entity (i) the
majority of whose shares or other securities entitled to vote for election of
directors (or other managing authority) is now or hereafter controlled by such
company either directly or indirectly; or (ii) the majority of the equity
interest in which is now or hereafter owned and controlled by such company
either directly or indirectly; but any such corporation or other legal entity
shall be deemed to be a SUBSIDIARY of such company only so long as such
control or such ownership and control exists.
II. GRANT OF RIGHTS
2.01 USL grants to LICENSEE a personal, nontransferable and non-exclusive
right to use in the United States each SOFTWARE PRODUCT identified in the one
or more Supplements hereto, solely for LICENSEE's own internal business
purposes and solely on or in conjunction with DESIGNATED CPUs for such
SOFTWARE PRODUCT. Such right to use includes the right to modify such SOFTWARE
PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT,
provided that any such modification or derivative work that contains any part
of a SOFTWARE PRODUCT subject to this Agreement is treated hereunder the same
as such SOFTWARE PRODUCT. USL claims no ownership interest in any portion of
such a modification or derivative work that is not part of a SOFTWARE PRODUCT.
2.02 (a) LICENSEE may permit access to SOFTWARE PRODUCTS by its contractors
and allow use of SOFTWARE PRODUCTS by its contractors on DESIGNATED CPUs,
provided such access and use is exclusively for LICENSEE in connection with
work called for in written agreements between LICENSEE and such contractors in
accordance with Section 2.02(f) of this Agreement. LICENSEE may designate
contractors' CPUs as DESIGNATED CPUs pursuant to Section 2.04 and furnish
SOFTWARE PRODUCTS to contractors for use on such CPUs.
(b) Any claim, demand or right of action arising on behalf of a contractor
from the furnishing to it or use by it of SOFTWARE PRODUCTS shall be solely
against LICENSEE.
(c) Contractors shall agree to the same responsibilities and obligations and
other restrictions pertaining to the use of SOFTWARE PRODUCTS as those
undertaken by LICENSEE under this Agreement.
(d) When a contractor's work for LICENSEE is completed, all copies of SOFTWARE
PRODUCTS furnished to such contractor or made by such contractor and all
copies of any modifications or derivative works made by such contractor based
on such
SOFTWARE PRODUCT shall be returned to LICENSEE or destroyed, including any
copies stored in any computer memory or storage medium.
(e) A contractor may not acquire any ownership interest in any modification or
derivative work prepared by such contractor based on or using a SOFTWARE
PRODUCT subject to this Agreement unless such contractor also becomes a
licensee of USL for such SOFTWARE PRODUCT.
(f) LICENSEE and any such contractor shall enter into a written agreement
before or at the time of permitting access to or allowing use of any SOFTWARE
PRODUCT by a contractor or furnishing a SOFTWARE PRODUCT to a contractor. Such
written agreement shall be consistent with the requirements of this Section
2.02. Copies of such agreements shall be provided to USL on request; however,
portions of such agreements not required by this Section may be deleted from
such copies.
2.03 A single back-up CPU may be used as a substitute for a DESIGNATED CPU
without notice to USL during any time when such DESIGNATED CPU is inoperative
because it is malfunctioning or undergoing repair, maintenance or other
modification.
2.04 LICENSEE may at any time notify USL in writing of any changes, such as
replacements or additions, that LICENSEE wishes to make to the DESIGNATED CPUs
for a specific SOFTWARE PRODUCT. USL will prepare additional Supplements as
required to cover such changes. Changes covered by a Supplement shall become
effective after execution of such Supplement by LICENSEE, if required,
acceptance thereof by USL and, in the case of each additional CPU, receipt by
USL of the appropriate fee.
2.05 On USL's request, but not more frequently than annually, LICENSEE shall
furnish to USL a statement, certified by an authorized representative of
LICENSEE, listing the location, type and serial number of all DESIGNATED CPUs
hereunder and stating that the use by LICENSEE of SOFTWARE PRODUCTS subject to
this Agreement has been reviewed and that each such SOFTWARE PRODUCT is being
used solely on DESIGNATED CPUs (or temporarily on back-up CPUs) for such
SOFTWARE PRODUCTS in full compliance with the provisions of this Agreement.
2.06 No right is granted by this Agreement for the use of SOFTWARE PRODUCTS
directly for others, or for any use of SOFTWARE PRODUCTS by others, except
LICENSEE'S contractors pursuant to Section 2.02, unless such uses are
permitted for a particular SOFTWARE PRODUCT by a specific provision in the
Schedule for such SOFTWARE PRODUCT. For example, use of a SOFTWARE PRODUCT in
a time-sharing service or a service-bureau operation is permitted only
pursuant to such a specific provision.
III. DELIVERY
3.01 Within a reasonable time after USL receives the fee specified in the
first Supplement for a SOFTWARE PRODUCT, USL will furnish to LICENSEE one (1)
copy of such SOFTWARE PRODUCT in the form identified in the Schedule for such
SOFTWARE PRODUCT.
3.02 Additional copies of SOFTWARE PRODUCTS covered by this Agreement will be
furnished to LICENSEE after receipt by USL of the then-current distribution
fee for each such copy.
3.03 From time to time, and at its sole discretion, USL may provide additional
deliveries of SOFTWARE PRODUCTS or elements of SOFTWARE PRODUCTS to LICENSEE
which will consist of the following:
(a) Revised source and/or object code for a SOFTWARE PRODUCT.
(b) New or modified documentation or information regarding such documentation.
All such additional deliveries of SOFTWARE PRODUCTS furnished to LICENSEE with
respect to a SOFTWARE PRODUCT shall be deemed to be part of such SOFTWARE
PRODUCT and, shall be governed by the terms and conditions of this Agreement
including the applicable Supplement for such SOFTWARE PRODUCT. LICENSEE
understands and acknowledges that all obligations undertaken by it under this
Agreement with respect to such SOFTWARE PRODUCT (including, without
limitation, obligations of confidentiality) shall automatically attach to each
such additional delivery of a SOFTWARE PRODUCT at the time such item is
furnished to LICENSEE, and that such obligations shall survive termination of
this Agreement.
IV. EXPORT
4.01 LICENSEE agrees that it will not, without the prior written consent of
USL, export, directly or indirectly, SOFTWARE PRODUCTS covered by this
Agreement to any country outside of the United States. LICENSEE also agrees
that it will obtain any and all necessary export licenses for any such export
or for any disclosure of a SOFTWARE PRODUCT to a foreign national.
V. FEES AND TAXES
5.01 Within sixty (60) days after acceptance of this Agreement by USL,
LICENSEE shall pay to USL the fees required by the Supplement(s) initially
attached hereto for the DESIGNATED CPUs listed in such Supplement(s).
5.02 Within sixty (60) days after acceptance of each additional Supplement by
USL, LICENSEE shall pay to USL any fee required by such additional Supplement
for the DESIGNATED CPUs listed in such additional Supplement.
5.03 Payments to USL shall be made in United States dollars to USL at the
address specified in Section 7.10(a).
5.04 LICENSEE shall pay all taxes, including any sales or use tax (and any
related interest or penalty), however designated, imposed as a result of the
existence or operation of this Agreement, except any income tax imposed upon
USL by any governmental entity within the United States proper (the fifty (50)
states and the District of Columbia). Fees specified in Supplement(s) to this
Agreement and in Schedule(s) attached to Supplement(s) do not include taxes.
If USL is required to collect a tax to be paid by LICENSEE, LICENSEE shall pay
such tax to USL on demand.
VI. TERM
6.01 This Agreement shall become effective on and as of the date of acceptance
by USL.
6.02 LICENSEE may terminate its rights under this Agreement by written notice
to USL certifying that LICENSEE has discontinued use of and returned or
destroyed all copies of SOFTWARE PRODUCTS subject to this Agreement.
6.03 If LICENSEE fails to fulfill one or more of its obligations under this
Agreement, USL may, upon its election and in addition to any other remedies
that it may have, at any time terminate all the rights granted by it hereunder
by not less than two (2) months' written notice to LICENSEE specifying any
such breach, unless within the period of such notice all breaches specified
therein shall have been remedied; upon such termination LICENSEE shall
immediately discontinue use of and return or destroy all copies of SOFTWARE
PRODUCTS subject to this Agreement.
6.04 In the event of termination of rights under Sections 6.02 or 6.03, USL
shall have no obligation to refund any amounts paid to it under this
Agreement.
6.05 LICENSEE agrees that when a SUBSIDIARY's relationship to LICENSEE changes
so that it is no longer a SUBSIDIARY of LICENSEE, (i) all rights of such
former SUBSIDIARY to use SOFTWARE PRODUCTS subject to this Agreement shall
immediately cease, and (ii) such former SUBSIDIARY shall immediately
discontinue use of and return to LICENSEE or destroy all copies of SOFTWARE
PRODUCTS subject to this Agreement. No fees paid to USL for use of SOFTWARE
PRODUCTS on DESIGNATED CPUs of such former SUBSIDIARIES shall be refunded;
however, LICENSEE may substitute other CPUs for such DESIGNATED CPUs in
accordance with Section 2.04.
VII. MISCELLANEOUS PROVISIONS
7.01 This Agreement shall prevail notwithstanding any conflicting terms or
legends which may appear in a SOFTWARE PRODUCT.
7.02 USL warrants for a period of ninety (90) days from furnishing a SOFTWARE
PRODUCT to LICENSEE that any magnetic medium on which portions of a SOFTWARE
PRODUCT are furnished will be free under normal use from defects in materials,
workmanship or recording. If such a defect appears within such warranty period
LICENSEE may return the defective medium for replacement without charge.
Replacement is LICENSEE's sole remedy with respect to such a defect. USL also
warrants that it is empowered to grant the rights granted herein. USL and
other developers make no other representations or warranties, expressly or
impliedly. By way of example but not of limitation, USL and other developers
make no representations or warranties of merchantability or fitness for any
particular purpose, or that the use of any SOFTWARE PRODUCT will not infringe
any patent, copyright or trademark. USL and other developers shall not be held
to any liability with respect to any claim by LICENSEE, or a third party on
account of, or arising from, the use of any SOFTWARE PRODUCT.
7.03 No right is granted herein to use any identifying mark (such as, but not
limited to, trade names, trademarks, trade devices, service marks or symbols,
and abbreviations, contractions or simulations thereof) owned by, or used to
identify any product or service of, USL or a corporate affiliate thereof.
LICENSEE agrees that it will not, without the prior written permission of USL,
(i) use any such identifying mark in advertising, publicity, packaging,
labeling or in any other manner to identify any of its products or services or
(ii) represent, directly or indirectly, that any product or service of
LICENSEE is a product or service of USL or such an affiliate or is made in
accordance with or utilizes any information or documentation of USL or such an
affiliate.
7.04 Neither the execution of this Agreement nor anything in it or in any
SOFTWARE PRODUCT shall be construed as an obligation upon USL or any other
developer to furnish any person, including LICENSEE, any assistance of any
kind whatsoever, or any information or documentation other than the SOFTWARE
PRODUCTS to be furnished by USL pursuant to Sections 3.01 and 3.02.
7.05 (a) LICENSEE agrees that it shall hold all parts of the SOFTWARE PRODUCTS
subject to this Agreement in confidence for USL. LICENSEE further agrees that
it shall not make any disclosure of any or all of such SOFTWARE PRODUCTS
(including methods or concepts utilized therein) to anyone, except to
employees and contractors of LICENSEE to whom such disclosure is necessary to
the use for which rights are granted hereunder. LICENSEE shall appropriately
notify each employee to whom any such disclosure is made that such disclosure
is made in confidence and shall be kept in confidence by such employee. If
information relating to a SOFTWARE PRODUCT subject to this Agreement at any
time becomes available without restriction to the general public by acts not
attributable to LICENSEE, its contractors or employees of either, LICENSEE's
obligations under this section shall not apply to such information after such
time.
(b) Notwithstanding the provisions of Section 7.05(a), LICENSEE may distribute
copies of a SOFTWARE PRODUCT, either in modified or unmodified form, to third
parties having licenses of equivalent scope herewith from USL (or a corporate
affiliate or authorized distributor thereof) for the same SOFTWARE PRODUCT,
provided that LICENSEE first verifies the status of the recipient by calling
USL at 800-828-8649 (or other number specified by USL). USL will give oral
verification of the recipient's status for recipients in the United States and
written verification for recipients outside the United States. LICENSEE shall
maintain a record of each such distribution and, for each quarterly period
(ending on March 31st, June 30th, September 30th and December 31st) during
which any such distribution occurs, forward a copy of such record for such
period to USL at the correspondence address specified in Section 7.10(b)
within thirty (30) days of the end of such period. Such record shall include,
for each such distribution, the identity of the recipient, the date of
verification, the name of the person at USL providing verification and the
date of distribution. LICENSEE may also obtain materials based on a SOFTWARE
PRODUCT subject to this Agreement from such a third party and use such
materials pursuant to this Agreement, provided that LICENSEE treats such
materials hereunder the same as such SOFTWARE PRODUCT.
7.06 The obligations of LICENSEE, its employees and contractors under Section
7.05(a) shall survive and continue after any termination of rights under this
Agreement or cessation of a SUBSIDIARY's status as a SUBSIDIARY.
7.07 LICENSEE agrees that it will not use SOFTWARE PRODUCTS subject to this
Agreement except as authorized herein and that it will not make, have made or
permit to be made any copies of such SOFTWARE PRODUCTS except for use on
DESIGNATED CPUs for such SOFTWARE PRODUCTS (including backup and archival
copies necessary in connection with such use) and for distribution in
accordance with Section 7.05(b). Each such copy shall contain any copyright
notice, proprietary notice or notice giving credit to another developer, which
appears on or in the SOFTWARE PRODUCT being copied. Specific instructions
regarding such notices may also appear in the Schedules for certain SOFTWARE
PRODUCTS.
7.08 Neither this Agreement nor any rights hereunder, in whole or in part,
shall be assignable or otherwise transferable by LICENSEE and any purported
assignment or transfer shall be null and void.
7.09 Except as provided in Section 7.05(b), nothing in this Agreement grants
to LICENSEE the right to sell, lease or otherwise transfer or dispose of a
SOFTWARE PRODUCT in whole or in part.
7.10 (a) Payments to USL under this Agreement shall be made payable and sent
to:
UNIX SYSTEM LABORATORIES, INC.
P.O. Box 65080
Charlotte, North Carolina 28265
(b) Correspondence with USL relating to this Agreement shall be sent to:
UNIX SYSTEM LABORATORIES, INC.
P.O. Box 25000
Greensboro, North Carolina 27420
(c) Any statement, notice, request or other communication shall be deemed to
be sufficiently given to the addressee and any delivery hereunder deemed made
when sent by certified mail addressed to LICENSEE at its office specified in
this Agreement or to USL at the appropriate address specified in this Section
7.10. Each party to this Agreement may change an address relating to it by
written notice to the other party.
7.11 If LICENSEE is not a corporation, all references to LICENSEE's
SUBSIDIARIES shall be deemed deleted.
7.12 The construction and performance of this Agreement shall be governed by
the law of the State of New York.
SS-SOFT Corp.Supp.-A-030184-042091
Licensee: CONVEX COMPUTER CORPORATION
Agreement Number: SOFT-02340
Supplement Number: 1
UNIX SYSTEM LABORATORIES, INC.
SOFTWARE AGREEMENT SUPPLEMENT
The CPU(s) listed below are hereby made DESIGNATED CPU(s) for the following
SOFTWARE PRODUCT: UNIX System V, Release 2.0, subject to the referenced
Agreement. A Schedule for such SOFTWARE PRODUCT is attached to this
Supplement.
DESIGNATED CPU(s)
Location Type Serial No. Fee
SEE ATTACHMENT A N/C
This Supplement is attached to and made part of the referenced Agreement.
Execution and acceptance of such Agreement also constitutes execution and
acceptance of this Supplement.
Convex Computer Corporation Page 4
V-R2.0
Address
CPU Serial Number CPU Manufacturer CPU Model
3000 Waterview Parkway
Richardson, Texas 75083
2815 480 PC N/A
2816 480 PC N/A
0048127 480 PC N/A
004895 480 PC N/A
Schedule for
UNIX* System V, Release 2.0
and
UNIX System V, Release 2.0, International Version**
April 1, 1984
1. Fees
(a) Right-to-use fees
(i) First Source CPU $43,000***
(ii) Each additional Source CPU $16,000
(iii) Each of third and subsequent Source CPUs after initial sublicensing
fee has been paid
1-32 user system $ 1,000
1-64 user system $ 3,500
> 64 user system $ 7,000
(See Notes 1 and 3)
(iv) Object CPU $ 4,800
(See Note 2)
(b) Distribution fee for each additional
copy $ 400
(c) Sublicensing fees (applicable only to SUBLICENSED PRODUCT under a
Sublicensing Agreement)
(i) Initial $25,000***
(ii) Per-Copy
1-2 user system $ 60
1-8 user system $ 125
1-16 user system $ 500
1-32 user system $ 1,000
1-64 user system $ 3,500
> 64 user system $ 7,000
(See Notes 1 and 3)
*UNIX is a trademark of AT&T Bell Laboratories
**Furnished to LICENSEES outside the United States
***Lower fees may apply to LICENSEES for other versions of UNIX System
(d) Upgrade Fees
LICENSEES for the following UNIX operating system(s) may upgrade those
systems for the fees shown:
UNIX System Y Release 1.0 or Release 1.1 $ 2,500
UNIX System III $ 3,500
Information on upgrade fees for other UNIX operating systems
is available upon request.
(e) Fees in this schedule are subject to change without notice.
Notes:
1. User" means a terminal for entry of information and display or printing
of information, such terminal being serviced on a time-sharing basis by a
Source CPU running UNIX System V, Release 2.0 or UNIX System V, Release 2.0,
International Version, or an end-user CPU running a SUBLICENSED PRODUCT based
on UNIX System V, Release 2.0 or UNIX System V, Release 2.0, International
Version. An end-user must not be given the ability to increase the number of
users supported by a SUBLICENSED PRODUCT.
2. All of UNIX System V, Release 2.0 or UNIX System V, Release 2.0,
International Version may be used on or in conjunction with a Source CPU. Only
the materials that may be included in a SUBLICENSED PRODUCT pursuant to
Section 4 of this schedule may .be used on or in conjunction with an Object
CPU.
3. The number of users supported on a Source CPU paid for under Paragraph
1(a) (iii) or supported by a SUBLICENSED PRODUCT may be increased from a lower
number to a higher number on payment of the difference between the fee stated
for the lower number and the fee stated for the higher number.
2. Documentation Furnished
(a) Printed Documentation
Items marked with an asterisk (*) are supplied with UNIX System V, Release
2.0, International Version only
- - - UNIX System V - System Release Description
- - - UNIX System Y - Portfolio
- - - UNIX System Y - User Reference Manual
- - - UNIX System Y - Administrator Reference Manual
- - - UNIX System Y - Programmer Reference Manual
- - - UNIX System Y - Error Message Reference Manual
- - - UNIX System Y - Programming Guide
- - - UNIX System V - Support Tools Guide
- - - UNIX System V - Graphics Guide
- - - UNIX System Y - User Guide
- - - UNIX System Y - Operator Guide
- - - UNIX System Y - Administrator Guide
- - -*UNIX System Y - International Release Description
(b) On-Line Documentation
On-line documentation is provided for the UNIX System User Reference Manual,
the Administrator Reference Manual and the Programmer Reference Manual.
NOTE: The printed documentation fisted are general in nature and not
intended to completely describe the COMPUTER PROGRAMS listed in Section 3; nor
are all COMPUTER PROGRAMS described in such documentation necessarily included
in the SOFTWARE PRODUCT.
3. COMPUTER PROGRAMS Furnished
The COMPUTER PROGRAMS listed in this section and the on-line documentation
fisted in Section 2(b) above will be supplied on two reels of nine track, 800
BPI (PDP** 11/70 only) or 1600 BPI magnetic tape.
(a) Tape Boot Loader and Initial System Load program for copying the system
software from the distribution tape to the system disk.
(b) An executable copy of the cpio program.
(c) A physical copy of the root file system. Includes the following
directories and their associated files:
bck
bin
etc
dev
lib
stand
tmp
(d) The root file system in cpio format. Includes the following directories
and their associated files:
bck
bin
etc
dev
lib
stand
tmp
**PDP is a trademark of Digital Equipment Corporation
(e) The /usr file system in cpio format. Includes the following subdirectories
and their associated lower level subdirectories and files:
adm include news
bin lib preserve
catman lost+found pub
games mall spool
tmp
(f) Source code for the RJE software includes the RJE make file (rje.mk) and
the following directories and their associated files:
lib
send.d
src
util
vpm
(g) Source code for the graphics software. Includes the graphics make file
(graf.mk) and the following directories and their associated files and
subdirectories:
include
lib
src
(h) Source code for the system software Includes top level make commands and
the following directories and their associated subdirectories and files:
cmd
games
head
lib
stand
uts
Note: The "crypt" command and associated documentation are not included in
UNIX System V, Release 2.0, International Version.
4. Sublicensing (under a Sublicensing Agreement)
A SUBLICENSED PRODUCT based on UNIX System V, Release 2.0 or UNIX System V,
Release 2.0, International Version, may Include:
(a) Copies of the documents fisted in Section 2 of this schedule.
(b) COMPUTER PROGRAMS in object-code format only, except for the COMPUTER
PROGRAMS An the following files, which may be in source-code format:
/etc/include/* where * is used as a universal
/etc/ include/sys/* identifier for files
Also, the following files in the /usr/src/cmd/spell directory
American hash make
British list
extra htempl
list local
hash check
NOTE: Run-time Libraries
Routines from the following run-time libraries may be included in.
customer-developed application software without payment of a sublicensing fee
to AT&T.
Standard C Library /lib/libc.a
Math Library /lib/libm.a
Object File Access Library /lib/llbid.a
Fortran Library /usr/llb/libF77.a
5. Other Software
The products listed below may be used in the United States on DESIGNATED CPUs
for UNIX System V, Release 2.0 and sublicensed for use in the United States as
if they were that product. The products marked with a pound symbol (#) may be
used outside the United States on DESIGNATED CPUs for UNIX System V, Release
2.0, International Version and sublicensed for use outside the United States
as if they were that product. Only those products marked with a pound symbol
(#) may be shipped outside the United States. Versions of such products,
except those marked with an asterisk (*), are available from AT&T for various
types of CPUs at $400 per copy.
UNIX System V, Release 2.0
# UNIX System V, Release 1.0, International Version
# UNIX System V, Release 2.0, International Version
UNIX System V, Release 1.0
UNIX System V, Release 1.1
UNIX System III
UNIX 32Y Time-Sharing System, Version 1.0
UNIX Time-Sharing System, Seventh Edition
* UNIX Time-Sharing System, Sixth Edition
UNIX Programmer's Workbench System, Edition 1.0
* UNIX Mini Time-Sharing System, Version 6
6. Time Sharing
UNIX System V, Release 2.0 or UNIX System V, Release 2.0, International
Version, may be used on a DESIGNATED CPU for such SOFTWARE PRODUCT to furnish
a time-sharing service to third parties. A SUBLICENSED PRODUCT based on UNIX
System V, Release 2.0 or UNIX System V, Release 2.0, International Version,
may also be used to furnish a time-sharing service to third parties.
SS-SNA-041084-070185 Agreement Number XFER02340B
UNIX SYSTEM LABORATORIES, INC.
Substitution Agreement
The following agreements ("the prior agreements") are in effect between UNIX
SYSTEM LABORATORIES, INC. and CONVEY COMPUTER CORPORATION, a Delaware
corporation ("LICENSEE")
1. September 6, 1984 Software Agreement Number SOFT-000111
2. September 6, 1984 Sublicensing Agreement Number SUB-000111A
Agreement Numbers SOFT-02340 and SUB-02340B between UNIX SYSTEM LABORATORIES,
INC. and LICENSEE ("the new agreements") are hereby substituted for the prior
agreements. Accordingly, the rights and obligations of the parties under the
prior agreements are terminated and replaced by the rights and obligations of
the parties under the new agreements. No other agreements between the parties
hereto are affected by this Substitution Agreement:
Accepted by:
CONVEX COMPUTER CORPORATION UNIX SYSTEM LABORATORIES, INC.
By: /s/ Philip N. Cardman By: /s/ A.R. DeGiralamo
Title: Vice President & General Counsel Title: Director, Licensing and
Operations
Date: 02 December 1993 Date: 12/6/93
SS-SLA-050186-030592 Agreement Number SUB-02340A
UNIX SYSTEM LABORATORIES, INC.
SUBLICENSING AGREEMENT
1. UNIX SYSTEM LABORATORIES, INC., a Delaware corporation ("USL"), having
an office at 190 River Road, Summit, New Jersey 07901, and CONVEX COMPUTER
CORPORATION, a Delaware corporation having an office at 3000 Waterview
Parkway, (P. O. Box 833851), Richardson, Texas 75083-3851, for itself and its
SUBSIDIARIES, (collectively referred to herein as a LICENSEE") agree that,
after execution of this Sublicensing Agreement by LICENSEE and acceptance of
this Sublicensing Agreement by USL, the terms and conditions set forth in this
Sublicensing Agreement shall apply to the SOFTWARE PRODUCTS subject to
Software Agreement Number SUB-02340A between USL and LICENSEE ("the Software
Agreements ).
2. The initial period shall begin on October 1, 1993 (See Section 3.01).
The estimated GROSS AMOUNT for the initial period is $ . The DISCOUNT
PERCENTAGE corresponding to such estimated GROSS AMOUNT for use during the
initial period is % (See Section 4.02).
3. Except as otherwise specifically provided herein, all the provisions of
the Software Agreement remain in full force and effect.
4. This Sublicensing Agreement, together with the Software Agreement and
its Supplement(s), sets forth the entire agreement and understanding between
the parties as to the subject matter hereof and merges all prior discussions
between them, and neither of the parties shall be bound by any conditions,
definitions, warranties, understandings or representations with respect to
such subject matter other than as expressly provided herein or as duly set
forth on or subsequent to the effective date hereof in writing and signed by a
proper and duly authorized representative of the party to be bound thereby.
No provision appearing on any form originated by LICENSEE shall be applicable
unless such provision is expressly accepted in writing by an authorized
representative of USL.
Accepted by:
CONVEX COMPUTER CORPORATION UNIX SYSTEM LABORATORIES, INC.
By: /s/ Philip N. Cardman By: /s/ A.R. DeGiralamo
Title: Vice President & General Counsel Title: Director, Licensing and
Operations
Date: 02 December 1993 Date: 12/6/93
I. DEFINITIONS
1.01 The terms "CPU", "COMPUTER PROGRAM", "SOFTWARE PRODUCTS" and
"SUBSIDIARIES" are defined in the Software Agreement.
1.02 AUTHORIZED COPIER means a DISTRIBUTOR authorized by LICENSEE to make
copies of SUBLICENSED PRODUCTS.
1.03 The DISCOUNT PERCENTAGE for a period (or portion thereof) during which
the GROSS AMOUNT equals or exceeds $100,000.00 is the percentage calculated
from such GROSS AMOUNT by using the following formula:
DISCOUNT PERCENTAGE = GROSS AMOUNT + $3 75 million x 100%
up to a maximum of eighty percent (80%). The DISCOUNT PERCENTAGE for a period
(or portion thereof) during which the GROSS AMOUNT is less than $100,000.00 is
zero percent (0%).
1.04 DISTRIBUTOR means an entity authorized by LICENSEE or another
DISTRIBUTOR to receive copies of SUBLICENSED PRODUCTS from LICENSEE or another
DISTRIBUTOR and furnish such copies to customers and/or other DISTRIBUTORS.
1.05 EVALUATION COPY means a copy of a SUBLICENSED PRODUCT provided to an
enduser for an evaluation period not to exceed ninety (90) days.
1.06 GROSS AMOUNT for a period (or portion thereof) means the total amount of
per-copy sublicensing fees accrued during such period (or portion thereof).
1.07 NET AMOUNT for a period (or portion thereof) means the amount determined
from the GROSS AMOUNT for such period (or portion thereof) by multiplying such
GROSS AMOUNT by the DISCOUNT PERCENTAGE for such period (or portion thereof)
and subtracting the result from such GROSS AMOUNT.
1.08 SUBLICENSED PRODUCT means (i) COMPUTER PROGRAMS in object-code format
based on a SOFTWARE PRODUCT subject to the Software Agreement and (ii) any
other materials identified in the Sublicensing section of the Schedule for
such SOFTWARE PRODUCT .
II. GRANT OF RIGHTS
2.01 Notwithstanding any provisions to the contrary in the Software
Agreement, USL grants to LICENSEE personal, nontransferable and non-exclusive
rights:
(a) to make copies of SUBLICENSED PRODUCTS and to furnish, either directly or
through DISTRIBUTORS, such copies of SUBLICENSED PRODUCTS to customers
anywhere in the world (subject to LICENSEE or its DISTRIBUTORS satisfying U.S.
government export requirements) for use on customer CPUs solely for each such
customer's internal business purposes, provided that the entity (LICENSEE or a
DISTRIBUTOR) furnishing the SUBLICENSED PRODUCTS obtains agreement as
specified in Section 2.02 from such a customer, before or at the time of
furnishing each copy of a SUBLICENSED PRODUCT, that:
(i) only a personal, nontransferable and non-exclusive right to use such copy
of the SUBLICENSED PRODUCT on one CPU at a time is granted to such customer;
(ii) no title to the intellectual property in the SUBLICENSED PRODUCT is
transferred to such customer;
(iii) except as provided for in Section 2.10 below, such customer will not
copy the SUBLICENSED PRODUCT except as necessary to use such SUBLICENSED
PRODUCT on such one CPU;
(iv) such customer will not transfer the SUBLICENSED PRODUCT to any other
party except as authorized by the entity furnishing the SUBLICENSED PRODUCT;
(v) such customer will not export or re-export the SUBLICENSED PRODUCT
without the appropriate United States or foreign government licenses;
(vi) such customer will not reverse compile or disassemble the SUBLICENSED
PRODUCT;
(vii) the SUBLICENSED PRODUCT is derived from third-party software and that
no such third party warrants the SUBLICENSED PRODUCT, assumes any liability
regarding use of the SUBLICENSED PRODUCT or undertakes to furnish any support
or information relating to the SUBLICENSED PRODUCT;
(b) to use SUBLICENSED PRODUCTS on LICENSEE'S CPUs solely for LICENSEE'S own
internal business purposes; and
(c) subject to Section 2.11, to use, and to permit DISTRIBUTORS to use,
SUBLICENSED PRODUCTS without fee solely for testing CPUs that are to be
delivered to customers and for demonstrating SUBLICENSED PRODUCTS to
prospective customers.
2.02 In the United States and in other jurisdictions where an enforceable
copyright covering the COMPUTER PROGRAMS of the SUBLICENSED PRODUCT exists,
the agreement specified in Section 2.01(a) may be a written agreement signed
by the customer or a written agreement on or accompanying the package
containing the SUBLICENSED PRODUCT that is fully visible to the customer
before the package is opened, that the customer accepts by opening the package
and that complies with applicable law relating to agreements of such type. In
all other jurisdictions such agreement must be a written agreement signed by
the customer. USL does not undertake to inform LICENSEE of the jurisdictions
where such copyright exists.
2.03 LICENSEE shall require each DISTRIBUTOR to enter into a written
agreement with its supplier of SUBLICENSED PRODUCTS (LICENSEE or another
DISTRIBUTOR) before any SUBLICENSED PRODUCT is furnished to such DISTRIBUTOR.
Such agreement shall include provisions consistent with and containing the
relevant substance of Sections 2.01, 2.02, 2.04, 2.07, this Section 2.03 and
Section 3.05 of this Sublicensing Agreement. For a DISTRIBUTOR who is also to
be an AUTHORIZED COPIERS, such agreement shall also include provisions
consistent with and containing the relevant substance of Sections 2.05, 2.08,
2.09 and 5.01 of this Sublicensing Agreement.
2.04 DISTRIBUTORS who are not also AUTHORIZED COPIERS may not make copies of
SUBLICENSED PRODUCTS, but may furnish to customers and other DISTRIBUTORS
copies of SUBLICENSED PRODUCTS furnished to such DISTRIBUTOR by LICENSEE or
other DISTRIBUTORS. In such cases the product name appearing on such copies
shall not be deleted or altered by such a DISTRIBUTOR.
2.05 (a) A DISTRIBUTOR who is also an AUTHORIZED COPIER may modify and make
copies of SUBLICENSED PRODUCTS, select a name for SUBLICENSED PRODUCTS to
appear on such copies (consistent with the provisions of Section 2.09), and
furnish such copies to customers and other DISTRIBUTORS.
(b) It is recognized that a party obtaining a SUBLICENSED PRODUCT from
LICENSEE and having rights to use the underlying SOFTWARE PRODUCT as a
contractor of
LICENSEE and/or as a licensee of USL may use such SOFTWARE PRODUCT to modify
such SUBLICENSED PRODUCT, thereby creating a new product. It is also
recognized that such a party may wish to acquire an ownership interest in such
new product and to distribute object-code copies of such new product. As a
condition of acquiring such an ownership interest, a party having rights to
use solely as a contractor must become a LICENSEE of USL for such SOFTWARE
PRODUCT. To distribute object-code copies of a new product in which it has
acquired an ownership interest, a party must do so on its own account pursuant
to a sublicensing agreement with USL, and not as a DISTRIBUTOR hereunder.
(c) LICENSEE may not authorize or permit any third party (including a
contractor or another Source Code licensee) to be a DISTRIBUTOR, pursuant to
this Sublicensing Agreement, with respect to any SUBLICENSED PRODUCT that is
based, in whole or in part, on a SOFTWARE PRODUCT modified by or for such
third party, its SUBSIDIARY, any entity ("parent") of which it is a
SUBSIDIARY, or any other entity which is a SUBSIDIARY of such parent.
Distribution of such a SUBLICENSED PRODUCT may be made by such third party
only on its own account, pursuant to a Sublicensing Agreement with USL, and
not as a DISTRIBUTOR hereunder.
2.06 LICENSEE shall use its best efforts to enforce the agreements with
DISTRIBUTORS and customers specified in this Sublicensing Agreement.
2.07 If a DISTRIBUTOR fails to fulfill one or more of its obligations under
the agreement required by Section 2.03, USL may, upon its election and in
addition to any other remedies that it may have, at any time notify LICENSEE
in writing of such breach and require LICENSEE to terminate all the rights
granted in such agreement by not less than two (2) months' written notice to
ce to
copies of SUBLICENSED PRODUCTS.
1.03 The DISCOUNT PERCENTAGE for a period (or portion thereof) during which
the GROSS AMOUNT equals or exceeds $100,000.00 is the percentage calculated
from such GROSS AMOUNT by using the following formula:
DISCOUNT PERCENTAGE = GROSS AMOUNT + $3 75 million x 100%
up to a maximum of eighty percent (80%). The DISCOUNT PERCENTAGE for a period
WARE PRODUCT shall be included in corresponding portions of
SUBLICENSED PRODUCTS made by LICENSEE or AUTHORIZED COPIERS. Instructions
regarding such notices may appear in the Schedules for certain SOFTWARE
PRODUCTS.
(b) Each portion of a SUBLICENSED PRODUCT shall include an appropriate
copyright notice. Such copyright notice may be the copyright notice or notices
appearing in or on the corresponding portions of the SOFTWARE PRODUCT on which
such SUBLICENSED PRODUCT is based or, if copyrightable changes are made in
developing such SUBLICENSED PRODUCT, a copyright notice identifying the owner
of such changes.
2.09 No right is granted hereunder or under the Software Agreement to use any
trademark of USL (or a corporate affiliate thereof) in the name of the
SUBLICENSED PRODUCTS offered or furnished to customers by LICENSEE or
DISTRIBUTORS. However, LICENSEE and DISTRIBUTORS may state in advertising,
publicity, packaging, labeling or otherwise that a SUBLICENSED PRODUCT is
derived from USL's software under license from USL and identify such software
(including any trademark, provided the proprietor of the trademark is
appropriately identified). LICENSEE agrees, for itself and its DISTRIBUTORS,
not to use a name or trademark for a SUBLICENSED PRODUCT that is confusingly
similar to a name or trademark used by USL (or a corporate affiliate thereof).
2.10 (a) Notwithstanding the provisions of Section 2.01 above, LICENSEE may,
either directly or through its AUTHORIZED COPIERS, grant to each end-user
customer of a
SUBLICENSED PRODUCT, a personal, nontransferable and non-exclusive right to
reproduce no more than a pre-authorized number of copies (BLOCKSIZE COPIERS)
from a master of such SUBLICENSED PRODUCT, provided that the end-user license
agreement required by Section 2.02 contains the following provisions in
addition to those otherwise required by Section 2.01(a) of this Sublicensing
Agreement:
(i) such customer agrees to reproduce no more than the pre-authorized number
of copies of the SUBLICENSED PRODUCT. Such pre-authorized number shall be set
forth in a separate attachment to such end-user license agreement; and
(ii) such customer agrees to afford to LICENSEE or USL (the latter through a
certified public accountant reasonably acceptable to the customer) the right
to conduct periodic audits of the customer's books and records for the sole
purpose of assuring compliance with the restrictions of the customer's license
to reproduce and use BLOCKSIZE COPES. Such audits will not be made more
frequently than annually and will be subject to customary safeguards of
confidentiality.
(b) USL agrees that it will not conduct any end-user audit as authorized in
the end-user license agreement unless and until it has afforded LICENSEE a
reasonable opportunity to conduct its own audit and make the results available
to USL. In the event that USL, consistent with the preceding sentence,
conducts its own audit and determines that the number of BLOCKSIZE COPES
reproduced by customer exceeded the permissible number by at least five
percent (5%), LICENSEE shall bear all reasonable expenses of such USL audit.
(c) Notwithstanding any other provision of this Sublicensing Agreement, the
written enduser license agreement specified in Section 2.02 above shall be a
formally executed document as opposed, e.g. to a Shrink-wrap agreement.
2.11 LICENSEE may use, and permit DISTRIBUTORS to use, a limited number of
EVALUATION COPES of each SUBLICENSED PRODUCT per quarter, without fee solely
for demonstrating such SUBLICENSED PRODUCTS to prospective customers under the
following terms and conditions:
(a) LICENSEE shall first execute a written end-user license agreement with
each prospective customer of an EVALUATION COPY. Such agreement shall include
all of the provisions of section 2.01(a)(i) - 2.01(a)(vii) of this
Sublicensing Agreement. Notwithstanding any other provision of this
Sublicensing Agreement, the written enduser license agreement specified in
Section 2.02 above shall be a formally executed document as opposed, e.g. to a
Shrink-wrap agreement.
(b) The prospective customer shall license or return the EVALUATION COPY to
the LICENSEE at the end of a 90 day period that commences on the date the
written enduser agreement is executed.
(c) LICENSEE shall not charge any fee in connection with the distribution,
use or support of the EVALUATION COPY.
(d) LICENSEE shall not have outstanding at any time a number of EVALUATION
COPES of a particular SUBLICENSED PRODUCT which is greater than one percent
(1%) of the number of copies of such SUBLICENSED PRODUCT which were reported
during the previous four calendar quarters, subject to a maximum of 100
EVALUATION COPES. The maximum number of EVALUATION COPES that may be
outstanding during the first four quarters in which a SUBLICENSED PRODUCT (or
EVALUATION COPES thereof) are distributed shall be 100.
(e) LICENSEE shall keep full and complete records of the number and
identification of EVALUATION COPES distributed, outstanding and returned,
including but not limited to information of the type contemplated in Section
5.02(b)(viii) below.
III. TERM
3.01 This Sublicensing Agreement shall become effective for an initial period
that begins on the date specified in Paragraph 2 on Page 1 (or a date
otherwise agreed to in writing by USL and LICENSEE) and expires one year from
the end of the quarter (ending March 31st, June 30th, September 30th or
December 31st) during which such beginning date occurs.
3.02 Unless LICENSEE notifies USL in writing at least thirty (30) days before
the expiration date established in Section 3.01 that it does not wish renewal,
this Sublicensing Agreement shall be renewed automatically for an additional
one-year period and shall continue to be renewed in such a manner from year to
year.
3.03 If LICENSEE fails to fulfill one or more of its obligations under this
Sublicensing Agreement or the Software Agreement, USL may, upon its election
and in addition to any other remedies that it may have, at any time terminate
all the rights granted by it hereunder and under the Software Agreement by not
less than two (2) months' written notice to LICENSEE specifying any such
breach, unless within the period of such notice all breaches specified therein
shall have been remedied; upon such termination LICENSEE shall immediately
discontinue use of and return or destroy all copies of SOFTWARE PRODUCTS
covered by the Software Agreement and immediately discontinue distribution and
use of and destroy all copies of SUBLICENSED PRODUCTS in its possession.
3.04 Neither the expiration of this Sublicensing Agreement nor the
termination of LICENSEE'S rights hereunder shall relieve LICENSEE of its
obligation to pay any fee hereunder. In the event of termination of
LICENSEE'S rights hereunder, all fees that LICENSEE has become obligated to
pay hereunder shall become immediately due and payable.
3.05 LICENSEE agrees that when a SUBSIDIARY'S or a DISTRIBUTOR'S relationship
to LICENSEE changes so that it is no longer a SUBSIDIARY or a DISTRIBUTOR of
LICENSEE, all rights of such former SUBSIDIARY or DISTRIBUTOR under this
Sublicensing Agreement shall immediately cease, and such former SUBSIDIARY or
DISTRIBUTOR shall return to LICENSEE or destroy all copies of SUBLICENSED
PRODUCTS for which per-copy fees have not been paid to USL. However, such
former SUBSIDIARY or DISTRIBUTOR may continue to use copies of SUBLICENSED
PRODUCTS for which per-copy fees have been paid on the same basis that a
customer may use copies of SUBLICENSED PRODUCTS pursuant to Section 2.01(a).
IV. FEES AND DISCOUNTS
4.01 (a) For rights granted under this Sublicensing Agreement, LICENSEE
shall pay to USL any initial sublicensing fee specified for the SOFTWARE
PRODUCT on which a SUBLICENSED PRODUCT is based and a per-copy sublicensing
fee for each copy of a SUBLICENSED PRODUCT either (i) furnished by LICENSEE to
a customer or to a DISTRIBUTOR, (ii) made by an AUTHORIZED COPIERS and
furnished by such AUTHORIZED COPIERS to a customer or to another DISTRIBUTOR
or (iii) put into use by LICENSEE on a CPU of LICENSEE. The amounts of such
sublicensing fees are listed in the Schedule for each SOFTWARE PRODUCT.
Initial sublicensing fees shall be paid as specified in Section 5.02(a).
Per-copy sublicensing fees shall be paid quarterly as specified in Section
5.02(e).
(b) A fee paid to USL under this Sublicensing Agreement for a copy of a
SUBLICENSED PRODUCT furnished to a particular customer shall not be creditable
toward any fee payable under any agreement between USL (or between a corporate
affiliate thereof) and such customer.
(c) Fees paid to USL under this Sublicensing Agreement shall not be
creditable toward fees that become payable under the Software Agreement. Fees
paid under the Software Agreement shall not be creditable toward fees that
become payable under this Sublicensing Agreement.
(d) No additional fee is payable for the transfer of a SUBLICENSED PRODUCT
from one customer to another customer in conjunction with the transfer of a
CPU between such customers, provided that the first customer does not retain
any portion of the SUBLICENSED PRODUCT after such transfer and that agreement
of the second customer is obtained in accordance with Sections 2.01 and 2.02.
Such transfer of a SUBLICENSED PRODUCT may result from, for example, a sale of
a CPU by the first customer to the second customer or the termination of a
lease with the first customer for a CPU and the execution of a new lease with
the second customer for such CPU.
(e) No additional fee is payable for the transfer of a SUBLICENSED PRODUCT
from one CPU of LICENSEE to another or the transfer of a SUBLICENSED PRODUCT
from one CPU of a customer to another CPU of the same customer.
4.02 (a) LICENSEE may be entitled to a discount on per-copy sublicensing
fees. For the initial period referred to in Section 3.01, such discount shall
be based on the GROSS AMOUNT for such period. For each additional one-year
period referred to in Section 3.02, such discount shall be based on either the
GROSS AMOUNT for such period or the GROSS AMOUNT for the immediately preceding
period, whichever yields the greater discount.
(b) LICENSEE may estimate a GROSS AMOUNT for the initial period and use the
DISCOUNT PERCENTAGE corresponding to such estimated GROSS AMOUNT in
calculating quarterly payments during such period. LICENSEE may also make such
an estimate for any additional one-year period in which LICENSEE expects the
GROSS AMOUNT to be higher than that for the immediately preceding period.
However, if LICENSEE calculates any quarterly payment during a period based on
such an estimate, then the total amount paid after the first, second and third
full quarters of such period must be, respectively, at least one quarter, one
half and three quarters of the NET AMOUNT calculated using such estimated
GROSS AMOUNT and such corresponding DISCOUNT PERCENTAGE. At the end of each
period for which an estimated GROSS AMOUNT has been used, the actual DISCOUNT
PERCENTAGE and actual NET AMOUNT shall be determined from the actual GROSS
AMOUNT for such period and the final quarterly payment shall be determined by
subtracting the total of the quarterly payments previously made for such
period from such actual NET AMOUNT. If such total exceeds the actual NET
AMOUNT, the excess shall be credited against future quarterly payments for per
copy sublicensing fees. Such excess shall not be refunded.
(c) If LICENSEE does not make an estimate pursuant to Section 4.02(b), then
the payment for each quarter in a period shall be calculated by determining a
NET AMOUNT from the GROSS AMOUNT for the portion of such period up to the end
of such quarter and subtracting from such NET AMOUNT the total of any
quarterly payments already made for such period. The DISCOUNT PERCENTAGE used
in determining such NET AMOUNT shall either be that corresponding to the GROSS
AMOUNT for such portion or that corresponding to the GROSS AMOUNT for the
immediately preceding period, whichever percentage is greater.
(d) Examples of GROSS AMOUNTS and their corresponding DISCOUNT PERCENTAGES
and NET AMOUNTS are shown in Attachment A.
4.03 The section of the Software Agreement relating to taxes shall apply to
fees payable under this Sublicensing Agreement.
V. REPORTS AND PAYMENTS
5.01 (a) LICENSEE shall keep full, clear and accurate records sufficient to
prepare the statements to USL required by Section 5.02(b). Such records shall
be retained by LICENSEE for a period of five (5) full calendar years.
(b) Each AUTHORIZED COPIERS shall keep full, clear and accurate records
sufficient to prepare the statements to LICENSEE required by Section 5.01(e).
Such records shall be retained by each such AUTHORIZED COPIERS for a period of
five (5) full calendar years.
(c) Each AUTHORIZED COPIERS shall furnish a statement at least quarterly to
LICENSEE identifying the number of copies of each SUBLICENSED PRODUCT
furnished to customers or other DISTRIBUTORS since the previous such statement
was furnished and the rights granted with respect to such copies to the extent
such rights affect the per-copy sublicensing fees payable by LICENSEE to USL
for such copies.
(d) LICENSEE shall keep full, clear and accurate records of the identities
and locations of AUTHORIZED COPIERS.
(e) USL shall have the right through its accredited auditing representatives
to make an examination and audit, during normal business hours, not more
frequently than annually, of all records kept pursuant to this Section 5.01 by
LICENSEE and AUTHORIZED COPIERS and such other records and accounts as may
under recognized accounting practices contain information bearing upon the
amounts of fees payable to it under this Sublicensing Agreement. Prompt
adjustment shall be made by the proper party to compensate for any errors or
omissions disclosed by such examination or audit. Neither such right to
examine and audit nor the right to receive such adjustment shall be affected
by any statement to the contrary, appearing on checks or otherwise, unless
such statement appears in a letter, signed by the party having such right and
delivered to the other party, expressly waiving such right.
5.02 (a) LICENSEE shall notify USL in writing when it begins furnishing
copies of a SUBLICENSED PRODUCT to customers or DISTRIBUTORS or putting any
such copies into use on LICENSEE'S CPUs. At the same time as such
notification, LICENSEE shall pay to USL any initial sublicensing fee specified
for the SOFTWARE PRODUCT on which such SUBLICENSED PRODUCT is based. DISCOUNT
PERCENTAGES established under Section 4.02 do not apply to initial
sublicensing fees.
(b) Within thirty (30) days after the end of each quarter ending on March
31st, June 30th, September 30th or December 31st, commencing with the quarter
during which this Sublicensing Agreement first becomes effective, LICENSEE
shall furnish to USL a written statement signed by an authorized
representative of LICENSEE identifying:
(i) the number of copies of each SUBLICENSED PRODUCT put into use by LICENSEE
during such quarter, furnished by LICENSEE to customers or DISTRIBUTORS during
such quarter or reported to LICENSEE during such quarter as having been made
and furnished to customers and other DISTRIBUTORS by AUTHORIZED COPIERS;
(ii) the SOFTWARE PRODUCT on which each such SUBLICENSED PRODUCT is based;
(iii) the per-copy sublicensing fees for such copies and, if applicable,
whether such fees are based on such factors as a limitation on number of
users, a fee for a combination of products or a right granted to a customer to
use a copy of a SUBLICENSED PRODUCT on multiple CPUs;
(iv) the NET AMOUNT of the quarterly payment;
(v) the DISCOUNT PERCENTAGE used in calculating such NET AMOUNT;
(vi) any estimated GROSS AMOUNT used pursuant to Section 4.02(b); and
(vii) any AUTHORIZED COPIERS added or terminated during the quarter covered
by such statement.
(viii) the number of EVALUATION COPES for each SUBLICENSED PRODUCT:
(1) distributed during such quarter;
(2) outstanding at the end of each such quarter, irrespective of when
distributed;
(3) returned to LICENSEE during such quarter, irrespective of when
distributed; and
(4) which, during such quarter, became subject to normal per-copy fee
treatment .
Each SUBLICENSED PRODUCT for which LICENSEE has given notice to USL pursuant
to Section 5.02(a) shall be covered by such statement.
(c) Each BLOCKSIZE COPY of a SUBLICENSED PRODUCT authorized to be reproduced
by a customer pursuant to Section 2.10 above shall be deemed to be a copy of a
SUBLICENSED PRODUCT distributed by LICENSEE. The per-copy fee payable by
LICENSEE to USL for each such BLOCKSIZE COPY shall accrue as of the effective
date of the end-user license agreement authorizing the reproduction of such
copy. LICENSEE shall, in its quarterly reports to USL, provide breakdowns of
the applicable BLOCKSIZE COPES separate from the reporting of other copies
actually distributed by LICENSEE or its AUTHORIZED COPIERS.
(d) No refunds or credits will be issued by USL to either LICENSEE or the
end-user customer, even if audit reveals that the customer has reproduced less
than the preauthorized number of BLOCKSIZE COPIES at the time of such audit.
(e) Within such thirty (30) days, LICENSEE shall, irrespective of its own
business and accounting methods, pay to USL the quarterly payment for such
quarter as shown in the statement required by Section 5.02(b).
(f) LICENSEE shall furnish whatever additional information USL may reasonably
prescribe from time to time to enable USL to ascertain the amounts of fees
payable pursuant hereto.
5.03 Payments provided for in this Sublicensing Agreement shall, when
overdue, be subject to a late payment charge calculated at an annual rate of
three percent (3%) over the posted prime rate or successive posted prime rates
in effect in New York City during delinquency; provided, however, that if the
amount of such late payment charge exceeds the maximum permitted by law for
such charge, such charge shall be reduced to such maximum amount.
VI. MISCELLANEOUS PROVISIONS
6.01 Neither this Sublicensing Agreement nor any rights hereunder, in whole
or in part, shall be assignable or otherwise transferable by LICENSEE and any
purported assignment or transfer shall be null and void.
6.02 (a) Payments to USL under this Sublicensing Agreement shall be made
payable and sent to:
UNIX System Laboratories, Inc.
P.O. Box 65080
Charlotte, North Carolina 28265
(b) Correspondence with USL relating to this Sublicensing Agreement shall be
sent to:
UNIX System Laboratories, Inc.
P.O. Box 25000
Greensboro, North Carolina 27420
(c) Any statement, notice, request or other communication shall be deemed to
be sufficiently given to the addressee and any delivery hereunder deemed made
when sent by certified mail addressed to LICENSEE at its office specified in
this Sublicensing Agreement or to USL at the appropriate address specified in
this Section 6.02. Each party to this Sublicensing Agreement may change an
address relating to it by written notice to the other party.
6.03 If LICENSEE is not a corporation, all references to LICENSEE'S
SUBSIDIARIES shall be deemed deleted.
6.04 The construction and performance of this Sublicensing Agreement shall be
governed by the law of the State of New York.
ATTACHMENT A
GROSS DISCOUNT NET
AMOUNT PERCENTAGE AMOUNT
$ 100,000 2.60% $ 97,400
$ 250,000 6.25% $234,375
$ 500,000 11.76% $441,200
$ 1,000,000 21.05% $789,500
$ 2,500,000 40.00% $1,500,000
$ 5,000,000 57.14% $2,143,000
$ 7,500,000 66.67% $2,500,000
$10,000,000 72.72% $2,728,000
$15,000,000 80.00% $3,000,000
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
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 February 17, 1995, 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, 1994.
ERNST & YOUNG LLP
Dallas, Texas
March 14, 1995
Exhibit Index Table
Exhibit 27
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> $ 34,422
<SECURITIES> 5,194
<RECEIVABLES> 51,615
<ALLOWANCES> 6,693
<INVENTORY> 23,655
<CURRENT-ASSETS> 129,313
<PP&E> 124,157
<DEPRECIATION> 94,724
<TOTAL-ASSETS> 186,190
<CURRENT-LIABILITIES> 64,877
<BONDS> 63,178
<COMMON> 265
0
0
<OTHER-SE> 57,870
<TOTAL-LIABILITY-AND-EQUITY> 186,190
<SALES> 75,734
<TOTAL-REVENUES> 144,180
<CGS> 48,754
<TOTAL-COSTS> 202,951
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,693)
<INCOME-PRETAX> (60,464)
<INCOME-TAX> 0
<INCOME-CONTINUING> (61,022)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61,022)
<EPS-PRIMARY> (2.35)
<EPS-DILUTED> (2.35)
</TABLE>
