==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended: June 30, 1995, or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ------------ to -----------------
Commission file number : 1-10386
CONVEX COMPUTER CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-1838006
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3000 Waterview Parkway
Richardson, Texas 75080
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (214) 497-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 30 days. Yes --- No ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1995
Common Stock - $0.01 Par value 26,764,126
==============================================================================
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONVEX COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, Dec. 31,
Assets 1995 1994
---------- ---------
Current assets: (Unaudited)
Cash and cash equivalents $ 23,019 $34,422
Short-term investments 10,822 5,194
Receivables, net 37,033 44,922
Inventory 19,037 23,655
Current portion of long-term receivables 9,274 13,122
Prepaid expenses and other current assets 8,927 7,998
--------- ---------
Total current assets 108,112 129,313
-------- ---------
Fixed assets, net 31,361 29,433
Long-term receivables 12,739 16,594
Long-term investments 5,973 6,373
Other assets, net 5,152 4,477
-------- ---------
Total assets $ 163,337 $ 186,190
========== =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 9,326 $ 10,547
Accrued payroll and related taxes 3,808 4,327
Current portion of notes payable 8,012 9,884
Deferred revenue 13,676 14,207
Other current liabilities 23,548 25,912
-------- -------
Total current liabilities 58,370 64,877
-------- -------
Long-term liabilities:
Notes payable 6,350 9,678
6% convertible subordinated debentures 53,500 53,500
-------- -------
Total long-term liabilities 59,850 63,178
-------- -------
Contingencies and commitments -- --
Shareholders' equity:
Preferred stock ($.01 par value);
5,000,000 shares authorized,
and none outstanding -- --
Common stock ($.01 par value); 80,000,000
and 40,000,000 shares authorized in 1995
and 1994, respectively;
26,729,731 shares and 26,533,485 shares
outstanding in 1995 and 1994, respectively 267 265
Additional capital 154,506 153,574
Accumulated (deficit) (109,589) (94,305)
Cumulative translation adjustment (67) (1,399)
--------- --------
Total shareholders' equity 45,117 58,135
--------- --------
Total liabilities and shareholders' equity $ 163,337 $ 186,190
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
CONVEX COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1995 1994 1995 1994
------ ------- ------ -------
Revenue:
Product and other revenue $ 21,606 $ 16,380 $ 42,936 $ 26,742
Service revenue 13,468 18,647 27,301 36,704
-------- -------- --------- --------
Total revenue 35,074 35,027 70,237 63,446
Costs and expenses:
Cost of product and other 13,380 11,938 27,472 20,218
revenue
Cost of service revenue 7,747 12,403 15,746 24,718
Research and development 7,667 8,205 15,297 16,074
Selling, general and 12,993 15,441 25,975 30,877
administrative
Restructuring and other charges 0 18,345 0 18,345
--------- --------- --------- ---------
Total costs and expenses 41,787 66,332 84,490 110,232
--------- --------- --------- ---------
Operating (loss) (6,713) (31,305) (14,253) (46,786)
Other (expense), net (358) (488) (758) (775)
--------- --------- --------- ---------
(Loss) before provision for (7,071) (31,793) (15,011) (47,561)
Provision for income taxes 235 50 273 114
--------- --------- --------- ---------
Net (loss) $ (7,306) $(31,843) $(15,284) $(47,675)
========= ========= ========= =========
Net (loss) per common share $ (.27) $ (1.23) $ (0.57) $ (1.85)
========= ========= ========= =========
Weighted average number of
common shares outstanding 26,726 25,854 26,690 25,762
The accompanying notes are an integral part of these consolidated financial
statements.
CONVEX COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
June 30,
----------------
1995 1995
----- -----
Operating activities:
Net income (loss) $ (15,284) $ (47,675)
Adjustments to reconcile net (loss) to net cash
provided by(used for) operating activities:
Depreciation and amortization 7,996 15,337
Foreign currency losses (48) (488)
Deferred income taxes 382 223
Changes in assets and liabilities:
Decrease in receivables 9,584 18,617
Decrease in inventory 5,047 4,289
Decrease in prepaid expenses and other 59 4,077
current assets
Decrease in long-term receivables 7,867 3,652
(Decrease) increase in accounts payable (1,371) 390
Increase (decrease) in income taxes payable 571 (1,563)
(Decrease) in deferred revenue (2,030) (2,325)
(Decrease) increase in other current liabilities (6,162) 631
--------- ---------
Total adjustments 21,895 42,840
--------- ---------
Net cash provided by (used for) operating activities 6,611 (4,835)
--------- ---------
Investing activities:
(Additions) to fixed assets, net (7,170) (9,909)
(Increase) decrease in short-term investments (5,628) 9,968
Decrease in long-term investments 400 6,266
(Increase) in other assets (1,960) (1,947)
Foreign currency hedging activity (160) (1,093)
---------- ---------
Net cash (used for) provided by investing activities (14,518) 3,285
---------- ---------
Financing activities:
Issuance of common stock under stock option and 934 1,716
and purchase plans, net
Proceeds from long-term debt 1,864 917
Principal payments on long-term debt (7,061) (6,195)
---------- ---------
Net cash (used for) financing activities (4,263) (3,562)
---------- ---------
Effect of exchange rate fluctuations on cash and 767 1,534
cash equivalents ---------- ---------
(Decrease) in cash and cash equivalents (11,403) (3,578)
Cash and cash equivalents, beginning of period 34,422 43,094
--------- ---------
Cash and cash equivalents, end of period $ 23,019 $ 39,516
========= =========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 2,393 $ 2,631
Income taxes, net of refunds $ (829) $ (2,241)
The accompanying notes are an integral part of these consolidated financial
statements.
CONVEX COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation of Interim Financial Statements
The accompanying unaudited consolidated financial statements of Convex
Computer Corporation and subsidiaries (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information in footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted pursuant to those rules
and regulations. However, the Company believes that the disclosures contained
herein are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in connection with the
financial statements and notes thereto included in the Company's most recent
annual report to shareholders.
While the financial information furnished is unaudited, the financial
statements included in this report reflect all adjustments (consisting of
normal, recurring adjustments) which the Company considers necessary for a
fair presentation of the results of operations for the interim periods covered
and of the financial condition of the Company at the interim balance sheet
dates.
Revenue Recognition
Product revenue is recognized at the time of shipment except in those cases
where (a) specified functional or 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 or performance 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 service,
in which case the prepayment is accounted for as deferred revenue and
recognized ratably over the service period.
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):
June 30, Dec. 31,
1995 1994
------- --------
Raw material $ 7,755 $ 10,119
Work-in-process 2,194 2,957
Finished goods 9,088 10,579
------- -------
$ 19,037 $ 23,655
======== ========
Income Taxes
The operating loss for the Company in the second quarter of 1995 is
anticipated to result in no tax benefit in the current year. The Company
believes it may incur tax expenses in various foreign subsidiaries which could
result in a net tax expense for the year. At June 30, 1995, the Company had
foreign and domestic operating loss carryforwards which are available to
offset future taxable income. The realization of the tax benefits related to
the loss carryforwards is dependent on the future profitability of the Company
and its foreign subsidiaries.
Earnings per Common and Common Equivalent Share
The computation of primary earnings per share is based on the weighted average
number of common and common equivalent (stock options) shares assumed to be
outstanding during the period. Because of net losses in the periods
presented, common stock equivalents have been excluded from the computation
since the effect of their inclusion would be anti-dilutive.
Legal Proceedings
On August 1, 1994, the United States District Court for the Northern District
of Texas approved an agreement to settle the consolidated class action lawsuit
filed against the Company in August 1991. The court's approval has become
final and the period to appeal the judgment has expired. In the third quarter
of 1994, the Company paid $2.2 million to fund its share of claims made under
this agreement through the end of the claims period.
Restructuring and Other Charges
A summary of the Company's restructuring and other charges is as follows (in
millions):
1994 Quarters
-------------
Item 4th 3rd 2nd 1st
---- --- --- --- ---
Severance and related $0.0 $0.0 $2.1 $0.0
employee costs
Fixed asset write-downs/write-offs 0.0 0.0 2.9 0.0
Demo equipment write-downs 0.0 0.0 1.6 0.0
--- --- --- ---
Restructuring charges 0.0 0.0 6.6 0.0
C3 inventory write-downs/write-offs 0.0 0.0 11.7 0.0
--- --- ---- ---
Other charges 0.0 0.0 11.7 0.0
--- --- ---- ---
Restructuring and
Other charges $0.0 $0.0 $18.3 $0.0
==== ==== ===== ====
The Company implemented restructuring actions in 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. In addition, the Company wrote-down the carrying value of its
C3 sales demonstration and marketing equipment.
The Company recorded $11.7 million of other charges in 1994. The majority of
these charges related to the write-downs of the carrying values of the
Company's inventories. These write-downs were the result of the continued
decline in demand for C3 products below levels estimated in the second quarter
of 1993 and the resulting reductions in sales prices for the entire C3 family
of products.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company had total revenues of $35 million and a net loss of $7 million in
the second quarter of 1995. Total revenue was also essentially unchanged from
the same quarter a year ago. Gross margins were 40% for the current quarter
versus 31% for the same quarter a year ago and 37% in the previous quarter.
Product margins in the second quarter of 1995 were improved compared to both
the second quarter of 1994 and the first quarter of 1995. While the improved
margins and stable overhead expenses are encouraging, the results for the
quarter reflected a significant loss.
The Company began volume shipments of the SPP1200 in the second quarter of
1995. The SPP1200 is the second generation of the Exemplar Scalable Parallel
Processor system. Based on Hewlett-Packard Company's PA-RISC technology, the
SPP1200 improves the Exemplar series' performance capability with a new
processor, increased memory and I/O bandwidth, and increased peripheral
connectivity while maintaining compatibility with both HP-UX desktop
applications and previous Exemplar models. In the second quarter the Company
shipped 18 Exemplar systems, including eight SPP1200 systems.
The Company's expenses in the second quarter of 1995 declined by $2 million
from those of the second quarter of 1994, and remained flat with those of the
first quarter of 1995. The Company will continue to manage resources and
overhead expenses tightly throughout the remainder of 1995.
Cash and short-term investments decreased $3 million in the second quarter of
1995 to $34 million. Receivables and inventory were a source of $7 million of
funds in the quarter. Although the Company has no established borrowing
facility or other source of additional capital, the Company is actively
pursuing financing alternatives.
The Company believes that order rates for the Company's products will continue
to be adversely affected by intense competition in the technical markets,
product transition issues, and buyers' concern over the company's longer-term
working capital needs. As the Company plans to maintain investment in the
future, with emphasis on development of new products and sales channels, the
Company expects financial performance to be below break-even for at least the
next two quarters.
Revenue
Total revenue of $35 million for the second quarter of 1995 was approximately
equal to the Company's total revenue for both the second quarter of 1994 and
the first quarter of 1995.
Quarter ended
-------------
Revenue ($000,000) 6/30/95 6/30/94 3/31/95
------------------ ------- ------- -------
Product and Other $ 22 $ 16 $ 21
Service 13 19 14
Total 35 35 35
6/30/95 Quarter Revenue -
Percent change from quarter ended
---------------------------------
Product and Other Revenue 0% 32% 1%
Service Revenue 0% -28% -3%
Total Revenue 0% 0% 0%
System Shipments
----------------
Exemplar SPP 18 11 27
Meta Series 1 5 3
C4600 4 1 1
C3800 0 1 3
C3200/3400 5 5 1
Product revenue increased 32% over the second quarter of 1994, primarily as a
result of the increase in revenue from Exemplar SPP shipments and an increase
in the number of C4 shipments. The Exemplar SPP was introduced in the first
quarter of 1994, and the Company has improved the capabilities of the Exemplar
family in each quarter since its introduction. In the second quarter of 1995,
the Company shipped eight Exemplar SPP1200 systems. The decrease from 27
Exemplar systems shipped in the first quarter of 1995 to 18 in the second
quarter of 1995 reflected a decline in shipments of the lower-end CD model.
The higher-end XA models represented 15 of the 18 systems shipped and the
higher selling prices resulted in almost flat revenue from the first quarter
of 1995 to the second quarter of 1995 despite the decline in the number of
systems shipped.
Product revenue was equal to the level reported in the first quarter of 1995,
with an increase in C4 revenue primarily offset by a decline in revenue from
the older C Series models. Unit shipments of the C4 family, which was
introduced in June 1994, increased to four in the second quarter of 1995
versus the single unit shipped in the first quarter of 1995. Historically,
the quarterly C4 sales have ranged from one to eight systems. The Company
believes the high average selling price and the low unit volume of the C4
product will continue to lead to highly variable results for this product
line.
Service revenue in the second quarter of 1995 decreased 28% from the second
quarter of 1994 and 3% from the first quarter of 1995. Service revenue
includes revenue from maintenance contracts and systems integration. Systems
integration includes the integration components for the data management
business and the Meta Series product line. The maintenance contract component
of the service business has remained relatively constant at approximately $12
million per quarter. The decline in service revenue results from a
corresponding decline in systems integration revenue. The Meta Series product
line has declined as it has been replaced by the Exemplar product line. In
addition, during 1994 a major data management vendor chose to sell equipment
directly to customers, rather than through the Company, contributing to the
decline in systems integration revenue. The Company believes that systems
integration revenue will fluctuate from quarter to quarter.
The Company manufactures and ships its products as soon as practicable after
receiving a purchase order, and generally does not maintain a significant
backlog. Orders were taken in the second quarter of 1995 for several small
Exemplar SPP systems to be delivered in the third quarter of 1995, and for one
additional C4 system to be delivered late in 1995. 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
Total gross margin for the second quarter of 1995 increased to 40% from 37% in
the first quarter of 1995 and 31% in the second quarter of 1994 . The change
in total gross margin was primarily due to an increase in product margin.
Quarter ended
------------------------------
Gross Margin % Revenue 6/30/95 6/30/94 3/31/95
------------------------- ------- ------- -------
Product and Other Margin 38 27 34
Service Margin 42 33 42
Total Margin 40 31 37
Product margin increased to 38% in the second quarter of 1995 versus the 27%
achieved in the second quarter of 1994 and 34% in the first quarter of 1995.
The increase in product margins from the first quarter to the second quarter
of 1995 was due to the shift to higher end systems on the SPP product line,
which carried higher selling prices and higher margins. Product margins
improved in the second quarter of 1995 versus a year ago as a result of
improved factory efficiencies on the higher product revenue base.
Gross margin on the service business of 42% for the second quarter of 1995 was
unchanged from the first quarter of 1995 and improved from 33% in the second
quarter of 1994. The improvement in the second quarter of 1995 versus a year
ago is attributable to both the reduction in the lower margin integration
business and improved performance on the contract maintenance business.
Expenses
Expenses for the second quarter of 1995 remained constant with the previous
quarter. Excluding restructuring and other charges, expenses declined by $2
million from the same quarter in 1994, with reductions in selling, general and
administrative expenses.
Quarter ended
------------------------------
Expenses ($000,000) 6/30/95 6/30/94 3/31/95
------------------------- ------- ------- -------
Research and Development 8 8 8
Selling, General and Administration 13 15 13
Restructuring and Other 0 18 0
Expenses % Revenue
-------------------
Research and Development 22 23 22
Selling, General and Administrative 37 44 37
Restructuring and Other 0 52 0
The Company remains committed to aggressive efforts to maintain investment in
the future, with emphasis on development of new products. In addition, the
Company believes the current selling resources are necessary to support the
product sales forecast for 1995, but the Company continues to focus on tight
expense management.
New Product Development
-----------------------
The market for the Company's products is characterized by rapid technological
change, frequent new product introductions, changes in customer needs and
evolving industry standards and is therefore highly dependent upon timely
product innovation. The Company's success is dependent in part on its ability
to enhance and improve its existing products while developing and introducing
new products on a timely basis to replace declining revenues from older
products. The timing and success of product development is unpredictable due
to the technological complexity of the Company's products, the inherent
uncertainty in anticipating technological developments, the need for
coordinated efforts of numerous technical personnel, the Company's reliance on
third party vendors for critical technology, and the difficulties in
identifying and eliminating errors prior to production release.
The timely introduction and market acceptance of the third generation Exemplar
products planned for 1996 are critical to the Company's future financial
performance. The introduction, acceptance and cost of these products is
substantially dependent upon the delivery of acceptable components
manufactured by third parties. The integration and performance tuning of the
operating environment and third party programs is also critical to the overall
success of these products. The integration and performance tuning of new
components typically requires significant development efforts and expense.
The Company believes that its development efforts will result in new products,
however there can be no assurance when future products will be available or
that those products will be broadly accepted by the market.
Components Availability
-----------------------
Certain components of the Company's products are currently available only from
a single or limited number of sources. These components include the PA-RISC
microprocessor modules used in the Exemplar family, which are only available
from Hewlett-Packard, and custom gallium arsenide gate arrays designed by
Convex that are manufactured 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 and other
sole-sourced components. The Company's reliance on these vendors involves
several risks, including the possibility of an interruption or shortage of
components and reduced control over delivery schedules. The Company's
products also use several components such as DRAMs and SRAMs which, although
manufactured by multiple suppliers, have recently been in short supply. The
Company has experienced component shortages in the past, and there can be no
assurance that the Company will receive adequate component supplies in the
future. Delay in the receipt of sole source or other components could have a
material adverse effect on the Company's results of operations.
Restructuring and Other Expenses
--------------------------------
The Company implemented restructuring actions in 1993 and again in 1994 to
reduce operating costs, to increase the efficiency of the Company's
operations, and to align operating expenses with anticipated future business
levels. These charges totaled $54 million and required approximately $20
million in cash expenditures. At March 31, 1995, the accruals to provide for
expenses not yet incurred declined to below $2 million and payments were made
or actions taken in sales office closures to further reduce the accruals for
future cash expenditures to $1.6 million at June 30, 1995.
The Company ended the second quarter of 1995 with 829 full time employees.
The Company's future success is substantially dependent upon its ability to
attract and retain highly skilled technical and sales personnel. Industry
competition for highly skilled personnel is intense, and the Company's recent
financial performance has challenged its ability to compete for this
personnel. The loss of key personnel could have a material adverse effect on
the Company's business.
Other Income and Expense
Other income and expense consists of interest earned less interest expenses
incurred and certain costs associated with implementing the Company's foreign
currency hedging program. The net amounts were immaterial in the periods
presented.
Income Taxes
The operating loss for the Company in the second quarter of 1995 is
anticipated to result in no tax benefit in the current year. The Company
believes it may incur tax expenses in various foreign subsidiaries which could
result in a net tax expense for the year. At June 30, 1995, the Company had
foreign and domestic operating loss carryforwards which are available to
offset future taxable income. The realization of the tax benefits related to
the loss carryforwards is dependent on the future profitability of the Company
and its foreign subsidiaries.
Continuing Losses from Operations
The Company has reported losses from operations for each of the last nine
quarters. The Company is experiencing intense competition in its historical
markets as well as in new markets targeted by the Company. The Company
believes that it is experiencing order delays due to customer anticipation of
the introduction of new products in the second half of 1996 and customer
concerns regarding the Company's longer-term working capital needs. The
result of these factors has been reduced current demand for the Company's
products, slower than expected acceptance of the Company's products in new
markets, and reduced gross margins as compared to the supercomputer industry
performance. In response to these factors, the Company has taken a number of
actions to reduce expenses, including reductions in the size of the Company's
workforce. However, the Company has continued to spend aggressively on
research and development. As a result, the Company expects financial
performance to be below break-even for at least the next two quarters.
Liquidity and Capital Resources
The Company's cash, cash equivalents and short-term investment balances
declined by $3 million in the second quarter of 1995, primarily as a result of
the Company's operating loss in that quarter. This decline compares to a
decline of $8 million in the second quarter of 1994 and a decline of $3
million in the first quarter of 1995. At June 30, 1995, the Company's cash,
cash equivalents and short-term investment balances were a total of $34
million.
The Company continues to focus on cash conservation. Receivables and
inventory together decreased by $7 million in the second quarter of 1995, and
performance ratios improved on both items. The Company made progress in the
second quarter of 1995 in reducing receivable days from 103 to 95. Inventory
turns on revenue increased to 7.4 after reaching 6.2 in the first quarter of
1995. Capital expenditures for the second quarter of 1995 were approximately
$3 million compared to $6 million for the second quarter of 1994.
The Company has no established borrowing facility or other source of
additional capital and no agreement or commitment to provide the Company with
additional capital presently exists. With financial performance for at least
the next two quarters expected to be below break-even, the Company expects
cash, cash equivalents and short-term investment balances to decline to a
challenging level unless additional working capital is obtained. The Company
will experience liquidity problems within the next 12 months if it is unable
to eliminate or significantly reduce its losses from operations or obtain
sufficient additional capital resources. In addition, the Company will
require additional capital if revenue growth materially exceeds current
levels. While the Company is actively pursuing a number of financing
alternatives, there can be no assurance that the Company will be able to
obtain sufficient additional capital.
Dependence on Relationship with Hewlett-Packard
The Company's future success and growth depends significantly on its
relationship with Hewlett-Packard. The Company has licensed certain core
technology from and to, and has an ongoing joint marketing arrangement with,
Hewlett-Packard. The Company's strategy of developing products based on
Hewlett-Packard's microprocessors and operating environment makes it
substantially dependent on the competitiveness of those processors and the
Company's ability to obtain access to, and to develop expertise with,
Hewlett-Packard's current and future product developments. The Company's
believes that its relationship with Hewlett-Packard remains strong and is
expanding to include new areas of mutual interest. However, there can be no
assurance that the Company will always have access to Hewlett-Packard
technology.
Competition
The high performance computer business is intensely competitive and
characterized by rapid technological advances. The Company's future success
is dependent upon its ability to develop new products and bring them to market
in the near term. The Company's ability to bring new products to market is
substantially dependent on Hewlett-Packard's timely development and
introduction of new microprocessors. In addition, the availability of other
technologies necessary for the Company's success are not under the Company's
control.
The Company's Exemplar products compete with International Business Machines
Corporation's SP2 product, Silicon Graphics Inc.'s Challenge and Power
Challenge products, and products offered by several vendors who offer high
performance workstation and server products. The Company's entire product
line also competes with that of Cray Research, Inc. Each of these competitors
has significantly greater financial, technical, sales, marketing and other
resources than the Company. The introduction of new products by any of these
competitors could result in material adverse effects on the Company, including
but not limited to delays in orders caused by customer evaluations of new
product offerings.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 11,1995. At the
Annual Meeting, the following matters were voted upon and approved: (i) the
election of Robert J. Paluck (19,302,976 shares voted for such matters and
985,323 negative votes were cast), Stephen J. Wallach (19,305,054 shares voted
for such matters and 983,245 negative votes were cast), Erich Bloch
(19,325,425 shares voted for such matters and 962,874 negative votes were
cast), Sam K. Smith (19,317,798 shares voted for such matters and 970,501
negative votes were cast), Howard D. Wolfe (19,320,911 shares voted for such
matters and 967,388 negative votes were cast), H. Berry Cash (19,171,208
shares voted for such matters and 1,117,091 negative votes were cast), Max D.
Hopper (19,324,574 shares voted for such matters and 963,725 negative votes
were cast) as directors of the Company to serve until the next Annual Meeting
of Stockholders and until each director's successor has been elected and
qualified; (ii) the approval and ratification of an amendment to the 1991
Stock Option Plan that would increase the number of shares reserved for
issuance thereunder from 4,960,000 to 6,160,000 (8,381,555 shares voted for
such matters, 7,659,587 negative votes were cast and 82,130 abstained); (iii)
the approval and ratification of the adoption of the 1995 Employee Stock
Purchase Plan that would reserve 900,000 shares for issuance thereunder
(14,139,755 shares voted for such matters, 1,894,551 negative votes were cast
and 88,966 abstained); (iv) the approval of the amendment and restatement of
the Company's Certificate of Incorporation for the purpose of increasing the
authorized number of shares of Common Stock by 40,000,000 shares (16,810,324
shares voted for such matters, 3,379,271 negative votes were cast and 98,704
abstained); (v) the ratification of the appointment of Ernst & Young LLP as
the Company's independent public accountants for the 1995 fiscal year
(19,538,090 shares voted for such matters, 677,718 negative votes were cast
and 72,491 abstained).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1(*) Restated Certificate of Incorporation of the Company.
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 1995 Employee Stock Purchase Plan, and form of Subscription
Agreement. Incorporated by reference from the Company's Registration
Statement on Form S-8 (Registration No. 33-59857).
10.6 1991 Stock Option Plan, as amended, and form of Non-Statutory
Stock Option Agreement. Incorporated by reference from the Company's
Registration Statement on Form S-8 (Registration No. 33-59817).
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. Incorporated by reference from Exhibit 10.8 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995.
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. Incorporated by reference from Exhibit 10.8.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
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. Incorporated by reference from Exhibit 10.8.2 to
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.
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.). Incorporated by
reference from Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995.
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 onForm 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
--------------------------------------------
(*) Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fiscal quarter
ended June 30, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONVEX COMPUTER CORPORATION
Registrant
BY: DAVID W. CRAIG
------------------
David W. Craig
Chief Financial Officer and
Vice President, Finance
(Principal Finance and Accounting
Officer)
Dated: August 14, 1995
-----------------------------------
EXHIBIT INDEX
Exhibit
Number
--------
3.1 Restated Certificate of Incorporation of the Company
=============================================================================
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
CONVEX COMPUTER CORPORATION
CONVEX COMPUTER CORPORATION, originally incorporated as PARSEC SYSTEMS CORP.,
a cooperation duly organized and existing under the laws of the State of
Delaware (the "Corporation"), does hereby certify as follows:
FIRST: The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on September 8, 1982;
SECOND: This Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware by the Board of Directors of the
Corporation;
THIRD: This restated Certificate of Incorporation has been approved by the
stockholders of the Corporation in accordance with the provisions of Sections
211 and 216 of the General Corporation Law of the State of Delaware;
FOURTH: The Certificate of Incorporation of this Corporation is restated in
its entirety to read as follows:
1. The name of the Corporation is CONVEX COMPUTER CORPORATION.
2. The address of its registered office in the State of Delaware is 1209
Orange Street, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporation may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the Corporation shall have
authority to issue is eighty-five million (85,000,000) which shall be divided
into two (2) classes as follows: eighty million (80,000,000) shares of Common
Stock, par value One Cent ($0.01) per share, amounting in the aggregate to
eight hundred thousand dollars ($800,000) ("Common Stock"), and five million
(5,0000,000) shares of Preferred Stock, par value One Cent ($0.01) per share,
amounting in the aggregate to fifty thousand dollars ($50,000) ("Preferred
Stock").
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof are as follows:
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted
by the Board of Directors (authority to do so being hereby expressly vested in
the Board) and such resolution or resolutions shall also set forth voting
powers, full or limited, or none, of each such series of Preferred Stock and
shall fix the designations, preferences and relative participating, optional
or other special rights and qualifications, limitations, or restrictions of
each such series of Preferred Stock.
5. The Corporation is to have a perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or
repeal the by-laws of the Corporation.
7. Elections of directors need not be by written ballot unless the by-laws
of the Corporation shall so provide.
8. A director of the Corporation shall not be personally liable to the
Corporation or it stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
an improper personal benefit.
9. (a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction or upon a plea of "nolo contendere" or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interest of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subparagraphs (a) and (b), or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection therewith.
(d) Any indemnification under subparagraphs (a) and (b) (unless ordered
by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in subparagraphs (a) and (b).
Such determination shall be made (1) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
Notwithstanding the foregoing, a director, officer, employee or agent has not
met the applicable standard of conduct set forth in subparagraphs (a) and (b)
by petitioning a court of appropriate jurisdiction.
(e) Expenses incurred in defending or settling a civil or criminal
action, suit or proceeding by an individual who may be entitled to
indemnification pursuant to subparagraphs (a) and (b) of this Article 9 shall
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized in this Article 9.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subparagraphs of this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article 9.
(h) For purposes of this Article 9, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officer, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article 9 with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence
had continued.
(i) For purposes of this Article 9, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the Corporation" shall include
any service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee
or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to
in this Article 9.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article 9 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
IN WITNESS WHEREOF, CONVEX COMPUTER CORPORATION has caused this
Certificate to be signed by Robert J. Paluck, its Chairman of the Board, and
attested by Philip N. Cardman, its Secretary, this 26th of May, 1995.
CONVEX COMPUTER CORPORATION
BY: ROBERT J. PALUCK
-----------------------
Robert J. Paluck
Chairman of the Board
ATTEST:
BY: PHILIP N. CARDMAN
----------------------
Philip N. Cardman
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 23,019
<SECURITIES> 10,822
<RECEIVABLES> 43,083
<ALLOWANCES> 6,050
<INVENTORY> 19,037
<CURRENT-ASSETS> 108,112
<PP&E> 126,635
<DEPRECIATION> 95,274
<TOTAL-ASSETS> 163,337
<CURRENT-LIABILITIES> 58,370
<BONDS> 59,850
<COMMON> 267
0
0
<OTHER-SE> 44,850
<TOTAL-LIABILITY-AND-EQUITY> 163,337
<SALES> 21,606
<TOTAL-REVENUES> 35,074
<CGS> 13,380
<TOTAL-COSTS> 41,787
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 358
<INCOME-PRETAX> (7,071)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,306)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,306)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
