<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO
______________ [NO FEE REQUIRED]
Commission file number: 0-27016
ROSS TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2507960
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5316 HIGHWAY 290 WEST, SUITE 500
AUSTIN, TEXAS 78735-8930
(Address of principal executive offices, including zip code)
(512) 436-2000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.001 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. [X] Yes [ ] No
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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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of June 16, 1997, was approximately $20,200,000 based upon the
last sale price reported for such date on the NASDAQ National Market System. 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 because
such persons may be deemed to be affiliates. This determination is not
necessarily conclusive.
The number of shares of the Registrant's Common Stock outstanding as of June 16,
1997, was 23,534,123.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 1997 Annual Meeting of
Stockholders (to be filed within 120 days following the end of the fiscal year)
are incorporated herein by reference in Part III.
Portions of the following documents are incorporated herein by reference in
Parts I, II and IV: Registrant's Registration Statement on Form S-1
(Registration No. 33-95878) effective as of November 6, 1995 and Registrant's
Final Prospectus dated November 6, 1995.
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ROSS TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
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Caption Page
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PART I
Item 1. Business................................................. 2
Item 2. Properties.............................................. 15
Item 3. Legal Proceedings....................................... 16
Item 4. Submission of Matters to a Vote of Security Holders..... 17
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters.............................. 18
Item 6. Selected Consolidated Financial Data.................... 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 20
Item 8. Financial Statements and Supplementary Data............... 29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 30
PART III
Item 10. Directors and Executive Officers of the Registrant........ 31
Item 11. Executive Compensation.................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 31
Item 13. Certain Relationships and Related Transactions............ 31
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K....................................... 32
</TABLE>
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CAUTIONARY STATEMENT
This Annual Report contains forward looking statements, within the meaning
of the Private Securities Litigation Reform Act of 1995, with respect to the
financial condition, results of operations and business of ROSS Technology, Inc.
and its subsidiary (collectively, unless the context otherwise requires, "ROSS",
the "Company", or the "Registrant"). Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially and
adversely from those set forth in the forward-looking statements, including
without limitation the availability of financial resources adequate to the
Company's short-, medium- and long-term needs, the Company's dependence on the
timely development, pre-production qualification, manufacture, introduction and
customer acceptance of new higher speed, higher-margin products, the ability of
the Company to successfully implement its strategy of diversifying into the
system products business, the various effects on revenue, margins, inventories
and operation expenses of repositioning the Company's product lines and overall
business, the effects of building and maintaining product inventories in the
Company's hands and in its distribution channels, product return and credit
risks with distributors, resellers and other customers, the Company's dependence
on distributors and resellers for certain product sales to end-users, the impact
on revenue, margins and inventories of rapidly changing technology, competition,
downward pricing pressures and allocations of product among different
distribution channels, the effects of routine price degradation over time in
each of the Company's product lines, varying customer demand for the Company's
products, supply and manufacturing constraints and costs, the Company's
dependence on outside suppliers for wafer fabrication and raw materials,
components and certain manufacturing services, changes in plans, programs or
expenses for research, development, sales or marketing, the Company's ability to
build and maintain adequate staff infrastructures in the areas of microprocessor
design, product engineering and development, sales and marketing, finance,
accounting and administration, supplier disputes, customer warranty claims,
general economic conditions, and the other risks and uncertainties described
from time to time in the Company's public announcements and SEC filings,
including without limitation the Form S-1 and Final Prospectus filed in November
1995 and the Company's Current, Quarterly, and Annual Reports on Forms 8-K,
10-Q, and 10-K, respectively. The Company cautions that the foregoing list of
important factors is not exclusive. The Company does not undertake to update any
written or oral forward-looking statement that may be made from time to time by
or on behalf of the Company.
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PART I
ITEM 1. BUSINESS
GENERAL
The Company designs, manufactures and markets high-performance
microprocessors and associated semiconductor products and system boards,
workstations and servers based upon the SPARC(TM) architecture, a reduced
instruction set computing ("RISC") architecture that was originally developed by
Sun Microsystems, Inc. ("Sun Microsystems" or "Sun"). The SPARC architecture
maintains the largest installed base, and continues to have the largest market
share of new systems sales, of all RISC workstations and servers. The Company
targets its semiconductor and system board products to manufacturers of SPARC
computer systems, including Sun, Fujitsu Limited ("Fujitsu") and other original
equipment manufacturers ("OEMs"), and as upgrades to end-users of SPARC
workstations. Its workstation and server sales are targeted to distributors and
value added resellers ("VARs") which then sell these products to end-users.
ROSS was originally incorporated in Texas in August 1988 and was acquired
by Cypress Semiconductor Corporation ("Cypress Semiconductor" or "Cypress") in
February 1990, at which time the Company became a Delaware-incorporated
subsidiary of Cypress. The Company was a subsidiary of Cypress until July 1993,
at which time the Company was acquired by, and became a wholly-owned subsidiary
of, Fujitsu. The Company consummated the initial public offering of its common
stock (the "Common Stock") in November 1995, at which time it also sold a
minority interest to Sun. As of June 16, 1997, Fujitsu and Sun owned
approximately 59.8% and 4.5%, respectively, of the outstanding Common Stock. As
used in this Annual Report, unless the context requires otherwise, all
references to "ROSS", the "Company", or the "Registrant" refer to ROSS
Technology, Inc., a Delaware corporation and its predecessor Texas corporation
and consolidated subsidiaries.
"ROSS" is a registered trademark of the Company in the United States, and
the marks "hyperCACHE" and "hyperSTATION" are trademarks for which the Company
has applied for registration. The names "hyperSPARC" and "SPARCplug" are
trademarks licensed for use exclusively by the Company from SPARC International,
Inc. All SPARC trademarks are trademarks or registered trademarks of SPARC
International, Inc. All other product or service names mentioned herein are
trademarks of their respective owners. Products bearing the SPARC trademarks are
based on an architecture developed by Sun Microsystems.
PRODUCTS
The Company's principal semiconductor product line is the hyperSPARC(TM)
family of microprocessors. Microprocessors, integrated circuits that contain
millions of transistors, serve as the central processing unit ("CPU") of
computer systems such as workstations and personal computers ("PCs").
Microprocessors are responsible for controlling data flow through the
workstation or PC, manipulating such data as specified by software running on
the system, and coordinating all hardware functions within the system.
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Since its inception, the Company has developed four generations of
advanced RISC (Reduced Instruction Set) microprocessor products. The first of
these products was the Company's 40 megahertz ("MHz") microprocessor, which was
selected for use by Sun in its SPARCstation(TM) 2, introduced in 1990. Among the
Company's design wins have been the inclusion of its 100 MHz hyperSPARC
microprocessor in Sun's SPARCstation 20 Model HS11 in late 1994, its 125 MHz
hyperSPARC microprocessor in Sun's SPARCstation 20 Model HS21 in early 1995, and
its 150 MHz hyperSPARC microprocessor in Sun's SPARCstation 20 Models 151 and
152MP in October 1995. Other OEMs have selected the Company's advanced RISC
microprocessors for use in their products. Fujitsu, the Company's second largest
customer, and its majority stockholder, introduced systems based on three new
derivatives of the Company's 'Colorado 3' hyperSPARC microprocessor in 1996. The
DS90 7500 and 7700 server systems from Fujitsu, and the S4-20H workstations from
Fujitsu and PFU Limited, incorporate the Company's single and dual 150 MHz
microprocessors with 512 kilobytes of second-level cache as well as 142 MHz
microprocessors with a full megabyte of cache.
The Company's hyperSPARC products feature high-performance integer,
floating-point and memory-management capabilities for multi-tasking operating
environments. The hyperSPARC architecture is well-suited for applications that
are floating-point intensive, such as many scientific, computer-aided design
("CAD"), computer-aided engineering ("CAE") and seismic modeling applications.
All hyperSPARC products conform to the SPARC Version 8 Architecture
specification and offer complete compatibility (including multiprocessing) with
both the SunOS(TM) (Version 4.1.x) and Solaris(TM) operating systems.
The Company sells its hyperSPARC products as single- or dual-processor
MBus(TM) modules (plug-in "daughtercards" containing one or two multi-die
packages and other components on a small printed circuit board) and, to a lesser
extent, as single-processor multi-die packages (single integrated circuit
packages containing multiple bare semiconductor die connected by an advanced
substrate).
Multi-Die Packages
The Company's hyperSPARC multi-die packages ("MDPs") integrate multiple,
discrete die into a single pin-grid-array ("PGA") package. Interconnection among
the die is accomplished through a silicon or other electronic substrate, so that
the entire chipset operates as a single integrated circuit ("IC"). The
hyperSPARC MDPs integrate four to ten die, including a single complete CPU
chipset and a tightly-coupled second level cache, into a single package. The
hyperSPARC second-level caches are offered in 256 kilobyte, 512 kilobyte, and
one megabyte configurations. All hyperSPARC MDPs are fully multiprocessing
capable. MDPs are purchased by OEMs on a stand-alone basis for incorporation
into space- and power-sensitive applications such as small footprint
workstations, I/O subsystems, and process control systems.
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MBus Modules
MDPs are typically sold as part of an integrated solution: the MBus CPU
module. ROSS introduced the industry's first MBus module in 1990 to facilitate
the open architectural, or "plug-and-play," advantages of the SPARC
architecture. The Company's MBus modules mount one or two hyperSPARC MDPs onto a
CPU daughtercard that plugs into one of the MBus "sockets" of the system
motherboard via a SPARC-standard MBus connector.
The Company sells its MBus modules into both the OEM and upgrade markets.
The MBus module approach allows the Company's OEM customers to be flexible in
the machine configurations they offer to their end-user customers. The same
motherboard design, which typically contains two MBus sockets, can accommodate
one, two or four processors at a variety of speed/cache combinations to achieve
the targeted price/performance point. The installed base of MBus-based machines
also provides the foundation for the Company's upgrade business, in which
end-users of SPARCstation 10 and 20 class workstations and SPARCserver(TM) 600
class servers can preserve and enhance their system investment by adding to or
replacing the MBus modules in their existing machines with the Company's higher
performance hyperSPARC MBus modules.
The Company's MBus support ASICs provide a high speed interface between
the CPU/cache, memory and I/O subsystems. Currently, the ASICs are capable of 50
MHz operation, and offer performance enhancements, such as support for larger
memory subsystems. The ASICs are sold as stand-alone components, as well as part
of an integrated motherboard.
The Colorado 4 hyperSPARC is based on .35 micron four-layer metal pure
CMOS process technology and operates at 180 and 200 MHz. In addition to the
improvement in clock frequency over the 150 MHz Colorado 3, the Colorado 4
integrates a 16 kilobyte data cache onto the processor chip and increases the
instruction cache from 8 to 16 kilobytes. In June 1997 the Company announced 200
MHz quad upgrades, providing multiprocessing upgrades for users of Sun's
SPARCstation 20 systems.
SPARCplug(TM) is a SPARCstation 20-compatible workstation/server that
fits into the dual-height drive bay of a standard tower PC. Sharing system
resources with the PC, such as the power supply, monitor, keyboard, and mouse,
SPARCplug enables a single machine to combine a complete SPARC/Solaris system
with a standard PC environment, providing full "cut-and-paste" Windows(TM)
interoperability. In June 1997 the Company announced a SPARCplug Station, which
fits into a "four-high" drive bay tower, and may be used in both workstation and
server configurations.
ROSS also offers system-level SPARC solutions including complete
workstations as well as motherboard upgrades with a range of speed and
performance solutions. The Company's near-term strategy is to leverage the
Company's core technologies to offer value-added system solutions to the 32-bit
SPARC market. Its products integrate hyperSPARC modules with the Company's MBus
support ASICs.
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System level products include the hyperSTATION family of 32-bit systems,
which is based on the SPARC architecture and MBus technology and supports up to
two hyperSPARC modules. Each module can have up to two processors. The
workstations are compatible with the SunOS 4.x and Solaris operating systems. In
June 1997 the Company announced the hyperSTATION 30 system, configured with quad
- - 200 MHz processors, providing multiprocessing and compatibility with SunOS and
Solaris operating systems.
Dependence on SPARC Architecture
At present, substantially all of the Company's products, as well as most
of the Company's products currently under development, are based on the SPARC
architecture. The continued acceptance of the SPARC architecture by Sun, Fujitsu
and other major computer system manufacturers, as well as by the end users of
these systems, the adoption of SPARC by new OEMs in desktop and non-desktop
markets, the success of the Company and the Company's OEM customers in selling
SPARC-based products to end users, the growth in sales of products incorporating
the SPARC architecture, and the continuing willingness of computer software
vendors to develop and enhance applications compatible with SPARC-based systems
are all critical to the Company's future success.
In 1995 Sun introduced a new line of workstations based upon a new 64-bit
bus architecture and SME's UltraSPARC(TM) microprocessor designs. These products
are incompatible with the MBus architecture on which all of the Company's
current products are based. Although the Company believes that market
opportunities for new MBus-related products will continue for at least the next
several years, Sun has announced its intention to adopt the 64-bit
architecture over time for its entire product line, and accordingly there can be
no assurance that Sun will continue to develop or market MBus-compatible
products in the future. Sun's decision to focus future product development
efforts on 64-bit systems combined with significant market acceptance of such
systems could significantly limit the total available market for the Company's
MBus-based products over a period of years. Should other SPARC OEMs likewise
make a decision to shift development efforts to the new bus, the Company's total
available market would be further reduced unless it can develop new products
that are compatible with the 64-bit architecture and receive market acceptance.
The Company has begun research and development associated with a 64-bit
architecture.
CUSTOMERS
The Company sells its semiconductor and board products to manufacturers of
SPARC computer systems, including Sun Microsystems, Fujitsu and other OEMs, and
to distributors, VARS, and end-users desiring to upgrade the power and
performance of their existing SPARC workstations and servers.
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OEM Customers
The Company's semiconductor OEM customers include a number of companies in
several market segments that use the Company's SPARC products in a variety of
end products. The largest of these OEM market segments, processors for
workstations and servers, historically has accounted for a major portion of the
Company's OEM revenues. Other OEM market segments for the Company's products
include high-performance network file servers, massively parallel systems,
telecommunications, data communications and embedded systems.
Historically, the Company's sales have been concentrated among a limited
number of large customers. Although sales to Sun increased in dollar terms in
fiscal 1997, Sun's percentage share of the Company's total net sales is
significantly below its 1992 peak. Sun accounted for 28%, 45% and 26%,
respectively, of the Company's net sales in the fiscal years ended March 31,
1997, ("fiscal 1997"), April 1, 1996 ("fiscal 1996") and April 3, 1995 ("fiscal
1995"), followed by Fujitsu, which accounted for 22% of net sales in fiscal 1997
and 19% of net sales during each of fiscal 1996 and 1995.
The Company expects a significant portion of its future sales to remain
concentrated within a limited number of customers. There can be no assurance
that the Company will be able to retain its major customers or that such
customers will not otherwise cancel or reschedule orders, or in the event of
canceled orders, that such orders will be replaced by other sales. In addition,
sales to any particular customer may fluctuate significantly from quarter to
quarter. The occurrence of any such events could have a material adverse effect
on the Company's business and operating results.
It is the Company's intention to grow its business at the systems board,
embedded system, and box level to supplement its existing system integrator and
OEM businesses. Over the next several quarters, the Company intends to position
itself to move in this direction to grow the Company. The Company recognizes the
need to expand and diversify its business beyond its existing customer base.
Upgrade Customers
The Company's upgrade customer base is composed of the end-users of
SPARCstation 5, 10 and 20 class workstations and SPARCserver 600 class servers
who wish to upgrade the performance of their existing machines. This customer
base spans a wide range of applications and industries that reflect the variety
of SPARC workstation and server users. By replacing the CPU daughtercard of
their machines with one or two of the Company's hyperSPARC upgrade modules,
SPARCstation 10 and 20 and SPARCserver 600 users can experience a significant
increase in the performance of their workstations (as measured by certain
standard benchmarks). SPARCstation 5 customers can upgrade their performance by
installing replacement hyperSTATION motherboards which are in turn further
upgradable with hyperSPARC upgrade modules.
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SALES, MARKETING AND SUPPORT
Sales and Marketing
The Company employs various channels of sales and distribution for its
hyperSPARC product family. OEM and upgrade sales are conducted through a direct
sales force and through manufacturer representatives. Upgrade sales are
conducted through a domestic and international network of VARs and distributors.
As of March 31, 1997, the Company's internal sales force consisted of nine
individuals who shared responsibility for direct sales and the support of
manufacturer representatives and VARS.
The Company's strategy for upgrade sales has been to focus its resources
on the training and support of distributors and VARs, which the Company believes
is a cost-effective alternative to establishing a large, internal, direct sales
force.
As is common in the semiconductor industry, the Company may grant price
protection to distributors. Under this policy, distributors receive a credit for
the difference, at the time of a price reduction, between the price they were
originally charged for products in inventory and the reduced price which the
Company subsequently charges distributors. From time to time, distributors also
receive credit on an individual basis for Company-approved price reductions on
specific transactions. The Company also grants some distributors limited rights
to return products. The Company defers recognition of net sales and profit on
sales to distributors that have rights of return and price protection until
those distributors have resold the products to end-customers.
The Company's marketing communications activities include communications
through articles and press releases in trade magazines and journals, advertising
in technical computer publications and the business press, periodic direct
mailings and fax campaigns to customers and prospects, and attendance at trade
shows. The Company also publishes hyperACTIVITY(TM), a periodic newsletter which
is mailed to customers, prospective customers and others.
Warranties
The Company offers a warranty on its products consistent with standard
industry practice. Under the terms of this warranty, the Company is obligated to
replace or refund the purchase price of any unit that fails to operate to the
Company's published specifications when the unit is used within specified
environmental and other operating parameters. The duration of this warranty for
the Company's CPU products and for its workstation and server products is one
year for OEM customers, and two years for upgrade customers. Under its warranty
obligations, the Company could be required to recall a product that does not
conform to published specifications, and such a recall could have a material
adverse effect on the Company's business and operating results.
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Export Sales
Export sales, primarily to customers in Japan and Europe, accounted for
34%, 36% and 29% of the Company's sales in the fiscal years 1997, 1996, and
1995, respectively. Substantially all of the Company's foreign sales are
denominated in US dollars.
Service and Technical Support
The Company has two distinct channels of technical support to service its
OEM and upgrade customer bases. Technical support for OEMs is provided through
the Company's Applications Engineering Department, which provides in-depth
technical expertise to assist in the design, debug, and performance analysis of
systems under development by the Company's OEM customers. The upgrade technical
support department includes a 1-800-ROSS-YES line directly into the Company's
support personnel that provides phone support from 7:30 AM to 7:30 PM Central
Time. This group provides pre- and post-sales assistance to the Company's
upgrade prospects and customer base. In order to improve the market appeal of
the Company's upgrade products, the Company has engaged a number of key service
providers, such as Digital Equipment Corporation, to provide hardware support
for hyperSPARC-upgraded machines.
The primary channel for technical support to service workstation customers
is via service providers such as Computervision and Polaris.
BACKLOG
As of March 31, 1997, the Company's total backlog was approximately $11
million. The Company's backlog consists of customers' purchase orders that have
been received, acknowledged by the Company and scheduled for shipment within the
next 12 months.
Sales of the Company's products generally are made pursuant to standard
customer purchase orders that are cancelable without significant penalty subject
to certain criteria. In addition, customer purchase orders are subject to price
re-negotiations and changes in product quantities and delivery schedules caused
by changes in customers' requirements and manufacturing availability. The
Company's business, and to a large and growing extent that of the entire
semiconductor industry, is characterized by a requirement for short lead times
and quick delivery schedules. In addition, the Company's shipments depend on the
manufacturing capacity of the Company's suppliers. As a result of the foregoing
factors, the Company believes that backlog at any given time may not be a
meaningful indicator of future sales.
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MANUFACTURING
The Company's microprocessor manufacturing strategy is to outsource the
physical manufacture of its raw materials, work in process and final products to
third-parties that possess state-of-the-art process technologies, while
performing test and verification functions internally to ensure product quality
and yields. Specifically, the Company outsources wafer fabrication, die
packaging and module assembly. Before qualifying a third-party manufacturer, the
Company places its personnel on site, as required, to provide technical
assistance and oversight, to ensure development of processes that conform to
Company specifications and requirements. This manufacturing strategy is intended
to give the Company access to advanced manufacturing processes while minimizing
the substantial capital expenditures that would otherwise be required to develop
its own manufacturing capabilities. Furthermore, the Company believes that this
strategy enables it to operate more efficiently with fewer personnel, while
capitalizing on the latest advances in semiconductor process technology and
manufacturing techniques.
Fabrication of the Company's anticipated future microprocessor products
requires advanced manufacturing technology that is currently available from only
a small number of manufacturers. The Company's reliance on third-party
manufacturers involves a number of material risks, including shortages of
manufacturing capacity, unavailability of, or delays in obtaining access to,
certain process technologies, and the absence of controllable product delivery
schedules, quality assurance, production yields and costs. There can be no
assurance that the Company will be able to obtain a sufficient quantity of
products from its manufacturers on a timely basis and at competitive prices, and
the failure to do so would have a material adverse effect on the Company's
business and results of operations.
The Company's manufacturing strategy with respect to workstations and
servers, which is similar to its microprocessor strategy, is to outsource the
manufacturing and integration of its products to third parties that possess
state-of-the-art technologies, while performing test and verification functions
internally to ensure product quality and yields. Specifically, the Company
outsources the manufacturing and assembling of its motherboards. Before
qualifying a third-party manufacturer, the Company's personnel are placed on
site as required to provide technical assistance and oversight to ensure
development of processes that conform to Company specifications and
requirements. This strategy is intended to give the Company access to advanced
manufacturing processes while minimizing the substantial capital expenditures
that would otherwise be required to develop its own manufacturing capabilities.
Wafer Fabrication
Wafers for the semiconductor chips utilized by the Company in its products
are fabricated by outside manufacturers. At present, Fujitsu manufactures wafers
for all of the Company's microprocessor logic chips and SRAMs. The Company has
recently established a relationship with NEC for the potential production of
microprocessor logic chips. During fiscal 1997 and fiscal 1996, Fujitsu supplied
100% of the dollar amount of the Company's silicon wafer purchases for
production.
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The wafers for the Company's Colorado 3 hyperSPARC microprocessor logic
chips are currently being manufactured using Fujitsu's 0.35 - 0.4 micron, triple
layer metal CMOS process technology, while the Colorado 4 hyperSPARC
microprocessor logic chips utilize a 0.35 micron process. The Company is working
with Fujitsu to migrate production of future versions of hyperSPARC products to
processes with increasingly finer circuit geometries, which the Company expects
will support increases in clock speeds and manufacturing yields. Furthermore,
the Company from time to time holds discussions with other wafer manufacturers
in order to explore additional sources of wafers. However, there can be no
assurance that the Company will be able to migrate successfully its wafer
production to finer circuit geometries or that it will be able to obtain from
Fujitsu or others adequate advanced silicon wafer production capacity. There can
be no assurance that the Company will be able to obtain a sufficient quantity of
wafers from its wafer manufacturers on a timely basis and at competitive prices,
and the failure to do so would have a material adverse effect on the Company's
business and results of operations.
The Company and Fujitsu have reached an agreement in principle on a wafer
pricing model that reflects fair market values based upon current and future
industry wafer pricing standards. The parties intend to incorporate this model
into a definitive supply agreement in the near future.
Packaging and Assembly
The Company also relies on third parties for the production of its
multi-die packages. The Company obtains a majority of its multi-die package
requirements for its current hyperSPARC products from MMS using MMS' advanced
substrate technology. The Company's multi-die packages are also manufactured by
nChip, Fujitsu, and W. L. Gore on a purchase order basis. The Company's MBus
modules -- which incorporate multi-die packages, connectors, clock chips, heat
sinks and other components on a small printed circuit board -- are currently
assembled by Solectron of Austin and Marco, Inc. of Austin on a purchase order
basis.
Testing
At each stage of the production cycle, the Company's work-in-process and
final products are tested for defects and functionality at the Company's Austin,
Texas manufacturing facility. The Company believes it employs certain testing
procedures that are more sophisticated and rigorous than those generally
employed in the semiconductor industry, and believes that its commitment to
testing has enabled it to introduce products of superior reliability.
Although the Company's products undergo extensive testing prior to their
introduction, design and manufacturing errors may be discovered after initial
product sampling or volume shipment, which may result in delays in volume
production or the recall of products sold. The occurrence of such errors could
have a material adverse effect on the Company's product introduction schedule,
business and operating results.
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COMPETITION
The market for the Company's products is intensely competitive and
characterized by rapidly accelerating advances in processor and system
technologies. These advances result in frequent product introductions, regular
price reductions, short product life cycles, and increased product capabilities
that may result in significant performance improvements.
Competition in the sale of microprocessor products is based on price,
performance, product quality and reliability, software compatibility, marketing
and distribution capability, brand recognition, financial strength and ability
to deliver in large volumes on a timely basis. Given the Company's reliance on
third parties for product manufacturing, the Company's competitive position may
also be affected by the reliability and performance of its outside manufacturers
and the availability from such manufacturers of adequate state-of-the-art
production capacity. There can be no assurance that the Company will be able to
compete successfully with respect to any of these factors.
The Company faces competition in the sale of high performance SPARC
microprocessor chipsets and modules from Sun Microelectronics (SME), a division
of Sun Microsystems. Because of its affiliation with Sun, SME has substantially
greater technical, financial, sales and marketing resources and experience and
brand name recognition than the Company, and may be in a better position than
the Company to obtain significant design wins from Sun. In addition, substantial
marketing and promotional costs, most likely in excess of what the Company can
currently afford, may be required to achieve wider acceptance of the Company's
products. There can be no assurance that the Company will be able to overcome
such barriers. As long as competitors remain in the SPARC market, their product
introduction timing and product pricing will materially, and at times adversely,
affect the Company's business and future operating results. There can be no
assurance that the Company will have the resources and capabilities to compete
effectively. Furthermore, other companies may offer competitive high-performance
SPARC products in the future. For example, Fujitsu Microelectronics, Inc., which
manufactures microprocessors for SPARCstation 4 and 5 class machines, may decide
to manufacture microprocessors that compete directly with the Company's
products. The Company's success will depend, among other things, on its ability
to deliver, on a timely basis and at competitive prices, processor performance
that is comparable to or greater than that provided in SPARC compatible products
manufactured by others. There can be no assurance that the Company will be able
to deliver such performance.
The Company, along with other manufacturers of SPARC-based products, also
faces indirect competition from workstations and PCs that are based on
microprocessor architectures other than SPARC. The Company's success will depend
upon the ability of its SPARC OEM customers to compete effectively with the
manufacturers of machines based on such alternative architectures. These
manufacturers include RISC workstation vendors such as Digital Equipment
Corporation, Hewlett-Packard, IBM and Silicon Graphics, and PC vendors such as
Apple, Compaq and IBM. Competition in the sale of workstations is based on
factors such as system performance, price/performance, availability of
application software, system upgradability and expandability, graphics features
and performance, and product quality and reliability. Although
11
<PAGE> 15
Sun has continued to be the leading vendor of computer workstations, thus
causing SPARC to remain the leading workstation architecture, there can be no
assurance that Sun or any of the Company's OEM customers will be able to compete
effectively against these other manufacturers of workstations. In addition,
competition from PCs is expected to increase in the future as newer generations
of PC microprocessors, notably Intel's Pentium II(TM) and Pentium Pro(TM),
deliver performance comparable to that of workstation microprocessors. There can
be no assurance that the Company and the Company's OEM customers will in the
future compete effectively against PC manufacturers, especially in the sale of
lower performance workstations. A failure by the Company's OEM customers to
maintain market share or otherwise compete effectively against other
manufacturers of workstations, or the manufacturers of PCs, would have a
material adverse effect on the Company's business and operating results.
In non-workstation markets, the Company's products compete with the RISC
and CISC microprocessors manufactured by semiconductor companies such as
Hitachi, Intel and Motorola. There can be no assurance that the Company's
products will be able to compete effectively in these non-workstation
businesses.
The Company's workstation and server products face competition from Sun
Microsystems Computer Company (SMCC), a division of Sun Microsystems. Because of
its affiliation with Sun, SMCC has substantially greater technical, financial,
sales and marketing resources and experience and brand name recognition than the
Company, and may be in a better position to obtain significant orders. In
addition, substantial marketing and promotional costs, possibly in excess of
what the Company can currently afford, may be required to achieve wider
acceptance of the Company's products. There can be no assurance that the Company
will be able to overcome such barriers. The failure to gain significant customer
acceptance of its hyperSTATION products would have a material adverse effect on
the Company. As long as workstation and server competitors remain in the SPARC
market, their product introduction timings and product pricing will materially,
and at times adversely, affect the Company's business and future operating
results. There can be no assurance that the Company will have the resources and
capabilities to compete effectively. Furthermore, SMCC is now offering
competitive high-performance 64-bit SPARC workstations based upon SME's
UltraSPARC microprocessor technology and is seeking to convert the existing
32-bit SPARC customer base to the new 64-bit architecture. The Company's success
in the workstation and server markets will depend, among other things, on how
rapidly SMCC can convert the SPARC customer base to 64-bit technology and the
Company's ability to develop products compatible with the 64-bit technology.
The Company, along with other manufacturers of SPARC-based products, also
faces indirect competition from workstations and PCs that are based on
microprocessor architectures other than SPARC. The Company's success will depend
in part upon its ability to compete effectively with the manufacturers of
machines based upon such alternative architectures. Moreover, Microsoft is
attempting to convert the UNIX operating system customer base to the Windows
NT(TM) operating system which runs on systems based upon Pentium(TM), Pentium
Pro, Pentium II and certain non-SPARC RISC microprocessors. The success of
Windows NT may result in the reduction of the total available market for
SPARC-based workstations. If this were
12
<PAGE> 16
to occur, the Company would lose market share to PCs and there would be a
material adverse effect on the Company's business and operating results.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are currently focused on
introducing next-generation hyperSPARC products, other microprocessor
technologies and associated semiconductors. In both manufacturing and assembly,
the Company is constantly working to improve yields and reduce the cost of its
products.
Another focus of the Company's development efforts is the diversification
and expansion of its product portfolio. The Company has expanded its product
offerings beyond microprocessors and modules to new products such as SPARC
motherboards and complete SPARC workstations. SPARCplug is another example of
this new product diversification effort.
The Company expects to conduct research and development under its own
auspices and through its subsidiary, as well as through strategic partnerships
or joint ventures.
The Company's research and development expenditures were $24.7 million,
$15.9 million and $13.2 million during fiscal 1997, 1996 and 1995, respectively.
PATENTS AND PROPRIETARY RIGHTS
The Company endeavors to protect and maintain its competitive position by
placing a high priority on the protection of its intellectual property,
including its inventions, trademarks, trade secrets and technical know-how. The
Company files and prosecutes patent applications for those key patentable
designs, innovations and inventions that it believes are most relevant to its
product line and most valuable in terms of cost and technological advantages.
The Company also takes steps to prevent the loss to competitors of valuable
proprietary information such as trade secrets and technical know-how.
Since its inception, the Company has filed a number of patent applications
in the United States Patent and Trademark Office ("PTO") and counterparts to
certain of those U.S. applications in the patent offices of other countries. The
Company currently owns several issued United States patents. Of the issued
patents, one covers the Company's technology concerning the fast registering of
data in a microprocessor, another covers certain techniques for automated
circuit design, and a third covers the Company's proprietary RISC superscalar
microprocessor architecture.
An assessment of the Company's patent position, as with that of any
technology company, involves complex issues of law and fact that render such an
assessment uncertain. There can be no guarantee that any of the Company's patent
applications will issue, nor can assurances be given as to the level of
protection that any of its issued patents will provide to the technology and/or
products intended to be covered by them. In addition, there can be no
13
<PAGE> 17
assurance that any of the Company's issued or pending patents will create
effective barriers to entry into the markets in which the Company and
its products compete.
The Company's competitors have filed applications for and received issued
patents related to microprocessors, multiprocessing architectures and related
circuits as well as board and system designs and techniques. There is a
possibility that these competitors might assert claims against the Company that
their patents cover technologies employed by the Company in its current or
future products. If such claims are determined to cover technologies employed by
the Company and such claims are ultimately held to be valid, no assurance can be
given that the Company would be able to acquire the right to use such
technologies regardless of the terms, nor can any assurance be given that the
Company could acquire or develop alternative technologies that are not covered
by the asserted claims. Further, even if the grounds for such claims are without
merit or deficient, there is no guarantee that a competitor would not
nevertheless bring a suit for patent infringement against the Company, or its
customers or its affiliates. Such litigation could have a material adverse
effect on the Company's business and results of operations despite its lack of
merit or its final disposition because of its cost to, and its diversion of
effort and management time from, the Company.
The Company requires employees, consultants and independent contractors to
execute confidentiality and invention/copyright assignment agreements prior to
engaging in any service to the Company. The Company further requires, whenever
possible, that companies engaged in sensitive discussions with the Company
involving its proprietary technologies execute nondisclosure agreements. These
agreements are intended to protect the Company's trade secrets, technical
know-how and patentable and copyrightable subject matter by restricting
disclosure and by requiring those creating intellectual property on behalf of
the Company or using the Company's resources to assign ownership of the
intellectual property to the Company. No assurance can be made, however, that
such contracts will provide the Company with adequate protection in the event
that such agreements are breached through the unauthorized disclosure or use of
such intellectual property.
ENVIRONMENTAL MATTERS
To the Company's present knowledge, compliance with federal, state and
local provisions enacted or adopted for protection of the environment has had no
material adverse effect upon its operations.
EMPLOYEES
As of March 31, 1997, the Company's domestic work force consisted of 221
full-time employees and 44 employees who worked on a temporary or part-time
basis. In addition, the Company had three full-time employees in its European
office. The Company's design subsidiary, ROSS Semiconductors (Israel), Ltd.
("ROSS Israel"), had a workforce consisting of 14 full-time employees.
14
<PAGE> 18
RECENT DEVELOPMENTS
As set forth in the Company's Current Report on Form 8-K dated March 21,
1997, Roger D. Ross, Chairman, President, Chief Executive Officer, and founder,
resigned as an officer of the Company on March 3, 1997. The Company and Mr. Ross
are negotiating the terms and conditions of a severance arrangement. Mr. Ross
continues to serve as a member of the Company's Board of Directors. On May 3,
1997, Fred T. May was elected Chairman and Acting President and Chief Executive
Officer. Effective May 21, 1997, Jack W. Simpson, Sr. was hired as President and
Chief Executive Officer of the Company and was appointed as a member of the
Company's Board of Directors; Mr. May continued as Chairman of the Board.
On April 16, 1997, Francis S. (Kit) Webster III was hired as Chief
Financial Officer and Secretary of the Company; on April 28, 1997, Frank A.
Baffi was hired as Vice President, Worldwide Sales.
On June 25, 1997, the Company and Fujitsu entered into a Development
Agreement, pursuant to which, among other things, Fujitsu would pay the Company
an aggregate of $34.5 million in partial funding for the Company's Viper 64-bit
microprocessor chip development project and for a license of associated
intellectual property. The resulting technology will be co-owned by the Company
and Fujitsu, and each company will have the right to exploit the technology into
its own derivative products and to grant sublicenses on a limited basis.
Payments are to be made periodically through March 31, 1999, upon the attainment
of certain milestones, and are subject to reduction, and the contract is subject
to cancellation under certain conditions, if milestones are not met.
ITEM 2. PROPERTIES
The Company's principal administrative, sales, marketing, customer
applications support, design, product engineering, production control, quality,
manufacturing and testing facilities are currently located in Austin, Texas in
three leased buildings containing an aggregate of 73,000 square feet. One 33,000
square foot building includes a 3,000 square foot clean room wafer processing
area, houses all manufacturing, testing and quality control facilities, and has
delivery, receipt and storage facilities for unfinished wafers, gases, chemicals
and other raw materials used by the Company. The second building, in which the
Company occupies 29,000 square feet, provides facilities for all administration,
sales and marketing personnel and houses the majority of the Company's design,
product engineering and production control personnel. The third building is
11,000 square feet and houses a portion of the Company's product development
personnel.
15
<PAGE> 19
The Company leases approximately 5,000 square feet in Longmont, Colorado,
for a software group that supports the Company's product development personnel.
The Company also leases 1,100 square feet of office space in Brussels,
Belgium, for its European office.
ROSS Israel occupies a building of approximately 4,500 square feet in
Herzelia, Israel, which provides facilities for the design and development of
electronic and computer products, as well as administrative functions.
ITEM 3. LEGAL PROCEEDINGS
Rao Cherukuri et al. v. PeQuR Technology, Inc., et al., Civil No. CV757267
(Santa Clara Superior Court). On April 11, 1996, this action was filed against,
among others, the Company in the Superior Court of California (the "Action").
The Action was brought by three former employees of PeQuR Technology, Inc.
("PeQuR"), a Texas corporation which on January 4, 1995 sold substantially all
of its assets to a then wholly-owned subsidiary of the Company, ROSS Computer
Corp., now Reliance Computer Corp. ("RCC"). Plaintiffs allege, among other
causes of action, fraud, deceit, and breach of fiduciary duty in connection with
certain alleged agreements by PeQuR to provide compensation to the plaintiffs in
the form of vested PeQuR stock which agreements, in turn, allegedly would have
entitled plaintiffs to a share of the proceeds of the asset sale to RCC, to
employment with the Company or RCC, and/or to receive shares of the Company's
Common Stock. The Company transferred its entire equity interest in RCC to
Fujitsu on March 26, 1996.
The Company believes that the plaintiffs' claims against it are without
merit and intends to defend this case vigorously. The Company successfully
demurred in whole or in part to two successive Complaints. The Company filed an
Answer to the plaintiffs' Third Amended Complaint on June 4, 1997. This case is
not yet at issue and, by order of a special master, discovery is stayed until
all defendants file answers. Currently, the Company is the only defendant that
has done so; the remaining defendants have demurred to the Third Amended
Complaint. Given the stage of the proceedings, the fact that the ultimate
outcome will depend upon the resolution of disputed issues of fact and law, and
the inherent uncertainties of complex, multi-party litigation such as this, it
is not possible at this time to predict the ultimate outcome of the matter with
any degree of certainty, although based on information presently known to
management, the Company does not believe that the ultimate resolution of this
lawsuit will have a material adverse effect upon the financial condition or
results of operations of the Company.
Kris Vorm v. ROSS Technology, Inc. Cause No. 9704693 (District Court of
Travis County, Texas). On April 18, 1997, the above-referenced action was filed
against the Company in the 353rd Judicial District Court of Travis County,
Austin, Texas (the "Vorm Action"). The Vorm Action was brought by Kris Vorm, a
former employee of the Company, alleging that in late May 1996 the Company,
through false and material representations and promises, prevented him from
selling shares of common stock of the Company owned by him. Plaintiff further
contends that the Company misrepresented that it would provide him a low
interest loan to cover his tax liability in connection with his having purchased
his shares. Plaintiff seeks compensation in an unspecified amount which the
Company estimates, based upon Plaintiff's allegations, to approximate $500,000.
Plaintiff also seeks exemplary damages, as well as attorneys' fees, costs, and
pre-judgment and post-judgment interest.
The Company has answered the Complaint in this matter, and has noticed
plaintiff's deposition. The Company believes that it has meritorious defenses to
the Vorm Action and intends to defend it vigorously. Given the stage of the
proceedings, the fact that the ultimate outcome will depend upon the resolution
of disputed issues of fact and law and the
16
<PAGE> 20
inherent uncertainties of litigation such as this, it is not possible at this
time to predict the ultimate outcome of the matter with any degree of certainty,
although based on information presently known to management, the Company does
not believe that the ultimate resolution of this lawsuit will have a material
adverse effect upon the financial condition or results of operations of the
Company.
The Company is involved in routine litigation arising in the ordinary
course of business, and, while the results of such proceedings cannot be
predicted with certainty, the Company believes that the final outcome of the
proceedings will not be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) Market Information. Since its initial public offering in November
1995, the Common Stock has traded on the NASDAQ National Market System under the
symbol "RTEC." The following table sets forth, for the periods indicated, the
high and low sale prices for the Common Stock as reported by the NASDAQ National
Market System.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
January 1, 1996* 17 1/8 9
April 1, 1996 15 6 1/2
June 30, 1996 15 1/8 8 1/4
September 30, 1996 12 1/8 5 1/2
December 31, 1996 6 7/8 2 3/16
March 31, 1997 5 5/8 2 3/16
</TABLE>
(*) Quotations from November 7, 1995, the date of the Company's
initial public offering.
(b) Holders. As of June 16, 1997, there were approximately 203 holders of
record of the Company's Common Stock.
(c) Dividends. The Company has never paid any dividends on its Common
Stock and does not anticipate paying any dividends in the foreseeable future.
The Company currently intends to retain its earnings, if any, to finance the
development of its business. Any future dividend policy will be determined by
the Company's Board of Directors based upon conditions then existing, including
the Company's earnings, financial condition and capital requirements, as well as
such economic and other conditions as the Board of Directors may deem relevant
at the time.
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<PAGE> 22
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data for Ross Technology, Inc. and
subsidiary set forth below is derived from, and should be read in conjunction
with, the Company's Consolidated Financial Statements, including the Notes
thereto, beginning at page F-1, and Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations.
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (1) COMPANY (2)
---------------------------- -----------
PERIOD FROM PERIOD FROM JULY
YEAR ENDED DECEMBER 29, 28, 1993 TO
DECEMBER 28, 1992 TO APRIL 4, YEAR ENDED YEAR ENDED YEAR ENDED
1992 JULY 27, 1993 1994 APRIL 3, 1995 APRIL 1, 1996 MARCH 31, 1997
----------- ------------- --------------- ------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 38,145 $ 7,023 $ 10,373 $ 39,021 $100,805 $ 83,104
Gross profit (loss) 18,142 301 1,605 12,293 46,884 (24,847)
Income (loss) from operations (2,272) (9,202) (21,222) (8,939) 19,317 (84,280)
Income (loss) before income taxes (2,240) (9,223) (21,515) (10,581) 17,843 (85,752)
Net income (loss) $ (1,478) $(7,641) (21,515) (10,669) 18,160 (86,705)
Net income (loss) per common
share (3) $ (2.92) $ (1.47) $ 0.83 $ (3.71)
Weighted average common
and common equivalent
shares outstanding(3) 7,356 7,356 20,880 23,396
<CAPTION>
PREDECESSOR COMPANY COMPANY
------------------------ -------
DECEMBER 28, JULY 27, APRIL 4, APRIL 3, APRIL 1, MARCH 31,
1992 1993 1994 1995 1996 1997
------------ ------- -------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 316 $ 457 $ 2,458 $ 1,936 $ 17,941 $ 2,811
Working capital (deficit) 1,881 (1,791) (15,581) (25,932) 44,336 (37,977)
Total assets 14,883 9,363 24,069 39,489 97,893 54,819
Notes payable -- 4,000 20,500 36,344 -- 43,500
Accumulated deficit (1,478) (9,119) (21,515) (32,184) (14,856) (101,561)
Total stockholders's equity
(deficit) $ 8,352 $ 1,638 $ (3,615) $(14,284) $ 66,274 $ (20,225)
</TABLE>
(1) References to the "Predecessor Company" refer to ROSS prior to its
acquisition by Fujitsu.
(2) Effective July 28, 1993, the Company's fiscal year was changed to end
on the Monday closest to March 31 to coincide with the fiscal year of its
parent, Fujitsu. As used in this Annual Report, "fiscal 1995," "fiscal 1996" and
"fiscal 1997" refer to the Company's fiscal years ended April 3, 1995, April 1,
1996, and March 31, 1997, respectively. The Company's operating results for
fiscal 1997 are included in Fujitsu's consolidated financial statements for
Fujitsu's "fiscal 1996." Under Japanese convention, the fiscal year is
denominated by the calendar year in which the fiscal year commences; under
United States convention it is denominated by the calendar year in which the
fiscal year ends. Thus the Company's "fiscal 1997" and Fujitsu's "fiscal 1996"
both refer to the year ended March 31, 1997.
(3) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the computation of net income (loss) per common share. The
Predecessor Company's net income (loss) per common share for the periods ended
prior to the Fujitsu Acquisition is not comparable to subsequent periods due to
the different capitalization of the Predecessor Company and, therefore, has not
been presented.
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<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following tables set forth, in dollars and as a percentage of net sales,
the historical results of operations for the fiscal year ended April 3, 1995
("fiscal 1995"), the fiscal year ended April 1, 1996 ("fiscal 1996"), and the
fiscal year ended March 31, 1997 ("fiscal 1997").
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1995 1996 1997
--------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ...................... $ 39,021 $ 100,805 $ 83,104
Cost of sales .................. 26,728 53,921 107,951
--------- ---------- ----------
Gross profit (loss) .......... 12,293 46,884 (24,847)
--------- ---------- ----------
Operating expenses:
Research and development,
net ........................ 13,154 15,906 24,659
Selling, general and
administrative ............. 5,143 10,495 31,137
Acquisition of in-process
R&D ........................ 1,821 -- --
Amortization of goodwill ..... 1,114 1,166 3,637
--------- ---------- ----------
Total operating expenses ..... 21,232 27,567 59,433
--------- ---------- ----------
Income (loss) from operations... (8,939) 19,317 (84,280)
Interest income (expense),
net ........................ (1,642) (1,474) (1,472)
--------- ---------- ----------
Income (loss) before
income taxes ................. (10,581) 17,843 (85,752)
Income tax provision
(benefit) .................... 88 (317) 953
--------- ---------- ----------
Net income (loss) .............. $ (10,669) $ 18,160 $ (86,705)
========= ========== ==========
(As a percentage of net sales)
Net sales ...................... 100.0 100.0 100.0
Cost of sales .................. 68.5 53.5 129.9
--------- ---------- ----------
Gross profit (loss) .......... 31.5 46.5 (29.9)
--------- ---------- ----------
Operating expenses:
Research and development ..... 33.7 15.8 29.7
Selling, general and
administrative ............. 13.2 10.4 37.5
Acquisition of in-process
R&D ........................ 4.7 -- --
Amortization of goodwill ..... 2.9 1.2 4.3
--------- ---------- ----------
Total operating expenses ..... 54.5 27.4 71.5
--------- ---------- ----------
Income (loss) from operations .. (23.0) 19.1 (101.4)
Interest income (expense),
net .......................... (4.2) (1.5) (1.8)
--------- ---------- ----------
Income (loss) before
income taxes ................. (27.2) 17.6 (103.2)
Income tax expense
(benefit) .................... 0.2 (0.3) 1.1
--------- ---------- ----------
Net income (loss) .............. (27.4) 17.9 (104.3)
========= ========== ==========
</TABLE>
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<PAGE> 24
General Overview - 1997. In 1997 the Company recorded a $44.1 million
charge against cost of goods sold relating to a reduction in the value of its
microprocessor-related and other inventory, primarily due to obsolescence. In
addition sales of the Company's products in aggregate declined from
approximately $30.9 million in the first quarter of the year to approximately
$11.5 million in the fourth quarter of the year. The reduction in sales was
primarily attributable to a reduction in orders from the Company's primary
customer and to changes in executive and sales personnel, which diminished the
Company's ability to both sell its products and monitor credit and collections.
The Company's inability to monitor credit and collections resulted in a charge
of $16.5 million for accounts receivable write-offs. The reduction in the level
of sales resulted in an increase in the manufacturing overhead associated with
parts assembled by the Company, reducing the Company's gross profit margin. The
aggregate losses incurred by the Company were funded by bank loans guaranteed by
Fujitsu. As a result of the losses and the deterioration of the Company's
financial condition and liquidity, remaining goodwill of approximately $2.5
million was written off and a valuation reserve of approximately $27.9 million
was established against the Company's deferred tax asset. During the third
quarter, the Company's Chief Financial Officer resigned, and during the fourth
quarter, the Company's Chairman, President, Chief Executive Officer and founder
resigned. Subsequent to year end the Company hired a President and Chief
Executive Officer, a Chief Financial Officer, and a Vice President of Sales.
Subsequent to year end, the Company received assurances from Fujitsu that "In
accordance with our plan for ROSS Technology, we (Fujitsu) are ready to
provide the necessary trading through debt guarantees or other types of
financing for ROSS Technology not to incur cash flow shortages through
April 1, 1998."
Net Sales. Net sales decreased to $83.1 million in fiscal 1997 from $100.8
million in fiscal 1996, which increased from $39.0 million in fiscal 1995. The
decrease in net sales from 1996 to 1997 is primarily attributable to a decrease
in sales to OEM microprocessor chip customers reflecting the lack of a major
design win for its leading edge Colorado 4 microprocessor products; turnover in
sales and executive management; and to a lack of new products to match Sun's
introduction of 64-bit products. The increase in net sales from fiscal 1995 to
fiscal 1996 resulted primarily from increases in unit volumes of the Company's
100 MHz and 125 MHz hyperSPARC products and introduction and increasing sales of
the Company's 150 MHz 512 kilobyte cache and 142 MHz one megabyte cache products
to OEM customers. In addition, the Company's ability to ship product was
significantly enhanced throughout fiscal 1996 as a result of improved
manufacturing yields over fiscal 1995. In 1997 the Company entered the systems
market for workstations and servers in addition to its traditional business of
providing microprocessor components. Sales of such systems were below the
Company's expectations.
During fiscal 1997, 66% of the Company's net sales were derived from OEM
customers (with Sun, Fujitsu and other OEMs accounting for 28%, 22%, and 16%,
respectively, of total net sales). During fiscal 1996, 81% of the Company's net
sales were derived from OEM customers (with Sun, Fujitsu and other OEMs
accounting for 45%, 19% and 17%, respectively, of total net sales) and 19% from
upgrade customers. During fiscal 1995, by comparison, 72% of net sales were
derived from OEM customers (with Sun, Fujitsu and other OEMs accounting for 26%,
19% and 27%, respectively, of total net sales) and 28% from upgrade customers.
The change in OEM sales mix for fiscal 1997 resulted from reduced demand from
Sun and the Company's diversification into other markets, including the systems
market. The change in OEM sales mix for fiscal 1996 resulted from
21
<PAGE> 25
the introduction of the high-end 150 MHz hyperSPARC and the resultant design
wins at Sun and Fujitsu. The change in OEM sales mix for fiscal 1995 resulted
from the introduction of the 100 MHz hyperSPARC and the subsequent design wins
at Sun and Fujitsu. In addition, the Company continued to develop its upgrade
business during fiscal 1995. Because Sun and Fujitsu currently account for a
significant percentage of the Company's net sales, a loss of either of these
companies as a significant customer could have a material adverse effect on the
Company's business and operating results.
Gross Profit (Loss). The Company's gross profit as a percentage of net
sales decreased to a loss of 29.9% in fiscal 1997 from a profit 46.5% in fiscal
1996, which was an increase from a profit of 31.5% in fiscal 1995. This decrease
is primarily the result of a $38.9 charge for the write-down of inventory
associated with lower speed microprocessor chips and associated semiconductors
and MBus modules, including routine price degradation on older products; and to
reductions in the valuation of inventory associated with workstation and server
products which were ordered in anticipation of customer acceptance, which did
not materialize to the degree anticipated by the Company, as well as a $5.2
million charge for the costs to cancel excess inventory purchase orders. In
addition gross profit was adversely affected by the Company's lack of new,
higher-margin microprocessor and upgrade subsystem products, and also by an
increase in manufacturing overhead associated with the assembly of fewer units
in the later quarters of 1997 in a larger manufacturing space occupied during
the fourth quarter of 1996. The improvement in gross profit margins in fiscal
1996 compared to fiscal 1995 is primarily attributable to several factors
relating to both net sales and cost of sales. As a result of the Company's
introduction of the 150 MHz hyperSPARC and the subsequent design wins at Sun and
Fujitsu, net sales in fiscal 1996 increased 158% over fiscal 1995. With respect
to net sales, in the early stages of their product life cycles, high performance
products such as the 150 MHz hyperSPARC typically carry higher average selling
prices and, consequently, higher gross profit. Furthermore, gross profit was
adversely impacted during the first two quarters of fiscal 1995 because the
Company was required to significantly decrease the prices of its existing
products (which were at the end of their life cycle) to maintain market
presence. As a result of the Company's introduction of the 100 MHz and 125 MHz
hyperSPARC products, as well as significant design wins from Sun and Fujitsu,
the Company was able to increase its average selling prices in the second half
of fiscal 1995 and first half of fiscal 1996. Furthermore, the introduction and
sale of 150 MHz hyperSPARC products during the third quarter of fiscal 1996
enabled the Company to again increase its average selling prices in the second
half of fiscal 1996. With respect to cost of sales, improving manufacturing
yields from the Company's wafer supplier during fiscal 1996 had a positive
impact on the Company's unit costs. Unit costs also declined in fiscal 1996 due
to significant volume increases which resulted in increased efficiency and
utilization of fixed manufacturing costs. Gross profit was also helped in fiscal
1996 by the continued contribution from upgrade products, which typically
generate higher selling prices and gross profit than products sold to Sun,
Fujitsu and other OEM customers.
Research and Development. Research and development ("R&D") expense
includes costs associated with the definition, design and development of new
products. R&D expenses increased to $24.7 million (29.7% of sales) in fiscal
1997 from $15.9 million (15.8% of sales) in fiscal 1996, which was an increase
from $13.2 million (33.7% of sales) in fiscal 1995. The increase in R&D expenses
was primarily attributable to the addition of new personnel and related overhead
in the areas of new product design, new product development and increased
pre-production cost associated with
22
<PAGE> 26
qualifying new generation microprocessor products for production, and for new
personnel and related overhead and outside contractor expenses for new product
design and development related to the Company's Colorado 5 hyperSPARC and next
generation Viper microprocessor designs. In 1997 $2 million of payments from
Fujitsu pursuant to a development agreement were applied against R&D expenses.
The Company believes that its R&D activities are crucial to its future success
and, therefore, expects R&D expense to continue to rise in dollar terms, and
potentially as a percentage of sales.
Selling, General and Administrative. Selling, general and administrative
("SG&A") expenses increased to $31.1 million (37.5% of sales) in fiscal 1997
from $10.5 million (10.4% of sales) in fiscal 1996, which was an increase from
$5.1 million (13.2% of sales) in fiscal 1995. The increase in SG&A expenses
during fiscal 1997 was primarily attributable to approximately $16.5 million in
write-offs and increase in reserves associated with uncollectable accounts and
also to increases in legal and consulting expenses relating to the negotiation
of significant contracts and the hiring of new executive management and to
increased expenses relating to advertising and promotion. In 1996 and 1997 the
Company also experienced increased fees and expenses relating to its reporting
obligations and other responsibilities as a publicly-held company. The increase
in SG&A expenses during fiscal 1996 was primarily attributable to the Company's
expansion of its sales and marketing staff and an increase in advertising
activity in connection with the Company's efforts to expand its OEM market share
and build sales of upgrade products. The Company expects that its SG&A expense
will decrease from fiscal 1997 levels in both dollar terms and as a percentage
of net sales, primarily due to the unusual amount of delinquent accounts
receivable recorded in SG&A expense in fiscal 1997, partially offset by an
increase in sales-related employees.
Acquisition of In-Process Research and Development. The acquisition of the
assets of PeQuR in fiscal 1995 resulted in an allocation of $1.8 million of the
purchase price to in-process R&D which was expensed in fiscal 1995.
Amortization of Goodwill. Goodwill of $6.5 million arose in connection
with the Company's acquisition by Fujitsu in 1993 and $0.6 million arose from
the acquisition of the assets of PeQuR by RCC. These amounts are amortizable
over six years resulting in $1.2 million of amortization in fiscal 1996 and $1.1
million in fiscal 1995. During the fourth quarter of fiscal 1996, the Company
transferred its entire interest in RCC to Fujitsu resulting in the removal of
$0.5 million of goodwill related to the acquisition of the assets of PeQuR. In
fiscal 1997 the Company amortized the remainder of the goodwill ($2.5 million)
after reviewing its value in light of the losses incurred by the Company in
fiscal 1997 and cash flow projections.
Net Interest Expense. Net interest expense of $1.5 million in fiscal 1997
was approximately equal to the $1.5 million of net interest expense in fiscal
1996 (net of $.5 million in interest income) and $1.6 million in fiscal 1995. In
the fourth quarter of fiscal 1996 the Company used $35.5 million of the proceeds
of its initial public offering to retire the outstanding balance under its line
of credit with Dai-Ichi Kangyo Bank (DKB). In fiscal 1997 the Company again
borrowed under a New Credit Facility with DKB. See "Liquidity and Capital
Resources."
23
<PAGE> 27
Income Tax Expense. In fiscal 1997 the Company incurred a significant
loss. Based on the Company's losses in fiscal 1997 and its continuing losses in
the first quarter of fiscal 1998, the Company determined that it was more likely
than not that it would not be able to use its entire income tax benefit in
subsequent years. The Company also determined that it could not reasonably
forecast the amount of such benefit it could use due to the significant changes
being made with respect to its management and products. Accordingly, the Company
applied a reserve of approximately $27.9 million against its deferred income tax
asset. As of April 1, 1996, the Company had completely utilized its net
operating loss carryforwards to that point for federal income tax purposes and,
as a result, began accruing and paying regular federal income taxes. Current
income tax expense for fiscal 1996 was $1.9 million. Due to timing differences
between book income and tax income, the Company recognized a deferred tax
benefit of $2.2 million for book purposes during fiscal 1996. During the fourth
quarter of fiscal 1995, the Company began accruing and paying federal taxes as a
result of the corporate alternative minimum tax.
Future Operating Results. The Company's financial condition deteriorated
significantly during fiscal 1997, and at the end of the year, the Company was
continuing to experience significant losses from operations. Subsequent to the
end of fiscal 1997, the Company hired a new senior management team to assess the
Company's business and to implement changes necessary to restore the Company to
a sound financial condition. The Company depends solely upon its parent, Fujitsu
Limited, for additions to capital necessary to continue its operations. While
Fujitsu has stated that, "In accordance with our plan for ROSS Technology, we
(Fujitsu) are ready to provide the necessary funding through debt guarantees or
other types of financing for ROSS Technology not to incur cash flow shortages
through April 1, 1998", there can be no assurances that the Company will not in
the future require capital in addition to that committed by Fujitsu. See
"Liquidity and Capital Resources."
The Company's operating results have in the past and may in the future
vary due to a number of factors, including market acceptance of new or enhanced
versions of the Company's products, the Company's success in entering new
markets, the timing and extent of product development costs, changes in the mix
of products sold and in the mix of sales by distribution channel, competitive
pricing pressures, anticipated decreases in unit average selling prices of the
Company's products, availability and cost of products (particularly silicon
wafers) from the Company's suppliers, fluctuations in manufacturing yields, the
gain or loss of significant customers, new product introductions by the Company
or the Company's competitors, the competitiveness of the SPARC architecture and
the timing of significant orders, order cancellations or rescheduling, all as
more fully described in the Company's Registration Statement on Form S-1 which
became effective November 6, 1995, and the Final Prospectus of the same date,
and in the Company's subsequent SEC Reports. Any unfavorable change in the
foregoing or other factors could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company operates in an industry characterized by increasing
competition, rapidly changing technology, and increasingly aggressive pricing.
As a result, the Company's future operating results will depend to a
considerable extent on its ability to rapidly and continuously, develop and
introduce new microprocessor technologies that offer its customers enhanced
performance at competitive prices. The development of new high-performance
computer products is a complex and uncertain process requiring high levels of
innovation from the Company's designers and suppliers, as well as
24
<PAGE> 28
accurate anticipation of customers' requirements and technological trends. The
Company is also increasingly dependent on the ability of its suppliers to
design, manufacture, and deliver advanced components required for the timely
introduction of new products. The failure of any of these suppliers to deliver
components on time or in sufficient quantities, or the failure of any of the
Company's designers to develop advanced innovative products on a timely basis,
could result in significant adverse impact on the Company's operating results.
Once a hardware product is developed, the Company must rapidly bring it to
volume manufacturing, a process that requires accurate forecasting of both
volumes and configurations, among other things, in order to achieve competitive
yields and costs. Upon introduction of new products, the Company must also
manage the transition from older, displaced products to minimize disruptions in
customer ordering patterns, reduce levels of existing product inventory, and
ensure that adequate supplies of new products can be delivered to meet customer
demand.
Historically, average selling prices for microprocessors in general, and
for the Company's products in the time period during which they have been
commercially available, have decreased over the life of each specific product.
The Company expects that the average selling prices of its products will
continue to be subject to significant downward pressure in the future. If the
Company is unable to introduce and gain market acceptance of new products with
higher average selling prices or reduce its costs sufficiently to offset
decreases in prices of existing products, the Company's gross profits and
operating results would be adversely affected. In addition, because the Company
is continuing to increase its operating expenses for new product development in
anticipation of increasing sales levels, the Company's business and operating
results would be adversely affected if such sales levels were not achieved.
The Company is currently involved in a significant effort to diversify its
product lines and sources of revenue. In fiscal 1996 and prior years,
substantially all of the Company's revenues were derived from sales of
microprocessor chips, associated semiconductors and MBus modules. In the second
quarter of fiscal 1997, the Company shipped hyperSTATION motherboards and
systems in volume, which was the first time that the Company had engaged in
commercial sales of board and system products. The Company intends to pursue and
expand its board and systems businesses, which will focus on performance- and
value-enhanced products incorporating the SPARC-industry-standard V8
architecture. The Company also intends to continue its microprocessor chip and
MBus module businesses.
The Company believes that diversification of its product lines and revenue
sources will provide additional engines for future revenues and profits. There
can be no assurance, however, that this diversification effort will be
successful or profitable, and the Company's entry into this new business area
entails new product acceptance, inventory and accounts receivable collection
25
<PAGE> 29
risks as well as longer payment terms. It also requires the development of new
distribution channels and new marketing strategies. The Company anticipates that
the gross profit margins of these new product lines will be lower than those it
has historically experienced in the OEM microprocessor chip and upgrade
subsystem module businesses. Also, for sales of certain products through
distributors, the Company is able to recognize revenue from such sales only upon
resale to end-users.
As noted above, the Company has recently experienced lower than expected
demand for a number of its products, especially its lower speed microprocessor
chips and associated semiconductors and MBus modules, as well as routine price
degradation on older products. These trends are continuing and are expected to
continue for the foreseeable future.
In addition, operating results could be adversely affected by general
economic and other conditions affecting the timing of customer orders and
capital spending or a downturn in the markets for microprocessors or
high-performance computer workstations.
In order to increase competitiveness and market share, in January 1997 the
Company announced significant price reductions for its existing hyperSTATION and
SPARCplug systems and upgrade subsystem module products, reflecting a thorough
cost analysis and adjustments to the Company's pricing model to adopt the lower
margins of the computer systems industry.
Sales to Sun, historically the Company's largest OEM customer, have varied
substantially on a year-to-year and quarter-to-quarter basis over the periods
since fiscal 1991. As previously advised, the Company anticipates that sales to
Sun will continue to fluctuate significantly in the future. The Company
continues to pursue sales to Sun of its current and future microprocessor
products, but there can be no assurance that the Company will achieve any future
design wins with Sun.
During the recent past, the Company's revenues and gross profit margins
have been substantially impacted by the mix of OEM, system and upgrade subsystem
module customers, as well as by the mix of high-end and low-end products sold
and the availability of new, higher-priced and higher-margin microprocessor and
upgrade subsystem module products. In addition, because the Company is
continuing to incur substantial operating expenses for new product development
in anticipation of increasing sales levels and to remain competitive, the
Company's business and results of operations would be materially and adversely
affected if such sales levels were not achieved.
Although the Company is taking actions to improve operating margins, it is
anticipated that gross profit will continue to remain under pressure for the
foreseeable future due to a variety of factors, including lower margins for
system products, continued industry-wide pricing pressures, increased
competition, and compressed product life cycles.
R&D expenses are expected to increase, reflecting pre-production
qualification of the Colorado 5 hyperSPARC microprocessor and new product design
and development related to the Viper generation of microprocessors that the
Company expects to introduce in 1999. The Company expects that the level of SG&A
expenses will vary depending upon the overall sales effort undertaken and the
Company's distribution strategies. Although R&D and SG&A expenses can be reduced
over time if the Company's revenues are less than anticipated, the Company
believes that it is building an infrastructure that is critical to the
Company's future success and
26
<PAGE> 30
that represents a long-term investment in the Company's future. Therefore, as in
the recent past, the Company may decide to undertake such expenses even if the
result would be an increase in such categories of expense as a percentage of net
sales in a given fiscal quarter or for a fiscal year as a whole.
The Company expects interest expenses to be substantially higher on a
quarterly basis during fiscal 1998 as a result of the Company's increased
borrowing requirements. See "Liquidity and Capital Resources."
The Company has lost a number of executives, engineers and other employees
due to voluntary resignations. The loss of executives and other key employees
has negatively affected the overall quality and depth of the Company's staff
infrastructure and its management and accounting controls. The Company is
seeking to remedy these shortcomings as a priority matter through new hiring and
the use of consultants and outside contractors. However, the impaired
infrastructure and controls may have a material adverse effect on the Company's
business, results of operations and financial condition. The Company has
recently filled key management positions, including a Chief Executive Officer
and President, a Chief Financial Officer, a Vice President of Sales and other
key positions in sales, product engineering, finance and accounting. Given the
Company's recent performance and financial condition, hiring staff is difficult.
Although no decisions have been made, the Company anticipates that it may
need to implement additional incentive compensation programs in order to attract
and retain key employees and to motivate employees.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced significant negative cash flows during fiscal 1997
and at the end of that year had negative working capital and negative
stockholders' equity. The Company is dependent on its parent company, Fujitsu,
for its capital requirements. In November 1996 the Company established a "New
Credit Facility" with Dai-Ichi Kangyo Bank, Limited ("DKB") for a maximum of $25
million; in February 1997 such New Credit Facility was increased to a maximum of
$50 million. The New Credit Facility expires on December 31, 1997, as a result
of an extension in June 1997, and is guaranteed by Fujitsu. At March 31, 1997,
and June 30, 1997, the amounts outstanding under the New Credit Facility were
$43.5 and $50.0 million, respectively. On June 18, 1997, the Company received a
commitment from Fujitsu that, "In accordance with our plan for ROSS Technology,
we (Fujitsu) are ready to provide the necessary funding through debt guarantees
or other types of financing for ROSS Technology not to incur cash flow shortages
through April 1, 1998." Accordingly, the Company believes that it will have
adequate capital for its business through April 1, 1998. However, there can be
no assurance that the Company will not experience negative cash flow from
operations and the Company may in the future be required to seek additional
external sources of financing for its operating needs. There can be no assurance
that additional capital, including capital from bank borrowings, will be
available on terms favorable to the Company, if at all, or that Fujitsu would be
willing to provide additional loan guarantees, equity infusions or other
financial assistance to the Company in the future. To the extent that additional
capital is raised through the sale of additional equity or convertible debt
securities, the issuance of such securities would likely result in substantial
dilution to the
27
<PAGE> 31
Company's then existing stockholders. In view of its position as the Company's
controlling stockholder, Fujitsu's concurrence is necessary for the issuance of
any additional debt or equity financing by the Company. The Company's failure to
obtain sufficient additional financing could make it impossible for it to
continue operations, force the Company to seek protection under Federal
bankruptcy law and/or affect the Company's listing on the NASDAQ National
Market.
The Company's principal source of liquidity as of March 31, 1997,
consisted of $2.8 million of cash and cash equivalents and $6.5 million of
unused credit availability pursuant to its loan with DKB. As of March 31, 1997,
the Company had negative working capital of $38.0 million, an accumulated
deficit of $101.6 million, and stockholders' deficit of $20.2 million.
During fiscal 1997 the Company extended payment terms with many suppliers
in order to increase the availability of on-hand cash. As a result the Company
experienced difficulty in procuring inventory and subcontract manufacturing
services from some suppliers. At the present time the Company is not in
compliance with the agreed payment terms with many of its suppliers and there
can be no assurance that such suppliers will continue to ship supplies to the
Company if the Company does not comply with such terms.
During fiscal 1997, operating activities used cash of $52.5 million,
compared with generating $2.6 million of cash in fiscal 1996, due primarily to a
net loss of $86.7 million in fiscal 1997 compared with net income of $18.2
million in fiscal 1996. Net inventory decreased $16.0 million as a result of
write-downs for obsolete and slow moving inventory. Accounts payable increased
$9.6 million due to the Company's taking longer to pay amounts due. The
Company's payable to Fujitsu decreased $14.9 million due primarily to payment of
overdue invoices.
The Company's investing activities in fiscal 1997 used $6.3 million of
cash, a decrease from approximately $13.3 million for fiscal 1996. The higher
amount in fiscal 1996 was primarily attributable to the Company's occupying a
larger manufacturing facility, resulting in associated higher equipment and
leasehold improvement costs.
Cash generated by financing activities increased by $17.1 million to $43.7
million in fiscal 1997 from $26.6 million in fiscal 1996. In fiscal 1997 the
Company borrowed $43.5 million under the New Credit Facility from DKB. In fiscal
1996 the Company completed its initial public offering, which generated $64.3
million and was used in part to repay the original DKB credit facility of $35.5
million.
During the fourth quarter of fiscal 1996, the Company repaid the
outstanding principal amount of $35.5 million under its revolving line of credit
with DKB using proceeds from the Company's initial public offering on November
7, 1995. From July 1993 to November 7, 1996, all of the Company's bank
borrowings were pursuant to the DKB Credit Facility. The DKB Credit Facility
expired upon repayment. All of the Company's current borrowings are pursuant to
the New Credit Facility.
The Company's payment terms with Fujitsu for purchases of silicon wafers
and MDPs are longer than those generally available from other suppliers.
Although the Company believes that such payment terms will not change in the
near future, there can be no assurance that Fujitsu will continue
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<PAGE> 32
to extend such favorable payment terms to the Company. Shorter payment terms
would increase the Company's cash requirements.
The Company anticipates that total payments under all operating leases
currently in place will be approximately $1.8 million and $1.0 million for each
of fiscal 1998 and 1999, respectively. These leases primarily cover the
Company's existing administrative and test facilities.
The Company intends to incur additional capital expenditures of
approximately $8 million during the next 12 months, principally for computer
hardware and software, lab equipment and general office equipment and
furnishings.
Because the Company must order raw materials, silicon wafers and
components and build finished goods inventory substantially in advance of
product shipments, there is continued risk that the Company will forecast
quantity and product mix incorrectly and, therefore, produce excess or
insufficient inventories. Because the markets for the Company's microprocessor,
module and system products are subject to rapid technological and price changes,
inventory may be subject to rapid obsolescence. The inventory risk is heightened
because the Company's customers usually place orders with short lead times. If
the Company forecasts incorrectly and produces insufficient inventory of
particular products, the Company may face order cancellations from or loss of
customers, who may seek to satisfy their needs from other suppliers. In general,
the Company's customers may change delivery schedules or cancel orders without
penalty. To the extent that the Company produces excess or insufficient
inventories of particular products, or inventory becomes obsolete, the Company's
results of operations and financial condition could be materially and adversely
affected.
Based on the commitment from Fujitsu and the Company's current operating
plan, the Company believes that its cash requirements will be met through April
1, 1998. Beyond that time, the Company may require additional equity or debt
financing. There can be no assurance that additional capital, including capital
from bank borrowings, will be available on terms favorable to the Company, if at
all. To the extent that additional capital is raised through the sale of
additional equity or convertible debt securities, the issuance of such
securities could result in additional dilution to the Company's stockholders.
Moreover, the Company's cash requirements may vary materially from those now
planned because of changes in the Company's business or capital expenditure
plans, product plans or technology roadmap, changes in the Company's level of
product and manufacturing integration, results of research and development,
relationships with suppliers and customers, changes in the focus and direction
of the Company's research and development programs, competitive and
technological advances, the level of working capital required to sustain planned
growth, operating results (including the extent and duration of operating
losses), facilities, employment matters, and other factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of ROSS Technology, Inc. and
Subsidiary, and the report of independent auditors, are listed at Item 14 and
are included beginning on page F-1.
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<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
30
<PAGE> 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of the Registrant is
incorporated by reference from the sections entitled "Election of Directors" and
"Executive Officers of the Company" in the Proxy Statement for the Registrant's
1997 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
sections entitled "Certain Information Concerning the Board of Directors and its
Committees" and "Executive Compensation" in the Proxy Statement for the
Registrant's 1997 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement for the Registrant's 1997 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
sections entitled "Executive Compensation" and "Certain Relationships and
Related Transactions" in the Proxy Statement for the Registrant's 1997 Annual
Meeting of Stockholders.
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<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
Index to Financial Statements F - 1
All other schedules for which provision is made in the applicable rules
and regulations of the Securities and Exchange Commission have been omitted as
the schedules are not required under the related instructions, are not
applicable, or the information required thereby is set forth in the consolidated
financial statements or notes thereto.
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
3.1- Restated Certificate of Incorporation of Registrant*
3.2- Restated By-Laws of the Registrant*
4.1- Specimen of Common Stock Certificate**
4.2- Stock Purchase Warrant issued by the Registrant to Sun
Microsystems, Inc.*
10.1- Stock Option Plan and Restricted Stock Purchase Plan 2.0**
10.2- Form of Incentive Stock Option Agreement for options granted under
Stock Option and Restricted Stock Purchase Plan 2.0 prior to
August, 1995, to employees hired before June 28, 1993**
10.3- Form of Incentive Stock Option Agreement for options granted under
Stock Option and Restricted Stock Purchase Plan 2.0 prior to
September, 1995, to employees hired on or after June 28, 1993**
10.4- Form of Incentive Stock Option Agreement for options granted under
Stock Option and Restricted Stock Purchase Plan 2.0 prior to
September, 1995, to employees hired on or after January 1, 1995**
10.5- Employment Agreement of Roger Ross**
10.6- Employment Agreement of Mitchell Alsup**
</TABLE>
32
<PAGE> 36
<TABLE>
<S> <C>
10.7- Employment Agreement of Trevor Smith**
10.8- Employment Agreement of John Horner**
10.9- Purchase and Support Agreement, dated January 27, 1995, between
the Registrant and SunService Division of Sun Microsystems,
Inc.**+
10.10- Letter dated October 13, 1994, to the Registrant from Sun
Microsystems, Inc.**+
10.11- Contractor Design Agreement, dated July 15, 1995, between the
Registrant, Fujitsu Limited and PUYALLUP Integrated Circuit
Company, Inc.**+
10.12- Procurement Agreement, dated November 16, 1994, between the
Registrant and MicroModule Systems**+
10.13- Security Agreement, dated December 14, 1994, between the
Registrant and MicroModule Systems**
10.14- General SPARC Trademark License Amendment, dated July 1, 1992,
between the Registrant and SPARC International**
10.15- Specific SPARC Trademark License Amendment, dated July 1, 1992,
between the Registrant and SPARC International**
10.16- Compliance Testing Agreement, dated September 2, 1993, between the
Registrant and SPARC International**
10.17- Software License Agreement, dated April 7, 1995, between the
Registrant and Fujitsu Limited**
10.18- Lease Agreement for Office Space, dated May 20, 1991, and first
amendment and second addendum thereto, between the Registrant and
Texas Commerce Bank, dated January 24, 1992 and June 19, 1992,
respectively**
10.18.1- Second Amendment to Lease Agreement, dated December 7, 1995,
between the Registrant and Oak Hill Office Partners, Ltd. ***
10.18.2- Third Amendment to Lease Agreement, dated April 23, 1996, between
the Registrant and Oak Hills Office Partners, Ltd. ***
10.19- Commercial Lease Agreement, dated April 30, 1990, between the
Registrant and Texas Commerce Bank**
</TABLE>
33
<PAGE> 37
<TABLE>
<S> <C>
10.20- Lease Agreement, dated May 19, 1995, between the Registrant and
Security Capital Industrial Trust**
10.21- Master Lease Agreement, dated January 25, 1995, with amendments
thereto, between the Registrant and Comdisco, Inc.**
10.22- Purchase and Assignment Agreement, dated January 27, 1995, between
the Registrant and Capitol Resource Funding, Inc.**
10.23- Second Amended and Restated Loan Agreement, dated March 15, 1995,
between the Registrant and The Dai-Ichi Kangyo Bank, Limited**
10.24- Letter of Guaranty dated February 7, 1995, from Fujitsu Limited to
The Dai-Ichi Kangyo Bank, Limited**
10.25- Form of Incentive Stock Option Agreement approved for options
granted during and after September, 1995**
10.26- Form of Nonqualified Stock Option Agreement for options granted
during and after September, 1995**
10.27- 1995 Qualified Employee Stock Purchase Plan**
10.28- Securities Purchase Agreement between the Registrant and Sun
Microsystems, Inc.*
10.29- Shareholders Agreement among the Registrant, Roger D. Ross,
Fujitsu Limited and Sun Microsystems, Inc.*
10.30- Indemnity Agreement between the Registrant and Fujitsu Limited*
10.31- Form of Indemnity Agreement between the Registrant and certain
Directors and Officers**
10.32- Underwriting Agreement, dated as of November 6, 1995, between the
Registrant, on the one hand, and Robertson, Stephens & Company,
L.P. and Paine Webber Incorporated as representatives of the
several underwriters named therein, on the other hand*
10.33- Office Lease Agreement, dated February 1, 1996, between the
Registrant and NationsBank of Texas, N.A. ***
10.34- Sublease, dated February 1, 1996, between the Registrant and UHC
Management Company, Inc. ***
</TABLE>
34
<PAGE> 38
<TABLE>
<S> <C>
10.35- Letter dated December 5, 1995, to the Registrant from Sun
Microsystems, Inc. ***+
10.36- Credit Agreement dated as of September 23, 1996, by and among
Registrant, The Chase Manhattan Bank and Texas Commerce Bank
National Association ****
10.37- Promissory Note between the Company and The Dai-Ichi Kangyo Bank
Limited, dated November 18,1996 *****
10.38- Letter of Guaranty between Fujitsu Limited and The Dai-Ichi
Kangyo Bank Limited, dated November 19, 1996*****
10.39- Letter Agreement between the Registrant and Francis "Kit" Webster
III, dated April 1, 1997
10.40- Letter Agreement between the Registrant and Frank A. Baffi, dated
April 12, 1997.
10.41- Letter Agreement between the Registrant and Jack W. Simpson, Sr.
dated May 5, 1997, and associated addendum dated May 13, 1997
10.42- Amended and Restated Loan Agreement, dated April 24, 1997, by and
between Registrant and The Dai-Ichi Kangyo Bank, Limited
(including form of Promissory Note).
10.43- Development Agreement, dated as of March 31, 1997, by and between
Fujitsu Limited and Registrant++
10.44- Development Agreement, dated as of June 25, 1997, by and between
Fujitsu Limited and Registrant++
10.45- Loan Agreement dated as of November 15, 1996 by and between
Ross Technology, Inc. and The Dai-Ichi Kangyo Bank, Limited
10.46- Termination and Release Agreement dated as of February 26, 1997
between the Company and The Chase Manhattan Bank******
10.47- Letter of Guarantee dated February 20, 1997 from Fujitsu Limited
to The Dai-Ichi Kangyo Bank, Limited******
11- Earnings per share computations
21- Subsidiaries of the Registrant
23- Consent of KPMG Peat Marwick LLP
27- Financial Data Schedule
</TABLE>
- ----------------------
*Incorporated by reference to identically numbered exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 1996.
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<PAGE> 39
**Incorporated by reference to identically numbered exhibits to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-95878) effective as of
November 6, 1995.
***Incorporated by reference to identically numbered exhibits to the
Registrant's Annual Report on Form 10-K for the fiscal year ended April 1, 1996.
****Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1996.
*****Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended December 30, 1996.
******Incorporated by reference to the Registrant's Current Report on
Form 8-K dated March 21, 1997.
+Certain portions of this Exhibit were omitted and filed separately with the
Securities and Exchange Commission under an application for confidential
treatment, which application was granted by the Commission.
++Certain portions of this Exhibit have been omitted and filed separately under
an application for confidential treatment.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on March 21, 1997, and included the
resignation of Roger D. Ross, Chairman, President, and Chief Executive Officer
of the Company, and the establishment of a $25 million credit facility with
Dai-Ichi Kangyo Bank, Limited, guaranteed by Fujitsu.
36
<PAGE> 40
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.
June 30, 1997 ROSS TECHNOLOGY, INC.
a Delaware corporation
By:. /s/ Jack W. Simpson, Sr
------------------------------------
Jack W. Simpson, Sr.
Director, Chief Executive Officer and
President
37
<PAGE> 41
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
By: /s/ Fred T. May Chairman of the Board June 24, 1997
----------------------------
Fred T. May
By: /s/ Francis S. Webster III Chief Financial Officer June 24, 1997
----------------------------
Francis S. Webster III
By: /s/ Carter L. Godwin Chief Accounting Officer and June 24, 1997
---------------------------- Corporate Controller
Carter L. Godwin
By: /s/ Ryusuke Hoshikawa Director June 24, 1997
----------------------------
Ryusuke Hoshikawa
By: /s/ William J. Raduchel Director June 24, 1997
----------------------------
William J. Raduchel
By: /s/ Roger D. Ross Director June 24, 1997
----------------------------
Roger D. Ross
By: /s/ Masahiro Saida Director June 24, 1997
----------------------------
Masahiro Saida
By: /s/ Yasushi Tajiri Director June 24, 1997
----------------------------
Yasushi Tajiri
By: /s/ Edward F. Thompson Director June 24, 1997
----------------------------
Edward F. Thompson
By: /s/ Seiichi Yoshikawa Director June 24, 1997
----------------------------
Seiichi Yoshikawa
</TABLE>
38
<PAGE> 42
Ross Technology, Inc. and Subsidiary
Index to Financial Statements and Schedule
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of March 31, 1997 and April 1, 1996 F-3
Consolidated Statements of Operations for the years ended
March 31, 1997, April 1, 1996 and April 3, 1995 F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended March 31, 1997, April 1, 1996 and April 3, 1995 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1997, April 1, 1996 and April 3, 1995 F-6
Notes to Consolidated Financial Statements F-7
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts F-17
</TABLE>
F-1
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ROSS Technology, Inc.:
We have audited the accompanying consolidated balance sheets of ROSS Technology,
Inc. and subsidiary as of March 31, 1997 and April 1, 1996, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the years in the three-year period ended March 31, 1997. In
connection with our audits of the consolidated financial statements, we also
have audited financial statement schedule II. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule 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.
As discussed in note 1, the Company is dependent on its Parent, Fujitsu Limited,
for its cash and capital requirements.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ROSS Technology,
Inc. and subsidiary as of March 31, 1997 and April 1, 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Austin, Texas
June 23, 1997
F-2
<PAGE> 44
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, APRIL 1,
1997 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 2,811 $ 17,941
Trade accounts receivable, net (note 4) .................... 11,297 16,207
Receivable from Fujitsu (note 12) .......................... 3,320 6,780
Inventory (note 5) ......................................... 16,308 32,321
Prepaid expenses ........................................... 3,331 2,706
--------- --------
Total current assets ............................... 37,067 75,955
Property and equipment, net (note 6) ......................... 17,752 16,119
Deferred tax asset (note 10) ................................. -- 2,182
Intangible assets, net (note 7) .............................. -- 3,637
--------- --------
Total assets .............................. $ 54,819 $ 97,893
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable ..................................... $ 19,194 $ 9,587
Accrued liabilities (note 5) ............................... 8,307 3,103
Payable to Fujitsu (note 12) ............................... 4,043 18,929
Notes payable (note 8) ..................................... 43,500 --
--------- --------
Total current liabilities .......................... 75,044 31,619
--------- --------
Commitments and contingencies (note 11)
Stockholders' equity (deficit) (note 14):
Series A preferred stock, $.001 par value,
75,000 shares authorized, none issued or outstanding ..... -- --
Common stock, $.001 par value, 100,000
shares authorized, 23,843 shares issued and 23,522
outstanding at March 31, 1997, and
23,421 shares issued and 23,100 outstanding
at April 1, 1996 ........................................ 23 23
Additional paid-in capital ................................. 82,564 82,358
Accumulated deficit ........................................ (101,561) (14,856)
--------- --------
(18,974) 67,525
Less treasury stock, 321 shares, at cost ................... (1,251) (1,251)
--------- --------
Total stockholders' equity (deficit)
(note 11) ........................................ (20,225) 66,274
--------- --------
Total liabilities and
stockholders' equity (deficit) ................... $ 54,819 $ 97,893
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 45
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, APRIL 1, APRIL 3,
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Net sales (note 12) ............. $ 83,104 $ 100,805 $ 39,021
Cost of sales (note 12) ......... 107,951 53,921 26,728
--------- --------- --------
Gross profit (loss) ........... (24,847) 46,884 12,293
--------- --------- --------
Operating expenses:
Research and development,
net (note 12) .............. 24,659 15,906 13,154
Selling, general and
administrative .............. 31,137 10,495 5,143
In-process research
and development (note 3) .... -- -- 1,821
Amortization of
intangibles (note 7)......... 3,637 1,166 1,114
--------- --------- --------
Total operating expenses . 59,433 27,567 21,232
--------- --------- --------
Income (loss) from
operations ............. (84,280) 19,317 (8,939)
Other income (expense):
Interest income ............... -- 527 --
Interest expense .............. (1,472) (2,001) (1,642)
--------- --------- --------
Income (loss) before
income taxes ........... (85,752) 17,843 (10,581)
Income tax expense
(benefit) (note 10) ........... 953 (317) 88
--------- --------- --------
Net income (loss) ......... $ (86,705) $ 18,160 $(10,669)
========= ========= ========
Net income (loss) .............. $ (86,705) $ 18,160 $(10,669)
Dividends related to
preferred shares .............. -- (832) (176)
--------- --------- --------
Net income (loss) applicable
to common shareholders ........ $ (86,705) $ 17,328 $(10,845)
========= ========= ========
Net income (loss) per
common share .................. $ (3.71) $ 0.83 $ (1.47)
========= ========= ========
Weighted average common and
common equivalent shares
outstanding ................... 23,396 20,880 7,356
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 46
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCKHOLDERS'
----------------- ----------------- PAID-IN ACCUMULATED TREASURY EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK (DEFICIT)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at April 4, 1994 18,000 $ 18 7,200 $ 7 $17,875 $ (21,515) $ -- $ (3,615)
Net loss -- -- -- -- -- (10,669) -- (10,669)
------ ---- ----- ------ ------- --------- ------- --------
Balances at April 3, 1995 18,000 18 7,200 7 17,875 (32,184) -- (14,284)
Conversion of preferred
stock (18,000) (18) 7,200 7 11 -- -- --
Issuance of common
stock in initial public
offering, net of
offering expenses
of $1,844 -- -- 5,082 5 64,341 -- -- 64,346
Payment of preferred
stock dividends -- -- -- -- -- (832) -- (832)
Treasury stock received
through sale of
subsidiary -- -- -- -- -- -- (1,251) (1,251)
Exercise of stock options -- -- 3,939 4 131 -- -- 135
Net income -- -- -- -- -- 18,160 -- 18,160
------ ---- ----- ------ ------- --------- ------- --------
Balances at April 1, 1996 -- -- 23,421 23 82,358 (14,856) (1,251) 66,274
Stock issuances under
employee plans -- -- 422 -- 206 -- -- 206
Net loss -- -- -- -- -- (86,705) -- (86,705)
------ ---- ----- ------ ------- --------- ------- --------
Balances at March 31, 1997 -- $ -- 23,843 $ 23 $82,564 $(101,561 $(1,251) $(20,225)
====== ==== ===== ====== ======= ========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 47
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, APRIL 1, APRIL 3,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................. $(86,705) $ 18,160 $(10,669)
Adjustments to reconcile
net income (loss) to
net cash provided by (used in)
operating activities:
Deferred income taxes ........... 2,182 (2,182) --
Depreciation .................... 5,077 3,525 2,616
Amortization of goodwill ........ 3,637 1,166 1,114
Acquisition of in-process
research and development ...... -- -- 1,821
Gain on disposal of assets ...... (392) -- --
Change in assets and
liabilities:
Trade accounts receivable ..... 4,910 (6,587) (7,144)
Receivable from Fujitsu ....... 3,460 (4,658) (912)
Inventory ..................... 16,013 (18,559) (8,852)
Prepaid expenses .............. (625) (2,305) 503
Trade accounts payable ........ 9,607 2,358 1,918
Payable to Fujitsu ............ (14,886) 10,919 8,010
Accrued liabilities ........... 5,204 809 (163)
-------- -------- --------
Net cash provided
by (used in) operating
activities ............... (52,518) 2,646 (11,758)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ............. (6,968) (13,267) (2,630)
Proceeds from disposal of
assets ......................... 650 -- --
Acquisition of PeQuR
Technology, Inc. ................ -- -- (271)
Issuance of note receivable ....... -- -- (372)
-------- -------- --------
Net cash used in investing
activities ................ (6,318) (13,267) (3,273)
-------- -------- --------
Cash flows from financing
activities:
Stock issuances under
employee plans .................. 206 135 --
Payments on notes payable ......... -- (37,023) (491)
Proceeds from borrowings on
notes payable ................... 43,500 -- 15,000
Proceeds from issuance of
common stock .................... -- 64,346 --
Payment of preferred stock
dividends ....................... -- (832) --
-------- -------- --------
Net cash provided by
financing activities ...... 43,706 26,626 14,509
-------- -------- --------
Net increase (decrease)
in cash and cash
equivalents ............... (15,130) 16,005 (522)
Cash and cash equivalents at
beginning of year ................. 17,941 1,936 2,458
-------- -------- --------
Cash and cash equivalents at end
of year .......................... $ 2,811 $ 17,941 $ 1,936
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Taxes paid ......................... $ 1,225 $ 997 $ --
Interest paid ..................... $ 458 $ 2,001 $ 1,256
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 48
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
ROSS Technology, Inc. and subsidiary (the "Company") is an affiliate of
Fujitsu Limited ("Fujitsu"), a Japanese corporation. The Company designs,
manufactures and markets high performance microprocessor and system products
utilizing the SPARC architecture, the dominant RISC architecture. The principal
market for the Company's products is the OEM market for computer workstations,
primarily in the U.S. and Japan.
Fujitsu owned approximately 60% of the outstanding shares of the common stock of
the Company as of March 31, 1997.
In fiscal 1997 the Company incurred an operating loss of approximately $84.3
million, negative working capital of approximately $38 million and cash used in
operating activities was approximately $52.5 million, and as of March 31, 1997,
stockholders' deficit was approximately $20.2 million. The Company is dependent
on its parent, Fujitsu, for its cash and capital requirements. In June 1997, the
Company received a letter from Fujitsu stating that, "In accordance with our
plan for ROSS Technology, we (Fujitsu) are ready to provide the necessary
funding through debt guarantees or other types of financing for ROSS
Technology not to incur cash flow shortages through April 1, 1998."
Summary of Significant Accounting Policies
Principles of Consolidation -- The consolidated financial statements of the
Company include the accounts of ROSS Technology, Inc. and its wholly-owned
subsidiaries ROSS Semiconductors (Israel), Ltd. and ROSS Computer Corp. ("RCC")
(see note 2 for discussion of sale of RCC in 1996). All significant intercompany
balances and transactions have been eliminated.
Accounting Period -- The Company's fiscal year ends on the Monday closest to
March 31.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant Accounting Estimates - Inventory and Inventory Purchase Orders - The
Company's estimate for lower of cost or market for inventory and the accrual for
excess inventory purchase orders are based on the Company's best estimates of
product sales prices and customer demand patterns and/or its plans to transition
its product mix. However, the Company participates in a highly competitive
industry that is characterized by aggressive pricing practices, downward
pressures on gross margins, rapid technological advances, continual improvement
in product price-performance characteristics, and price sensitivity and changing
demand patterns on the part of customers. As a result of the industry's
ever-changing and dynamic nature, it is at least reasonably possible that the
estimates used by the Company to determine lower of cost or market for inventory
amounts and the accrual for excess inventory purchase orders will be materially
different from the actual amounts recorded. These differences could result in
materially higher or lower than expected inventory costs, which could have a
material effect on the Company's results of operations and financial condition
in the near term.
Cash Equivalents -- The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
F-7
<PAGE> 49
Inventory -- Inventory is stated at the lower of cost (principally standard cost
which approximates actual cost on a first-in, first-out basis) or market.
Provisions are made currently for the difference between the cost and the
estimated market value of inventory.
Property and Equipment -- Property and equipment are stated at cost, which
approximated fair market value at the date of acquisition. Depreciation on
property and equipment is calculated on the straight-line method over the
estimated useful lives of the assets which range from three to six years.
Intangible Assets -- Intangible assets consist of goodwill arising in the
purchase of the Company by Fujitsu, and, in 1996 and 1995 to RCC's purchase of
substantially all of the assets of PeQuR Technology, Inc. ("PeQuR") (see note
2), and are being amortized on the straight-line method over six years. The
Company assesses the recoverability of its intangible assets by determining
whether the amortization of the intangible asset balance over its remaining life
can be recovered through undiscounted projected future cash flows over the
remaining amortization period. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows.
Income Taxes -- Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
the period that includes the enactment date. A valuation allowance is
provided for deferred tax assets which are not considered more likely than
not to be realized.
The Company files a separate income tax return from Fujitsu, and accordingly it
accounts for income taxes as if it were a stand-alone company.
Revenue Recognition -- The Company recognizes revenue when product is shipped to
customers. Shipments to distributors are not recognized as revenue until the
product is sold by the distributor.
Warranty Expense -- The Company generally offers a one-year warranty on the
majority of its products sold. Warranty costs are accrued and expensed when the
related product is sold.
Stock Option Plan - Prior to April 2, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On April 2, 1996, the Company adopted SFAS No. 123, Accounting
for Stock-Based Compensation, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in fiscal
year 1996 and future years as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of - The
Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, on April 2, 1996.
This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
F-8
<PAGE> 50
Earnings (Loss) Per Share - Earnings (loss) per share are computed using the
weighted average number of common and common equivalent shares outstanding
during each period. Common equivalent shares include stock options and
convertible preferred shares. For fiscal 1996 and 1995, pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83, stock options issued
during the twelve months immediately preceding the Company's initial public
offering filing date have been included in the calculation of common and common
equivalent shares using the treasury stock method and the initial public
offering price as if they were outstanding for all periods. The number of shares
of common stock and common equivalent shares outstanding for fiscal 1997 was
computed on a basis consistent with APB Opinion No. 15. Common stock equivalents
resulting from convertible preferred shares and other stock options are excluded
during loss periods when their result is anti-dilutive.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share. FASB
Statement No. 128 supersedes APB Opinion No. 15, Earnings Per Share, and
specifies the computation, presentation, and disclosure requirements for
earnings per share ("EPS"). It replaces Primary EPS and Fully Diluted EPS with
Basic EPS and Diluted EPS, respectively. Basic EPS, unlike Primary EPS, excludes
all dilution while Diluted EPS, like Fully Diluted EPS, reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Statement No. 128
is effective for financial statements for both interim and annual periods
ending after December 15, 1997. Earlier adoption is not permitted. Basic loss
per share calculated in accordance with Statement No. 128 would have been
$3.71 for the fiscal year ended March 31, 1997.
Reclassification -- Certain reclassifications have been made to conform prior
years data to the current presentation.
(2) ACQUISITION OF ASSETS OF PEQUR TECHNOLOGY, INC. AND SUBSEQUENT DISPOSITION
On January 4, 1995, RCC, then a wholly owned subsidiary of the Company,
purchased substantially all of the assets of PeQuR, a company which designs
microprocessor support products. The purchase price consisted of amounts to be
paid to the stockholders of PeQuR consisting of a promissory note of $1,334,836,
future cash consideration of $480,000, legal fees of $270,872 and the
forgiveness of a promissory note receivable from PeQuR of $372,000. Through the
application of the purchase method of accounting, the $2,457,708 purchase price
was allocated based on the estimated fair values of assets purchased, consisting
of certain property and equipment and acquired in-process research and
development costs (see note 3). The operations of RCC, which were not
significant, have been included in the Company's consolidated financial
statements from the date of acquisition until its disposition.
On March 26, 1996, the Company transferred all of the outstanding stock of RCC
to Fujitsu, for which the Company received 321,429 shares of the Company's
common stock from Fujitsu. The Company treated the common stock received as
treasury stock and valued it under the cost method. The cost of the treasury
stock consisted of approximately $700,000 representing the net book value of
non-cash assets transferred to Fujitsu, a consideration payable for $200,000 by
the Company to RCC, and liabilities assumed of $351,000. Subsequent to the sale
of RCC to Fujitsu, RCC changed its name from ROSS Computer Corp. to Reliance
Computer Corporation.
(3) ACQUISITION OF IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the Company's acquisition of PeQuR, the Company completed an
extensive review of the acquired company's existing products, in-process
research and development (projects that had not reached technological
feasibility), customers, sales channels, sales personnel and financial and other
matters in order to determine the fair market value. PeQuR was acquired
primarily for its research in-process, and not acquired for its earnings, cash
flow and net worth.
Although the Company believed this acquisition would enhance its access to
markets and customers, PeQuR's research and development in process were the
primary reasons for the acquisition.
F-9
<PAGE> 51
The Company's technical staff placed a value of $1,821,000 on PeQuR's projects
in process, based on the expected future earnings to be derived from those
projects in process. The Company believes that the allocation is reasonable,
fair and supported by the facts. The amounts allocated to in-process research
and development were expensed immediately after the consummation of the
transaction.
(4) TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consists of the following:
<TABLE>
<CAPTION>
MARCH 31, APRIL 1,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Trade accounts receivable $ 12,852 $ 18,264
Less allowance for doubtful accounts (1,555) (2,057)
-------- --------
$ 11,297 $ 16,207
======== ========
</TABLE>
The Company recorded a $16.5 million charge to write-off accounts receivable
in fiscal 1997. This amount is recorded in selling, general and administrative
expenses in fiscal 1997 in the accompanying financial statements.
(5) INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
MARCH 31, APRIL 1,
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Die bank $ 4,496 $ 6,282
Work in progress 6,236 20,585
Finished goods 5,576 5,454
------- -------
$16,308 $32,321
======= =======
</TABLE>
Die bank inventory, consisting of silicon wafers and cut and tested die, is
comparable to raw material inventory in other manufacturing industries. Work in
progress inventory includes work in process as well as the Company's inventories
of multi-die packages (MDPs) and components and sub-systems to be incorporated
into module, board, and system products. Finished goods inventory includes
finished module, board and system products as well as MDPs and ASICs offered for
sale to OEM customers.
The Company recorded a $38.9 million charge for its write-down of inventory in
fiscal 1997. This amount is recorded in cost of sales in fiscal 1997 in the
accompanying financial statements. In addition, the Company recorded a $5.2
million accrual for the costs to cancel excess inventory purchase orders.
This amount is recorded in accrued liabilities and cost of sales in fiscal
1997 in the accompanying financial statements.
(6) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31, APRIL 1,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Buildings and leasehold improvements $ 2,699 $ 2,127
Equipment and tooling 19,706 18,005
Software 5,634 3,102
Furniture and fixtures 685 454
-------- --------
28,724 23,688
Less accumulated depreciation (10,972) (7,569)
-------- --------
$ 17,752 $ 16,119
======== ========
</TABLE>
F-10
<PAGE> 52
(7) INTANGIBLE ASSETS
Intangible assets consists of the following:
<TABLE>
<CAPTION>
MARCH 31, APRIL 1,
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Goodwill $ 6,530 $ 6,530
Less accumulated amortization (6,530) (2,893)
------- -------
$ -- $ 3,637
======= =======
</TABLE>
During 1997, the Company determined that projected future cash flows did not
support the goodwill amount and amortized the remainder of the goodwill in 1997.
(8) NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
MARCH 31, APRIL 1,
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to bank $43,500 $ --
======= =======
</TABLE>
The notes payable to a bank at March 31, 1997, were outstanding under a
$50,000,000 revolving credit facility with a bank, due June 30, 1997 (since
extended to December 31, 1997). Interest accrues at the bank's quoted rate (5.8%
at March 31, 1997). The notes payable are guaranteed by Fujitsu.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following method and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate
value:
Receivables, Accounts Payable, Accrued Liabilities, Payable to Fujitsu and
Notes Payable - The carrying amount approximates fair value because of the
short maturity of these instruments.
(10) INCOME TAXES
A net income tax provision of $953,000 was recorded for the year ended March 31,
1997. The tax provision consists of a current income tax benefit of $1,229,000
and deferred tax expense of $2,182,000. The current income tax benefit is the
net of $1,300,000 attributable to a carryback of net operating loss to the year
ended April 1, 1996, and $71,000 of state taxes due for fiscal 1997. The
deferred tax expense resulted from the re-establishment of the April 1, 1996,
valuation allowance of $2,182,000 for the deferred tax asset. The net operating
loss carryback to the year ended April 1, 1996, resulted in an alternative
minimum tax credit.
For the year ended April 1, 1996, a $317,000 income tax benefit was recorded,
which consisted of current and deferred Federal income tax expense (benefit) of
$1,865,000 and ($2,182,000), respectively.
For the year ended April 3, 1995, an $88,000 provision was recorded, consisting
entirely of Federal alternative minimum tax.
The components of the net deferred tax asset as of March 31, 1997 and April 1,
1996, were as follows:
F-11
<PAGE> 53
<TABLE>
<CAPTION>
1997 1996
-------- ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards $ 5,710 $ --
Property and equipment, principally due to
difference in depreciation 280 257
Inventory write-downs 14,791 833
Other accruals 3,033 393
Accounts receivable, principally due to allowance
for doubtful accounts 3,651 699
Tax credit carryforwards 500 --
-------- ------
Subtotal 27,965 2,182
Valuation allowance (27,965) --
-------- ------
Net deferred tax asset $ -- $2,182
======== ======
</TABLE>
The net change in the total valuation allowance for the years ended March 31,
1997, and April 1, 1996, was an increase (decrease) of $27,965,000 and
($6,896,000), respectively. The Company has a Federal income tax net operating
loss carryforward of approximately $16,794,000 at March 31, 1997, expiring in
2011. Additionally, the Company has an alternative minimum tax credit
carryforward of approximately $500,000. At March 31, 1997, the Company has
provided a 100% valuation allowance of $27,965,000 against the deferred tax
asset due to the Company's recent losses and the lack of objective evidence
indicating that it is more likely than not that the asset will be recovered.
For the years ended March 31, 1997, April 1, 1996, and April 3, 1995, the tax
provision varies from the amounts computed by applying the statutory Federal
income tax rate to income (loss) before income taxes, primarily due to the
change in the beginning of the year valuation allowance for deferred tax assets.
(11) COMMITMENTS AND CONTINGENCIES
The Company leases its operating facility and certain equipment under
noncancelable operating leases with terms expiring in 1999 through 2002. Future
minimum lease payments under these leases at March 31, 1997, are:
<TABLE>
<CAPTION>
YEAR ENDING: (IN THOUSANDS)
- ------------ --------------
<S> <C>
1998 $1,804
1999 1,018
2000 912
2001 891
2002 436
------
$5,061
======
</TABLE>
Rent expense for the Company was as follows:
<TABLE>
<S> <C>
Year ended March 31, 1997 $1,191,000
Year ended April 1, 1996 718,690
Year ended April 3, 1995 346,184
</TABLE>
The Company is subject to lawsuits and other claims arising in the ordinary
course of business. In the opinion of management, the effect of such matters
will not have a material adverse effect on the Company's financial position
or results of operations.
F-12
<PAGE> 54
(12) TRANSACTIONS WITH AFFILIATES
The Company has transactions with Fujitsu arising in the normal course of
business. Included in revenue and purchases for the year ended March 31, 1997,
is approximately $17.9 million and $27.6 million relating, respectively, to
sales to and purchases from Fujitsu. The Company also paid to Fujitsu a guaranty
fee relating to Fujitsu's guaranty of the Company's bank debt equal to .5% of
the guaranty amount and interest on the intercompany payable at a rate of
LIBOR+3%. Included in revenue and purchases for the year ended April 1, 1996, is
approximately $18.9 million and $34.0 million, relating, respectively, to sales
to and purchases from Fujitsu. Included in revenue and purchases for the year
ended April 3, 1995, is approximately $7.6 million and $12.2 million relating,
respectively, to sales to and purchases from Fujitsu. Fujitsu provides
significant wafer fabrication resources to the Company.
In fiscal 1997 the Company entered into a Development Agreement with Fujitsu
whereby Fujitsu would partially fund the development of a derivative of the
Company's Colorado 4 microprocessor. During 1997 the Company received $3.5
million pursuant to this agreement, $2 million of which was applied against
research and development expenses and $1.5 million of which was recorded in
accrued liabilities. The Development Agreement provides for future payments to
the Company upon completion of certain milestones and acceptance by Fujitsu.
During the Company's initial public offering, Sun Microsystems, Inc. purchased
approximately five percent of the outstanding common stock of the Company. In
addition, Sun Microsystems, Inc. is a significant customer of the Company.
(13) 401(k) PLAN
The Company has an employee benefit plan (the Plan) qualifying under Section
401(k) of the Internal Revenue Code for all eligible employees. Eligible
employees may defer a portion of their annual compensation under the Plan
subject to maximum limitations. The requirements for eligibility include a
minimum age of 21. Contributions to the Plan are made at the discretion of the
Company and amounted to $0, $215,000 and $115,000 for the years ended March 31,
1997, April 1, 1996, and April 3, 1995, respectively.
(14) STOCKHOLDERS' EQUITY
1994 Plan of Recapitalization
On August 18, 1994, the Board of Directors adopted a plan of recapitalization
which converted the 1,000 shares of common stock authorized at $1 par value, all
of which were issued and outstanding to Fujitsu, into 100,000,000 shares of
common stock at $.001 par value and 75,000,000 shares of Series A preferred
stock at $.001 par value. Of the newly authorized stock, 7,200,000 shares of the
common stock and 18,000,000 shares of preferred stock were issued to Fujitsu,
which remains the Company's principal shareholder.
Reverse Stock Split
On November 2, 1995, the Company's common stock underwent a two-for-five reverse
stock split. All share and per share information in the accompanying
consolidated financial statements have been adjusted to reflect this reverse
stock split.
Series A Preferred Stock
Series A preferred shares are subject to the rights, preferences, restrictions
and other matters set forth in the Company's Restated Certificate of
Incorporation. The holder of these preferred shares is entitled to, among other
things, cumulative dividends, liquidation preferences, conversion rights, and
voting rights.
F-13
<PAGE> 55
The holders of Series A preferred stock are entitled to receive dividends, when
declared, which accrue annually from the issue date at the rate of $.0588 per
share. In addition, the holders of Series A preferred stock are entitled to
receive payment of $.9804 per share, plus an amount equal to all unpaid cash
dividends, prior to any payment to a holder of common stock in the event of
liquidation of the Company. All of the outstanding Series A preferred stock was
converted into 7,200,000 shares of common stock at the time of the Company's
initial public offering at which time a $832,000 dividend was paid.
Stock Option Plans
The Company has adopted a Stock Option and Restricted Stock Plan (the Plan)
under which a maximum aggregate of 5,575,000 shares of common stock has been
reserved for grant to employees, Directors, consultants and advisors. The Plan
provides for grants of incentive stock options, nonstatutory stock options and
restricted common stock. Under the Plan the option price for incentive stock
options may not be less than the fair market value of the stock at the time the
options are granted.
Under the terms of the Plan options can be granted for no more than ten years
and expire on the earlier of the expiration date or six months after termination
of employment, unless termination of employment is due to death or disability,
whereby the options expire eighteen months after the termination of employment.
Vesting is determined by the Stock Option Committee of the Board of Directors.
The majority of stock options granted under the Plan vest 40% two years
following the later of the optionee's hire date or June 30, 1993, with the
remaining 60% vesting monthly over the following three years. The stock options
granted prior to August 1995 for persons who became employees prior to January
1, 1995 vested 100% as a result of the initial public offering of the Company's
stock.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its stock option and stock purchase plans. Had compensation cost been
recognized consistent with SFAS No. 123 the Company's net income (loss) and
income (loss) per share would have been reduced to pro forma amounts indicated
below for the years ended March 31, 1997 and April 1, 1996 (in thousands, except
net income (loss) per share amounts):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income (loss) As reported ($86,705) $17,328
Pro forma ($88,276) $17,241
Net income (loss) per share As reported ($3.71) $0.83
Pro forma ($3.77) $0.83
</TABLE>
The per share weighted average value of stock options issued by the Company
during fiscal 1997 and 1996 was $1.61 and $5.77, respectively, on the date of
grant using the Black-Scholes option-pricing model. The Company used the
following weighted-average assumptions to determine the fair value of stock
options granted for the years ended March 31, 1997 and April 1, 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Dividend yield -- --
Expected volatility 50.0% 50.0%
Risk-free rate of return 6.4% 6.2%
Average expected option life 5 years 5 years
</TABLE>
Pro forma net income (loss) reflects only options granted in fiscal 1997 and
fiscal 1996. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net income
(loss) amounts presented above because compensation cost is reflected over the
options' vesting period and compensation cost for options granted prior to April
1, 1995 is not considered.
F-14
<PAGE> 56
A summary of option activity under the Plan for the fiscal years ended
March 31, 1997, April 1, 1996 and April 3, 1995, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
(in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,249 $ 6.33 4,466 $0.035 4,941 $0.035
Granted 665 4.09 753 10.88 -- --
Exercised (389) 0.035 (3,939) 0.035 -- --
Cancelled (623) 10.25 (31) 9.68 (475) 0.035
----- -------- ----- -------- ----- --------
Outstanding at year-end 902 $ 4.69 1,249 $ 6.33 4,466 $0.035
===== ===== =====
Options exercisable at year end 289 $ 2.40 497 $0.035 -- $ --
Shares available for future grant 345 387 1,109
</TABLE>
The following summarizes information regarding the Company's stock options
outstanding at March 31, 1997:
<TABLE>
<CAPTION>
Weighted- Weighted- Weighted-
Range of Number Average average Number average
Exercise Outstanding Remaining exercise exercisable exercise
Prices (in thousands) Contractual Life price at March 31, 1997 price
- -------------- ------------- ---------------- ------- ---------------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
$.035-$2.5 132 7.3 $ 1.13 98 $0.57
$3.125-$4.8 565 8.8 3.38 191 3.34
$6.125-$9.375 85 9 8.52 -- --
$10.00-$12.76 112 8.8 11.8 -- --
$13.38-$14.5 8 8.8 14.17 -- --
- -------------- ------- --------- ------- ---------- --------
$.035-$14.5 902 8.6 $ 4.69 289 $2.40
============= ======= ==========
</TABLE>
On February 19, 1997 the Company's Board of Directors resolved that all
employees of the Company as of that date who were granted options between
January 1, 1995, and February 18, 1997, at an exercise price greater than $3.125
per share are eligible to receive an equivalent number of options at an exercise
of $3.125 per share in replacement of their current options. As of March 31,
1997, employees of the Company had not yet been given the ability to choose to
replace their old options.
Employee Qualified Stock Purchase Plan
In 1995 the Company approved an Employee Qualified Stock Purchase Plan ("ESPP"),
which was amended in 1996, and which as amended allows eligible employees of the
Company and its subsidiary to purchase shares of common stock through payroll
deductions. The ESPP consists of consecutive 24-month offering periods composed
of four 6-month exercise periods. The shares can be purchased at the lower of
85% of the fair market value of the common stock at the date of commencement of
this one year offering period or at the last day of each 6-month exercise
period. Purchases are limited to 10% of an employee's eligible compensation,
subject to a maximum annual employee contribution limited to $25,000 market
value of common stock (calculated as employee's enrollment price multiplied by
purchased shares). 33,175 such shares were issued during the year ended March
31, 1997, and no shares were issued during the year ended April 1, 1996.
(15) BUSINESS CONCENTRATION
The Company's sales are concentrated in the computer industry, however its
customers operate in different markets and geographic areas. Fujitsu, Sun
Microsystems, and users of Sun Microsystems products are the principal consumers
of the Company's products. The following table summarizes the percentage of
gross revenues generated by sales to customers which account for more than 10%
of net sales for the years ended March 31, 1997, April 1, 1996, and April 3,
1995:
<TABLE>
<CAPTION>
CUSTOMER 1997 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C>
A....................... 28% 45% 26%
B...................... 22 19 19
</TABLE>
During the years ended March 31, 1997, April 1, 1996, and April 3, 1995, export
sales were approximately $27,840,000, $36,230,000, and $11,334,000,
respectively.
F-15
<PAGE> 57
(16) FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of fiscal 1997, the Company revised several of its
estimates related to its allowance for trade accounts receivable, valuation of
its deferred tax asset, accrual for excess inventory purchase orders, estimate
for lower of cost or market of inventory, and amortization of remaining goodwill
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Allowance for trade accounts receivable $4,163
Accelerated amortization of goodwill 2,540
Inventory, lower of cost or market
adjustment 1,954
Excess inventory purchase orders 5,179
Adjustment to valuation allowance for the
deferred tax asset 20,812
-------
Total $34,648
=======
</TABLE>
These adjustments increased the net loss by $34.6 million ($1.48) per share for
the year ended March 31, 1997.
(17) SUBSEQUENT EVENTS
Effective May 21, 1997, Jack W. Simpson, Sr. was hired as the Company's
President and Chief Executive Officer. In conjunction with his employment, the
Company entered into a letter agreement pursuant to which the Company would
enter into a 4-year employment agreement with Mr. Simpson. Among other things,
the letter agreement obligates the Company, subject to the approval of the Board
of Directors, and, where required, the Company's shareholders, to award Mr.
Simpson with 100,000 stock options or restricted stock at an exercise price (or
purchase price) of $.05 per share, vesting 50% on April 1, 1998, and 50% on
April 1, 1999; 400,000 stock options at an exercise price equal to the closing
price on Mr. Simpson's date of hire, which price was $2.437, and vesting 100,000
immediately, and the remainder at a rate of 6,250 per month over the next four
years; and 100,000 stock options or restricted stock at an exercise price (or
purchase price) of $.05 per share, vesting 50% when the average closing price of
the Company's stock exceeds the price on Mr. Simpson's date of hire by $5.00 (or
a stock price of $7.437), and 50% when such average closing price exceeds the
price on Mr. Simpson's date of hire by $10.00 (or a stock price of $12.437).
Certain of these options will be compensatory. In addition the Company agreed to
fund a deferred annuity targeted to yield approximately $150,000 at age 60 and
to purchase life insurance of approximately $1.2 million for Mr. Simpson.
On June 25, 1997, the Company and Fujitsu entered into a Development Agreement,
pursuant to which, among other things, Fujitsu would pay the Company an
aggregate of $34.5 million in partial funding for the Viper project and for a
license for associated intellectual property. Payments are to be made
periodically through March 31, 1999, upon the attainment of certain milestones,
and are subject to reduction. The contract is subject to cancellation under
certain conditions if milestones are not met.
F-16
<PAGE> 58
SCHEDULE II
ROSS TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
BEGINNING CHARGED TO FROM END OF
DESCRIPTION OF PERIOD EXPENSE ACCOUNTS PERIOD
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended April 3, 1995 ..... $ 70 $ 728 $ 303 $ 495
Year ended April 1, 1996 ..... 495 1,576 14 2,057
Year ended March 31, 1997 .... 2,057 10,613 11,115 1,555
</TABLE>
F-17
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
<S> <C> <C>
10.39 Letter Agreement between the Registrant
and Francis ("Kit") Webster III, dated
April 1, 1997.
10.40 Letter Agreement between the Registrant
and Frank A. Baffi, dated April 12, 1997.
10.41 Letter Agreement between the Registrant
and Jack W. Simpson, Sr. dated May 5, 1997,
and associated addendum dated May 13,
1997.
10.42 Amended and Restated Loan Agreement,
dated April 24, 1997, by and between
Registrant and The Dai-Ichi Kangyo Bank,
Limited.
10.43 Development Agreement, dated as of
March 31, 1997, by and between the
Registrant and Fujitsu Limited.
10.44 Development Agreement, dated as of June
25, 1997, by and between the Registrant and
Fujitsu Limited.
10.45 Loan Agreement dated as of November 15, 1996
by and between the Registrant and The
Dai-Ichi Kangyo Bank, Limited.
11 Earnings Per Share Calculation
21 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
</TABLE>
-i-
<PAGE> 1
EXHIBIT 10.39
ROSS TECHNOLOGY, INC.
April 1, 1997
Mr. Francis "Kit" Webster
Dear Mr. Webster:
I am pleased to offer you employment with ROSS Technology, Inc. at a bi-weekly
salary of $5,769.23. Your position will be that of Chief Financial Officer
("CFO"), reporting to the Chief Executive Officer ("CEO").
You will also be eligible to participate in ROSS' Employee Stock Option Plan
with a vesting date that will commence with your start date. We will recommend
that a total of 100,000 options be allocated to you. The details of the option
grant and purchase price are yet to be determined and are subject to the
approval of the ROSS Board of Directors and to shareholder approval. You will be
authorized to accrue a total of three (3) weeks vacation per year (4.62 hours
per pay period) beginning with your first month of employment.
Additionally, you will be eligible for an incentive bonus of up to 50% of your
base salary. The requirements for this bonus, including dates and qualifying
events, will be mutually agreed to between yourself, the CEO and the Human
Resources Committee of the Board of Directors.
In the event that you experience a termination without cause from ROSS
Technology, Inc., ROSS Technology, Inc. agrees to continue to pay your salary
for a period of six months following the date of your termination less amounts
which you earn or reasonably could have earned during the same period. This
offer supersedes all prior discussions concerning your employment.
Enclosed is a second copy of your offer. Please sign the copy and return it to
me. This offer is valid through April 15, 1997. Your start date, should you
accept this offer, will be Wednesday, April 16, 1997. You may also fax your
confirmation to 512-892-3036, attention: Mr. Thomas Seuthe. If you have any
questions, or need to reschedule your start date, please feel free to call
Mr. Seuthe at his office number (512) 436-2128.
Sincerely,
/s/ James T. Tramel
James T. Tramel
Director - Human Resources
I accept the above offer: /s/ Francis Webster 4/1/1997
----------------------------------------
Signature Date
<PAGE> 1
EXHIBIT 10.40
ROSS TECHNOLOGY, INC.
April 12, 1997
Mr. Frank A. Baffi
Dear Mr. Baffi:
I am pleased to offer you employment with ROSS Technology, Inc. (the "Company")
at a bi-weekly salary of $6,538.46. Your position will be that of Vice President
- - Sales, reporting to the Chief Executive Officer ("CEO").
You will be eligible to participate in the Company's Employee Stock Option and
Restricted Stock Purchase Plan 2.0 ("Plan 2.0"), with a vesting date that will
commence with your start date. We will recommend that a total of 150,000
non-qualified stock options (the "Stock Options") be allocated to you. This
grant is subject to the approval of the Company's Board of Directors and its
shareholders. Under Plan 2.0, the exercise price is based on the stock price as
of the first day of your employment. In the most recent vesting schedule,
twenty-five percent (25%) of the stock options vest at the completion of the
first year of employment ("cliff vesting"), and the remainder vest ratably on a
monthly basis over the next three year period. Any changes in grant type or
vesting schedule that is approved by the Board of Directors and shareholders
will apply to this grant.
In the event of a Change of Control of the Company, as defined in Attachment A,
or sale of all or substantially all of the Company's assets, it is the intention
and expectation that your remaining unvested Stock Options shall vest in full
immediately. The wording of Attachment A will appear in the agreement you will
receive after final approval of this grant.
You will be eligible for a sales commission plan equal to up to 100% of your
base salary. The requirements for this commission plan, including dates and
qualifying events, will be determined, with your participation, by the CEO and
the Human Resources Committee of the Board of Directors. The payout as a
percentage of the full 100% plan for FY98 is as described in Attachment B
hereto. Your base salary will be subject to merit review during the Company's
merit review cycle. An automobile allowance of $600 per month will be provided.
The Company's standard vacation accrual, holiday schedule and benefits program
will apply to this offer.
In the event that the Company terminates your employment without cause, the
Company agrees to accelerate the vesting of unvested Stock Options twelve (12)
months and will continue to pay your salary for a period of twelve (12) months
following the date of your termination. Additionally, during that same twelve
(12) month period, the Company will pay for COBRA insurance coverage for you and
your family, until such time as you obtain insurance coverage through other
employment. The items described in this paragraph will comprise your severance
benefit and the Company's entire obligation to you in the event of a termination
without cause.
<PAGE> 2
A twelve (12) month acceleration of the vesting of unvested Stock Options will
occur if you continue to be employed by the Company but, without your agreement,
(a) your job is located outside the general area of Austin, Texas causing you to
have to move your family, or (b) you no longer report directly to the CEO or
President of the Company, or (c) you are no longer the most senior corporate
executive whose principal responsibility is the management and direction of the
sales function. (A change in the CEO or President of the Company or a change or
reorganization of the Company's sales or marketing functions will not in itself
be cause to accelerate vesting of unvested Stock Options.)
Enclosed is a second copy of your offer. Please sign and initial where indicated
and return the copy to me. This offer is valid through April 17, 1997. Your
start date, should you accept this offer, will be Monday, April 28, 1997. You
may also fax your confirmation to 512-436-2145, attention: Mr. Thomas Seuthe. If
you have any questions, or need to reschedule your start date, please feel free
to call Mr. Seuthe at his office number (512) 436-2128.
This offer sets forth our complete agreement and supersedes all prior
communications and agreements, oral or written, concerning your employment.
Sincerely,
James T. Tramel
Director - Human Resources
I accept the above offer: /s/ Frank A. Baffi 4/17/1997
-----------------------------------------
Signature Date
-2-
<PAGE> 3
ATTACHMENT A
3.1.4 In the event of a Change of Control of the Company (as defined
below) or the sale of all or substantially all of the Company's assets, this
Option shall vest in full immediately, notwithstanding the foregoing provisions
of this Section 3. A "Change of Control of the Company" will be deemed to have
occurred if (a) there has been a change in the identity of more than one half of
members the Board of Directors over any six-month period (excluding any changes
in Board members which are the result of one or more redesignations by Fujitsu
Limited, a Japanese corporation or Sun Microsystems, Inc., a Delaware
corporation, with respect to the individuals which represent them on the Board),
or (b) the Company within any twelve-month period ceases to own more than one
half of its gross assets (measured at the commencement of such period) by virtue
of one or more bulk transfers of its assets (it being understood that sales or
licensing of inventory in the normal course of the Company's business shall not
constitute a "bulk transfer" for this purpose).
<PAGE> 4
ATTACHMENT B
FY98 COMPENSATION PLAN
FOR
FRANK A. BAFFI
The commission schedule will be constructed with a minimum payout in May, 1997
of $38,250.00 for the balance of the first quarter of FY98 and the same amount
in July, 1997 for the full second quarter of FY98. Commission amounts paid after
the second quarter of FY98 will not be subject to any minimum, and will be based
on cumulative fiscal year-to-date performance, and will take into account the
cumulative commissions paid for the fiscal year to date, including the minimum
commissions paid for the first and second quarters. The total commission
schedule will follow the curve as shown in the chart below, which allows up to a
maximum of $170,000.00 in total commissions (including the minimum commissions
payable for the first and second quarters) for the approximate eleven months
remaining in FY98.
PERFORMANCE GRAPH
(Performance to Plan (%), Payment as a Percent of Base Salary)
(60,0)
(70,55)
(80,80)
(90,90)
(100,100)
<PAGE> 1
EXHIBIT 10.41
[COVER PAGE]
Letter Agreement between the Registrant and Jack W. Simpson, Sr., dated
May 5, 1997, and associated addendum dated May 13, 1997.
<PAGE> 2
EXHIBIT 10.41
COMPENSATION TERM SHEET
JACK SIMPSON
This offer sets forth the terms of our complete agreement and supersedes
all prior communications and agreements, oral or written, concerning your
employment. This agreement, upon mutual execution, will be binding upon you and
Ross Technology, Inc. ("ROSS") until it is superseded by a more complete
Employment Agreement (the "EA").
EMPLOYMENT AGREEMENT: Within six weeks of your date of hire the EA will be
prepared for signing by ROSS and you. The term of the EA will be approximately
four years, ending in the year 2001. The terms and conditions from this
Compensation Term Sheet will be the basis of the EA. There will also be a few
other items common to such agreements.
POSITION: President, Chief Executive Officer, and Member of the ROSS Board of
Directors, and continuing Board membership subject to shareholder election.
Excluding unforeseen events such as mental or physical health problems, the
intent will be to retain you as the President and CEO. The Board will retain the
right to delegate certain responsibilities to other executive officers.
DIRECT COMPENSATION: $13,460 payable biweekly (approximately
$350,000 per year) with an annual review for merit purposes.
BONUS: A target bonus equal to 50% of direct compensation above based on meeting
preassigned goals and objectives as set by the Board (i.e., meet-the-plan types
of goals). This bonus has a cap of 100% of your direct compensation based on
exceeding goals (the quantitative plan) by 50% and/or tied directly to stock
value price. However, no bonus is payable unless a threshold value equal to 75%
of plan is achieved. (Obviously, the Board could in its discretion award an
extraordinary bonus if the minimums aren't met but we believe that an excellent
effort was made).
EQUITY: We will recommend that the following stock options will be offered to
you under the Company's Employee Stock Option and Restricted Stock Purchase Plan
2.0. The grant price for the options will be based on the ROSS stock price of
the first day of your employment. These grants are subject to the approval of
the ROSS Board of Directors and its shareholders. You may want private tax
advice on accepting restricted stock or opting for specific wording on how
vesting occurs.
a. RESTRICTED STOCK: ROSS will grant 100,000 shares of restricted ROSS
stock (at a purchase price of $0.05 per share) - or, if you prefer,
non-qualified stock options - which will vest 50% on 4/1/98 and 50% on 4/1/99
assuming your hire date is in this quarter.
<PAGE> 3
b. NON-QUALIFIED STOCK OPTIONS: ROSS will grant options for 400,000
shares of ROSS common stock, 100,000 of these options will vest immediately and
the remaining 300,000 options will vest monthly (6,250 per month) over the next
four (4) years with a ten (10) year limit to exercise.
c. PERFORMANCE SHARES: ROSS will grant 100,000 shares of restricted ROSS
stock (at a purchase price of $0.05 per share) - or, if you prefer,
non-qualified stock options - which will vest 50% when, for a period of ten (10)
consecutive trading days, the average closing price ("FMV") of ROSS shares
exceeds the referenced stock price on your hire date by $5 and another 50% when
the FMV exceeds the referenced stock price at hire date plus $10 per share.
RETIREMENT: ROSS will fund a deferred annuity designed to replace your current
SFA SERP plan which is targeted to yield approximately $150,000 per year at age
60. The above is a pre-tax number. We will work with William Mercer Co. to put
such a plan in place and then we will begin funding. Premiums will be paid each
quarter, as long as you are an employee, until the annuity is fully funded.
TRAVEL, MOVING AND LIVING EXPENSE: ROSS will reimburse you for direct expenses,
up to a maximum outlay of $100,000 in connection with your relocation to Austin.
This also includes expenses related to the sale and purchase of your primary
residence.
AUTO ALLOWANCE: The allowance will be $1,000 per month with no tax gross up.
TERMINATION FOR CAUSE: There will be a definition of "cause" in the EA. It will
be restricted to actions or events where you have responsibility and
accountability. It will allow time for you to be properly alerted and given fair
opportunity to explain or correct the stated cause.
TERMINATION WITHOUT CAUSE: If your employment is terminated without cause during
the term of the EA, ROSS will continue to pay your biweekly direct compensation
and to fund insurance and medical benefits for a period of 24 months provided
you execute and observe hold-harmless and reasonable non-compete agreements.
There will be no offsets for other earnings. Stock options, excluding the
options or shares in EQUITY: c) PERFORMANCE SHARES above, will continue to vest
for the twenty-four (24) month period.
INSURANCE: ROSS will replace your current life insurance policy based on 3X
annual salary and bonus. ROSS may choose to structure this program as a SPLIT
insurance package.
-2-
<PAGE> 4
BENEFITS: You will be eligible for the standard ROSS vacation accrual, holiday
schedule and benefits program. You will be eligible for five (5) weeks of
vacation each year, prorated for 1997 from date of hire.
CHANGE OF CONTROL: In the event of a Change of Control of the Company, as
defined in Attachment A, it is the intention and expectation that your remaining
unvested stock options, excluding the options or shares in EQUITY; c)
PERFORMANCE SHARES above, shall vest in full. The wording of Attachment A will
appear in the agreement you will receive after final approval of the grants.
REPLACEMENT BONUS: Within thirty days of your hire date, ROSS will pay you
$130,000 designed to offset the amount you forgo when leaving SFA.
OTHER PROVISIONS: The more complete EA anticipated by this
agreement will include provisions for arbitration of any
disputes between the parties.
Ross Technology, Inc. ACCEPTED BY:
By: /s/ FRED T. MAY /s/ JACK W. SIMPSON
---------------------- ----------------------
Fred T. May Jack W. Simpson
President, Chairman & CEO
5/14/97
Subject to the
Addendum
-3-
<PAGE> 5
ATTACHMENT A
3.1.4. In the event of a Change of Control of the Company (as defined
below) or the sale of all or substantially all of the Company's assets, this
Option shall vest in full immediately, notwithstanding the foregoing provisions
of this Section 3. A "Change of Control of the Company" will be deemed to have
occurred if (a) there has been a change in the identity of more than one half of
members the Board of Directors over any six-month period (excluding any changes
in Board members which are the result of one or more redesignations by Fujitsu
Limited, a Japanese corporation or Sun Microsystems, Inc., a Delaware
corporation, with respect to the individuals which represent them on the Board),
or (b) the Company within any twelve-month period ceases to own more than one
half of its gross assets (measured at the commencement of such period) by virtue
of one or more bulk transfers of its assets (it being understood that sales or
licensing of inventory in the normal course of the Company's business shall not
constitute a "bulk transfer" for this purpose).
<PAGE> 6
ROSS TECHNOLOGY, INC.
May 13, 1997
Jack Simpson
Dear Jack:
The following information was prepared by Ed Thompson and is to be used as an
addendum to the signed offer letter from Ross Technology Inc. that I sent to you
on May 5, 1997. Ed has included in this addendum his response to you on the
issues the two of you have discussed since May 5th.
- --------------------------------------------------------------------------------
Addendum to the offer letter to Jack W. Simpson
From Ross Technology, Inc.
Dated May 5, 1997
Here is my addendum to your addendum. I do need to clarify a few points and I
then think that we are there!
I have had some research done but, as you know, tax-based compensation elements
get very complex and will take some time (i.e., weeks) to iron out to our joint
satisfaction. I will refer you to Rob Zeitinger of Irell and Manella (310)
203-7505 who is doing the stock option work.
I will refer back to your original letter and subsequent e-mail:
1. Position - We have agreed that there is no Fujitsu guarantee.
2. Bonus - We have agreed to percentages for FY98 to be mutually
reset thereafter.
3. Equity -
(a) You now understand that the number of shares must be
authorized by the shareholders and cannot be
pre-guaranteed. (Shareholder meeting is scheduled for
August 12, 1997).
(b) I will confirm and clarify that the two 100,000 share
grants referenced in (a) and (c) of the offer letter can
be designated by you up front as either restricted or
non-qualified options and are both at $0.05 per share
with the same vesting schedule. NOTE: Our counsel
believes you are better off with restricted shares as
you can defer tax payments until vesting with a section
83b election or pay the taxes up front at presumably the
lowest spread and start the capital gains period. Again
it is your decision. In either election, ROSS takes an
expense P&L hit up front, we believe.
-1-
<PAGE> 7
(c) I committed to provide the flexibility of trading stock
for the payment of withholding taxes given it was
already in the plan and, if not, to consider the
inclusion in a modification to the plan in the future,
given the company's cash availability. I may have missed
a subtlety here in that my reference to this provision
was "not uncommon" as it relates to owned or vested
stock. I did not intend that this feature be to, in
effect, accelerate vesting of your option position. If
that was your request, I apologize for my
misunderstanding. Again, any provision is open to the
Human Resources Committee for future inclusion, but
accelerating vesting was not my intent.
(d) S-8 Registration - I reiterate my comment to provide
this feature given no excessive cost to the company. My
preliminary research ranged from "small incremental"
expense to "excessive" expense.
4. Termination Without Cause - We have agreed that the performance
shares will not be accelerated. You proposed a new consideration
that, following termination without cause, if the stock price
was $7.50 above the price on your hire date, that we continue to
fund your deferred annuity for twenty four months minimum from
your hire date. If that is the last negotiation/concession point
I will agree.
5. Insurance - We have agreed to replace the current SFA "split
dollar plan". We will provide "other flexibility" given no
substantial excess cost. We will work with the William Mercer
Company to select the most practical plan for you and ROSS.
6. Benefits - We have agreed on four weeks vacation in 1997.
According to our benefits manager, if there is a pre-existing
medical condition, there is an option that will provide
coverage.
7. Change of Control - We agreed to study your request and
recommend approval of changes to the plan if deemed reasonable.
The above would include terms as well as provisions and must be
approved by the shareholders. I might add that I have
subsequently been made aware of "golden parachute" issues that
adversely affect you and the company during a change of control
and fully protecting you (e.g., tax gross up) would not be
deemed reasonable, in my view.
8. Other -
(a) Agreed that you won't be transferred without your
consent.
(b) D&O and indemnity will be provided.
(c) Annuity Funding - Agreed to double fund the first
quarterly payment.
(d) No Fujitsu guarantee.
(e) Death Benefit Vesting - If it is already in the plan,
fine. If not the provision will be considered later.
-2-
<PAGE> 8
Please sign the offer letter and this letter and we will have a binding
agreement. I look forward to seeing you on May 27th.
Please note that the offer is extended to be valid through May 16, 1997, and the
start date is May 27, 1997.
Ross Technology, Inc. Accepted By:
By: /s/ Fred T. May /s/ Jack W. Simpson
----------------------- ---------------------
FRED T. MAY JACK W. SIMPSON
President, Chairman & CEO
5/14/97
-3-
<PAGE> 1
EXHIBIT 10.42
THE DAI-ICHI KANGYO BANK, LIMITED
New York Branch
One World Trade Center, 48th Floor
New York, NY 10048
April 24, 1997
Ross Technology, Inc.
5316 Highway 290 West, Suite 500
Austin, Texas 78735
Gentlemen:
This Amended and Restated Loan Agreement (the "Loan Agreement") is
dated April 24, 1997 (the "Execution Date") and made effective as of the 21st
day of February, 1997 (the "Effective Date") by and between ROSS Technology,
Inc., a Delaware corporation ("ROSS"), and THE DAI-ICHI KANGYO BANK, Ltd., NEW
YORK BRANCH, and its successors and assigns (the "Bank"). This Loan Agreement is
the First Amendment and Restatement of that certain Letter Loan Agreement made
as of the 15th day of November 1996 between ROSS and the Bank (the "Original
Loan Agreement"). This Loan Agreement is made as an Amendment, Restatement,
Substitution and full replacement of the original Loan Agreement. From and after
the date hereof, this Loan Agreement shall evidence all of the indebtedness
evidenced by the original Loan Agreement and the original Loan Agreement shall
be cancelled and of no further force. ROSS and the Bank hereby agree as follows:
1. ADVANCES.
a. Revolving Facility A
(i) Upon the terms and conditions and relying upon the
representations and warranties herein set forth, the Bank agrees to make
multiple advances (each an "Advance") to ROSS in a maximum aggregate amount of
U.S. $25,000,000.00 (the "Facility A Commitment"), with effect from November 15,
1996. Within the limits of the Facility A Commitment and subject to the terms
and conditions contained herein, ROSS may borrow, repay and reborrow until the
Maturity Date (as hereafter defined).
(ii) Upon the terms and conditions and relying upon the
representations and warranties herein set forth, the Bank agrees to make
multiple advances (each an "Advance") to ROSS in a maximum aggregate amount of
U.S. $25,000,000.00 (the "Facility B Commitment"), with effect from February 21,
1997. Within the limits of the Facility B Commitment and subject to the terms
and conditions contained herein. ROSS may borrow and reborrow until the Maturity
Date (as hereinafter defined).
<PAGE> 2
(iii) Subject to the terms and conditions of this Loan
Agreement, the aggregate principal sum which ROSS shall be entitled to borrow
and which the Bank is committed to advance hereunder is US $50,000,000.
b. Note.
Each Advance made pursuant to the Facility
A Commitment and the Facility B Commitment shall be evidenced by a separate
promissory note (each a "Note", collectively, the "Notes"), which shall be (i)
dated the date of the Advance; (ii) in the principal amount of the Advance;
(iii) in substantially the form attached to this Loan Agreement as Exhibit A,
with the blanks appropriately filled; (iv) payable to the order of the Bank in
one (1) installment of principal in the amount of the Advance on a date no later
than June 30, 1997 (the "Maturity Date") and (v) subject to acceleration upon
the occurrence of an Event of Default (as hereinafter defined). Each Note shall
bear interest on the unpaid principal amount thereof from time to time
outstanding, payable on the date indicated in the Note (but in any event no
later than the Maturity Date), at a rate per annum (calculated based on a year
of 360 days) which shall be equal to the lesser of (i) the Bank's Quoted Rate or
(ii) the highest lawful rate of interest permitted under applicable law. For
purposes of this Loan Agreement, the Bank's Quoted Rate means, as of the
particular day on which an inquiry is made by ROSS, the rate quoted to ROSS by a
responsible officer of the Bank in New York, New York for such Advance, in
accordance with the borrowing procedure set forth in paragraph 1.c. below.
c. Borrowing Procedure and Funding.
(1) At any time before the Maturity Date,
ROSS may request an Advance under the Facility A Commitment or the Facility B
Commitment using the following borrowing procedure:
(a) ROSS shall telephone the Bank in New York and
ask a responsible officer of the Bank to provide the Bank's Quoted Rate for the
proposed Advance. ROSS shall indicate at the time of such request the amount,
the term, the borrowing date (which must be a Business Day) and whether such
proposed Advance is to be made under the Facility A Commitment or the Facility B
Commitment. To be considered, such request must be made on or before 11:00 a.m.
(New York time) on the proposed borrowing date. For the purposes of this Loan
Agreement a "Business Day" shall mean any day on which the Bank is open for
business in New York, New York.
(b) If ROSS accepts the Bank's Quoted Rate for
such Advance, ROSS shall complete a Note with the Bank's Quoted Rate, the amount
of the Advance and the due date of the Advance, and shall (x) send by telecopier
to the Bank a completed copy of the Note and (y) send by courier the original of
such Note for overnight delivery to the Bank in New York. The sending of the
Note by telecopier shall constitute irrevocable notice by ROSS to the Bank that
it is requesting the Advance on the basis of the terms contained in such Note.
<PAGE> 3
In the event that the provisions of any Note shall conflict with the provisions
of this Loan Agreement or if any blanks in the form of note executed by ROSS
shall for any reason be left incompleted, the provisions of this Loan Agreement
(including, without limitation, Sec. 6 (c) of this Loan Agreement) shall be
controlling and resolution of any such conflict or incomplete blank shall be
made by reference to this Loan Agreement.
(2) Upon due receipt by the Bank of the telecopied form
of the Note on or before noon (New York time) on the proposed borrowing date,
properly completed with the Bank's Quoted Rate for the Advance, the amount of
the Advance and the due date of the Advance as provided above, the Bank shall
pay or deliver the proceeds of the Advance into ROSS' account with the Bank in
New York, New York. In the event of any discrepancy between the terms of the
telecopied form of the Note and the original Note as received by the Bank, the
terms in the telecopied form of the Note shall prevail. In the event the
applicable rate of interest is not completed on the Note, the Quoted Rate given
in connection with such Advance shall for all purposes be the rate of interest
for such Note. A certificate of such Quoted Rate, submitted by the Bank to ROSS,
will be conclusive as to the amount thereof.
(3) Unless an Event of Default (as hereafter defined)
has occurred and is continuing, the proceeds of the Advance in ROSS' account
with the Bank shall be available for withdrawal from the account in immediately
available funds upon receipt by the Bank of the telecopied form of the
promissory note, duly completed as aforesaid.
d. Payments and Prepayments.
(1) ROSS shall have the right at any time and from time
to time to prepay each Note, in whole or in part, provided that each partial
prepayment shall be in an aggregate principal amount of $1,000,000.00, or
multiples thereof, and if to be applied to a Note, shall be applied to the
principal installments thereof in the inverse order of their due dates.
(2) All payments and prepayments made in accordance with
the provisions of this Loan Agreement or of the Notes in respect of principal or
interest on the Notes under this Loan Agreement shall be made to the Bank at its
office in New York, New York, no later than 2:00 p.m., New York time, in
immediately available funds. All payments (whether of principal, interest,
reimbursements or otherwise) under this Agreement or on the Notes shall be made
by ROSS without set-off or counterclaim and shall be made free and clear of and
without deduction for any present or future tax, levy, impost or any other
charge, if any, of any nature whatsoever now or hereafter imposed by any taxing
authority.
(3) If any payment shall become due on a Saturday,
Sunday, or public holiday on which the Bank is not open for business, such
payment shall be made on the next preceding day on which the Bank is open for
business.
<PAGE> 4
(4) ROSS hereby authorizes the Bank, if and to the
extent payment by ROSS is not made when due hereunder, to charge from time to
time against any balance in ROSS' account maintained with the Bank any amount so
due.
(5) ROSS shall pay a default rate on any principal and
interest which is not paid when due in an amount equal to the lesser of (A) the
Bank's Prime Rate, plus two percent (2%) per annum or (B) the highest lawful
rate permitted under applicable law. For the purposes of this provision, the
"Bank's Prime Rate" shall mean the fluctuating rate of interest from time to
time quoted by the Bank in New York as its Prime Rate.
(6) After any such prepayment, ROSS may request and
subject to the other terms and conditions of this Loan Agreement and provided no
Event of Default shall have occurred and be continuing, the Bank shall permit
ROSS to provide a Substitute Note for the Note upon which such prepayment was
made, which Substitute Note shall reflect the then current principal balance,
whereupon Bank shall return the Original Note to ROSS upon written request from
ROSS. ROSS hereby agrees that the execution and delivery of such Substitute Note
in the manner hereinabove provided shall not be construed, interpreted or
asserted by ROSS to constitute a novation or accord and satisfaction of the
indebtedness evidenced by the Original Note or subject to any other legal or
equitable theory or remedy pursuant to which the entire unpaid balance of
principal and interest on the Original Note might be deemed paid or satisfied
and ROSS agrees that any such legal or equitable claim or assertion shall be
void and unenforceable ab initio.
(e) Increased Costs.
(1) If any change in any applicable law, regulation or treaty or in the
interpretation thereof by any governmental or other authority or entity charged
with the administration thereof: (A) imposes, modifies or deems applicable any
reserve, special deposit or similar requirements against assets held by, or
deposits in or for the account of, or loans by, or any other acquisition of
funds for loans by Bank; or (B) imposes on Bank any other condition regarding
this Loan Agreement or the loans to be made pursuant hereto; or (C) changes the
basis of taxation of payments due to Bank hereunder or under any of the Notes,
this Loan Agreement or any other agreement or instrument provided by ROSS,
Fujitsu or any other person in connection herewith or as security herefor
(otherwise than by a change in taxation of the overall net income of Bank); and
if, in the sole determination of Bank, the result of any of the foregoing is to
increase the cost to Bank of making or maintaining the loans to be made pursuant
hereto or to reduce the amount
<PAGE> 5
of principal or interest received by Bank, then, upon demand made by Bank to
ROSS, ROSS will pay to Bank from time to time additional amounts specified by
Bank to compensate Bank for such increased cost or reduced amount. Bank will
promptly notify ROSS of any event which will entitle Bank to claim additional
amounts pursuant to this subsection. A certificate as to the increased cost or
expense incurred by Bank as a result of any event mentioned in this subsection,
submitted by Bank to ROSS, will be conclusive as to the amount thereof except in
the case of a manifest error.
(2) In addition to the interest payable at the Default Rate, ROSS will indemnify
Bank and hold Bank harmless against any loss or expense incurred by Bank
(including, without limitation, any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by Bank to fund
or maintain the loans to be made pursuant hereto) as a result of the failure to
pay the outstanding principal amount of such loans at maturity. Bank will
certify to ROSS the amount of, and the basis of determination of, the loss or
expense so incurred (which certification will be conclusive in the absence of
arithmetical error).
(3) If, after the date hereof, any law, regulation or treaty or any change
therein or in the interpretation thereof by any authority or agency charged with
the administration thereof or by any court will make it, in the sole opinion of
Bank, unlawful for Bank to maintain the loans to be made pursuant hereto or to
give effect to its obligations as contemplated hereby, Bank will so notify ROSS,
and the aggregate outstanding principal amount of such loans, together with the
interest accrued thereon and any other amounts payable to Bank under the Notes,
this Loan Agreement or any other agreement or instrument provided by ROSS,
Fujitsu or any other person in connection herewith or as security herefor will
be paid or prepaid as provided in such notice.
(4) ROSS shall indemnify the Bank against and hold the Bank harmless from any
funding loss or breakage costs with respect to (a) ROSS' payment of principal of
loans on a
<PAGE> 6
day other than the last day of the applicable period for which the Quoted Rate
was given; (b) ROSS' failure to borrow the proceeds of any Advance requested by
ROSS on the date specified by ROSS; (c) ROSS' failure to make any prepayment on
the date specified by ROSS; or (d) any cessation of the Eurodollar interbank
rate relied upon by Bank in issuing the Quoted Rate to apply to any Advance or
any part thereof pursuant to Sections 1(e)(1), (2) and (3) hereof, in each case
whether voluntary or involuntary, any loss, expense, penalty, premium or
liability incurred by Bank (including but not limited to any loss or expense
incurred by reason of the liquidation or reemployment of deposits or other
funds acquired by Bank to fund or maintain a loan). This agreement shall survive
the payment of the Notes. A certificate as to any additional amounts payable
pursuant to this subsection as a result of any event mentioned in this
subsection, submitted by Bank to ROSS, will be conclusive as to the amount
thereof except in the case of a manifest error.
2. CONDITIONS
a. Advances. The obligation of the Bank to make additional
Advances under the Facility A Commitment and the Facility B Commitment is
subject to the following conditions: (1) The representations and warranties
contained in this Loan Agreement shall be true and correct; (2) no Event of
Default, or event which with the passage of time would constitute an Event of
Default, shall have occurred and be continuing; (3) the Bank shall have received
a Note duly executed by ROSS in connection with each Advance under the Facility
A Commitment and the Facility B Commitment; (4) the Bank shall have received in
connection with the Facility A Commitment a Letter of Guaranty (the "Facility A
Guaranty") of Fujitsu Limited, a Japanese limited liability company ("Fujitsu")
in form acceptable to the Bank; (5) the Bank shall have received in connection
with the Facility B Commitment a Letter of Guaranty (the "Facility B Guaranty")
of Fujitsu in form acceptable to Bank; (6) the Bank shall have received from
Fujitsu a letter of Ratification and Acknowledgment pursuant to which Fujitsu
ratifies and acknowledges its obligations under the Facility A Guaranty and the
Facility B Guaranty and that its guaranty of such facilities is in the aggregate
amount of U.S. $50,000,000.00; (7) the Bank shall have received a Certificate of
Corporation Resolutions of ROSS in form acceptable to Bank; and (8) the Bank
shall have received such other documents and certificates relating to the
transactions herein contemplated as the Bank may request. In addition, all legal
matters incident to the transactions herein contemplated shall be satisfactory
to counsel for the Bank. As of the Execution Date, the aggregate amount of
Advances under the Facility A Commitment and the Facility B Commitment is US
$43,500,000.00.
<PAGE> 7
b. Subsequent Advances. The obligation of the Bank to make
subsequent Advances hereunder is subject to the following conditions: (1) The
representations and warranties contained in this Loan Agreement shall be true
and correct; (2) no Event of Default, or event which with the passage of time
would constitute an Event of Default, shall have occurred and be continuing; (3)
the Facility A Guaranty and the Facility B Guaranty shall each remain in effect;
and (4) the Bank shall have received such other documents and certificates
relating to the transactions herein contemplated as the Bank may request.
3. REPRESENTATIONS AND WARRANTIES.
a. Representations and Warranties of ROSS.
ROSS represents and warrants the following: (1) ROSS is
a corporation duly incorporated, validly existing, and in good standing under
the laws of the State of Delaware and has the corporate power to own its
properties and to carry on its business as now conducted; (2) ROSS has the
corporate power and authority to make, execute, deliver and carry out the
transactions contemplated in this Loan Agreement and to perform its obligations
hereunder and all such action has been duly authorized by all necessary
corporate proceedings on its part; (3) the Loan Agreement and the Notes have
been duly and validly executed and delivered by ROSS and constitute valid and
legally binding agreements of ROSS; (4) all financial information furnished by
ROSS to the Bank is true and correct and has been prepared in conformity with
generally accepted accounting principles consistently applied in the United
States throughout the period involved and fully and accurately reflects the
financial condition of ROSS and the results of its operations as at the dates
and for the periods indicated and as of the date of this Loan Agreement; (5)
there is no action or proceeding pending or, to the knowledge of ROSS,
threatened against ROSS or before any court, administrative agency or arbitrator
which is reasonably likely to have a material adverse effect on ROSS or its
business, and there is no outstanding judgment, order or decree affecting ROSS
before or by any administrative or governmental authority; (6) ROSS is not in
default under or in violation of the provisions of any instrument evidencing any
debt or of any agreement relating thereto or any judgment, order, writ,
injunction or decree of any court or any order, regulation or demand of any
administrative or governmental instrumentality which default or violation is
reasonably likely to have a material adverse effect on ROSS or its business; and
(7) neither the consummation of the transactions contemplated nor fulfillment of
and compliance with the respective terms, conditions and provisions of any
material agreement to which ROSS is a party will conflict with or result in a
breach of any of the terms, conditions or provisions of, or constitute a default
under, or result in any violation of the registered charter or bylaws of ROSS,
any law or any regulation of any administrative or governmental instrumentality,
any order, writ, injunction or decree of any court, or the terms, conditions or
provisions of any agreement or instrument to which ROSS is a party or by which
it is bound or to which it is subject.
<PAGE> 8
b. Survival of Representations and Warranties.
All representations and warranties made by ROSS under
this Loan Agreement shall survive the delivery of the Notes to the Bank and the
making of the Advances hereunder, and no investigation at any time made by or on
behalf of the Bank shall diminish the Bank's rights to rely thereon. All
statements contained in any certificate or other written instrument delivered by
ROSS or by any person authorized by ROSS under or pursuant to this Loan
Agreement or in connection with the transactions contemplated hereby shall
constitute representations and warranties hereunder as of the time made by ROSS.
4. COVENANTS. ROSS covenants and agrees that until payment in full
of the Notes and the other liabilities of ROSS hereunder, ROSS will:
(a) as soon as available, and in any event on or before the
45th day after the close of each of the first three quarterly periods of each
fiscal year of ROSS, deliver to the Bank the unaudited consolidated and
consolidating financial statement of ROSS and its subsidiaries as at the close
of such quarterly period and from the beginning of such fiscal year to the end
of such period, such financial statement to be certified by a responsible
officer of ROSS as having been prepared in accordance with generally accepted
accounting principals consistently applied and as a fair presentation of the
condition of ROSS and its subsidiaries, and a compliance certificate stating
that there exists no Event of Default or if any such Event of Default exists,
stating that the nature thereof, the period of existence thereof and what action
ROSS has taken or proposes to take with respect thereto.
(b) as soon as available, and in any event on or before the
120th day after the close of each fiscal year of ROSS, deliver to the Bank the
annual audited consolidated and consolidating financial statements of ROSS and
its subsidiaries, such financial statement to be certified by a responsible
officer of ROSS as having been prepared in accordance with generally accepted
accounting principals consistently applied and as a fair presentation of the
condition of ROSS and its subsidiaries and a compliance certificate stating that
there exists no Event of Default or if any such Event of Default exists stating
the nature thereof, the period of existence thereof and what action ROSS has
taken or proposes to take with respect thereto.
(c) promptly, and in any case within 10 days, after any
officer of ROSS obtains knowledge of an Event of Default, deliver to the Bank an
officer's certificate specifying the nature of such Event of Default, the period
of existence thereof, and what action ROSS has taken and proposes to take with
respect thereto.
(d) deliver to the Bank such additional financial or other
information as the Bank may reasonably request from time to time.
(e) permit the Bank to have access to its books of record and
account;
<PAGE> 9
(f) maintain insurance with financially sound, responsible and
reputable companies in such types and amounts and against such casualties, risks
and contingencies as is customarily carried by owners of similar businesses and
properties;
(g) maintain its corporate existence, comply with all statutes
and governmental regulations and pay all taxes, assessments, governmental
charges, claims for labor, supplies, rent and other obligations which if unpaid
might become a lien against the property of ROSS except liabilities being
contested in good faith;
(h) whenever and as often as the Bank may reasonably request,
promptly execute and deliver all such further instruments and do such other acts
as the Bank may reasonably request to carry out more effectually the purposes
and intent of this Loan Agreement; and
(i) furnish to the Bank, within five business days after any
material report (other than financial statements) or other communication is sent
by ROSS to its stockholders or filed by ROSS with the Securities and Exchange
Commission or any successor or analogous governmental authority, copies of such
report or communication and, promptly upon the request of the Bank, such
additional financial or other information concerning the assets, liabilities,
operations, and transactions of ROSS as the Bank may from time to time
reasonably request; and
(j) furnish to the Bank written notice of the occurrence of
any Event of Default and the occurrence of any cure of such Event of Default, if
applicable
The Bank acknowledges that ROSS' financial statements heretofore delivered to
the Bank have been prepared on the basis of ROSS being a subsidiary of Fujitsu
and not as a stand-alone company and that, accordingly, certain information
necessary for the financial statements of a stand-alone company have not been
and except as provided below will not be included in ROSS' financial statements
and to that extent ROSS' financial statements will not be prepared in accordance
with generally accepted accounting principles. At such time as any change occurs
which renders the foregoing qualification inapplicable, such financial
statements shall be delivered in the manner otherwise required herein.
5. EVENTS OF DEFAULT; REMEDIES.
a. Events of Default; Remedies.
If any of the following events shall occur and be
continuing (each of which shall constitute an "Event of Default" under this Loan
Agreement):
<PAGE> 10
(1) ROSS does not pay, repay or prepay any principal of
or interest on any Note when due;
(2) ROSS does not pay any other obligation or amount
payable under this Loan Agreement or any Note when due;
(3) ROSS does not pay principal or interest on any other
debt when due, or the holder of such other debt declares, or may declare, such
debt due prior to its stated maturity because of ROSS' default thereunder;
(4) any representation or warranty made by ROSS herein
or otherwise furnished to the Bank in connection with this Loan Agreement shall
be incorrect, false or misleading in any material respect when made;
(5) ROSS fails to deliver an original Note to the Bank
in accordance with paragraph 1(c) of this Loan Agreement within ten (10) days
following receipt by the Bank of the telecopied form of such Note, or the
original note contains any material variation from the telecopied form of such
Note;
(6) ROSS violates any covenant, agreement or condition
contained in herein and such violation shall not have been remedied within
thirty (30) days after written notice has been received by ROSS from the Bank or
the holder of a Note;
(7) ROSS (i) makes an assignment for the benefit of
creditors; (ii) admits in writing its inability to pay its debts generally as
they become due; (iii) generally fails to pay its debts as they become due; (iv)
files a petition or answer seeking for itself, or consenting to or acquiescing
in, any reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any applicable law; (v) there is appointed
a receiver, custodian, liquidator, fiscal agent, or trustee of ROSS or of the
whole or any substantial part of its assets; or (vi) any court enters an order,
judgment or decree approving a petition filed against ROSS seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any applicable law and either such order,
decree or judgment so filed against it is not dismissed or stayed (unless and
until such stay is no longer in effect) within thirty (30) days of entry thereof
or an order for relief is entered pursuant to any such law;
(8) any order is entered in any proceeding against ROSS
decreeing the dissolution, liquidation, winding-up or split-up of ROSS, and such
order remains in effect for thirty (30) days;
(9) ROSS or any other person claims, or any court finds
or rules, that the Bank does not have a valid claim against Fujitsu under the
Facility A Guaranty or the Facility B Guaranty; or
<PAGE> 11
(10) Fujitsu violates any covenant, agreement or
condition contained in the Facility A Guaranty or the Facility B Guaranty.
THEN, the Bank may declare each Note and all interest accrued and unpaid
thereon, and all other amounts payable under the Notes and this Loan Agreement,
to be forthwith due and payable, whereupon the Notes, all such interest and all
such other amounts, shall become and be forthwith due and payable without
presentment, demand, protest, or further notice of any kind (including, without
limitation, notice of default, notice of intent to accelerate and notice of
acceleration), all of which are hereby expressly waived by ROSS; provided,
however, that with respect to any Event of Default described in subparagraphs
(6), (7) or (8) above, the entire unpaid principal amount of the Notes, all
interest accrued and unpaid thereon, and all such other amounts payable under
the Notes and this Loan Agreement, shall automatically become immediately due
and payable, without presentment, demand, protest, or any notice of any kind
(including, without limitation, notice of default, notice of intent to
accelerate and notice of acceleration), all of which are hereby expressly waived
by ROSS.
b. Other Remedies.
In addition to and cumulative of any rights or remedies
expressly provided for in this Loan Agreement, if any one or more Events of
Default shall have occurred, the Bank may proceed to protect and enforce its
rights hereunder by any appropriate proceedings. The Bank may also proceed
either by the specific performance of any covenant or agreement contained in
this Loan Agreement, the Notes, the Facility A Guaranty or the Facility B
Guaranty, or by enforcing the payment of the Notes or by enforcing any other
legal or equitable right provided under this Loan Agreement or such other
documents or otherwise existing under any law in favor of the holder of the
Notes. The Bank shall not, however, be under any obligation to marshall any
assets in favor of ROSS or any other person.
c. Cumulative Rights.
No remedy, right or power conferred upon the Bank is
intended to be exclusive of any other remedy, right or power given hereunder or
now or hereafter existing at law, in equity, or otherwise, and all such
remedies, rights and powers shall be cumulative.
6. OTHER PROVISIONS.
a. No Waiver, Modifications, Conflicts.
No failure or delay on the part of the Bank in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or
<PAGE> 12
power. No course of dealing between ROSS and the Bank shall operate as a waiver
of any right of the Bank. No modification or waiver of any provision of this
Loan Agreement, any Note or the Facility A Guaranty or the Facility B Guaranty
nor consent to any departure by ROSS therefrom shall in any event be effective
unless the same shall be in writing, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on ROSS in any case shall entitle ROSS to any other or
further notice or demand in similar or other circumstances. Notwithstanding
anything to the contrary contained herein or in a Note, in the event that the
provisions of any Note shall conflict with the provisions of this Loan Agreement
or if any blanks in the form of note executed by ROSS shall for any reason be
left incompleted, the provisions of this Loan Agreement (including, without
limitation, 6(c) of this Loan Agreement) shall be controlling and resolution of
any such conflict or incomplete blank shall be made by reference to this Loan
Agreement.
b. Notices.
All notices and other communications provided for herein
shall be in writing (including telex, facsimile, or cable communication) and
shall be mailed, telecopied, telexed, cabled or delivered addressed to a party
at the address set forth on the first page of this Loan Agreement, or to such
other address as shall be designated by such party in a written notice to the
other party. All such notices and communications shall, when mailed, telecopied,
telexed, transmitted, or cabled, become effective when deposited in the mail,
confirmed by telex answerback, transmitted to the telecopier, or delivered to
the cable company, except that notices and communications to the Bank shall not
be effective until actually received by the Bank.
c. Reimbursement of Expenses.
Any provision hereof to the contrary notwithstanding,
ROSS agrees to reimburse the Bank for its reasonable out-of-pocket expenses,
including the reasonable fees and expenses of counsel to the Bank, in connection
with transactions contemplated by this Loan Agreement, including its preparation
and its enforcement. ROSS agrees to pay any and all stamp and other taxes
related to this Loan Agreement and the transactions contemplated hereby, and to
save the Bank harmless from any and all liabilities with respect to or resulting
from any delay or omission to pay any such taxes which may be payable or
determined to be payable in connection with the execution and delivery of this
Loan Agreement or any of the Notes. The obligations of ROSS under this paragraph
shall survive the termination of this Loan Agreement and the payment of the
Notes.
d. Set-Off.
If one or more Events of Default shall occur and be
continuing, the Bank shall have the right, in addition to all other rights and
remedies available to it, to set off against the unpaid balance of any Note any
debt owing to ROSS by the Bank, including, without limitation, any funds in any
deposit account, whether general or special in nature, maintained
<PAGE> 13
by ROSS with the Bank, and nothing in this Loan Agreement shall be deemed a
waiver or prohibition of the Bank's right of banker's lien or set-off.
e. Indemnification.
ROSS agrees to indemnify, defend, and save harmless the
Bank and its officers, directors, employees, agents, and attorneys, and each of
them (the "Indemnified Parties"), from and against all claims, actions, suits,
and other legal proceedings, damages, costs, interest, charges, taxes (other
than income taxes of the Bank), counsel fees, and other expenses and penalties
which any of the Indemnified Parties may sustain or incur by reason of or
arising out of (i) the making of the Advances hereunder, the execution and
delivery of this Loan Agreement and the Notes and the consummation of the
transactions contemplated thereby and the exercise of any of the Bank's rights
under this Loan Agreement and any Note; provided, that no Indemnified Party
shall be entitled to the benefits of this paragraph to the extent its own gross
negligence or willful misconduct contributed to its loss; and provided, further,
that it is the intention of ROSS to indemnify the Indemnified Parties against
the consequences of their own negligence. This Loan Agreement is intended to
protect and indemnify the Indemnified Parties against all risks hereby assumed
by ROSS. The obligations of ROSS under this paragraph shall be notwithstanding
any other provision of this Loan Agreement to the contrary and shall survive the
repayment of the Notes and any termination of this Loan Agreement.
f. Interest.
All agreements between ROSS and the Bank, whether now
existing or hereafter arising and whether written or oral, are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
demand being made on any Note or otherwise, shall the amount paid, or agreed to
be paid, to the Bank for the use, forbearance, or detention of the money to be
loaned under this Loan Agreement or otherwise or for the payment or performance
of any covenant or obligation contained herein or in the Notes exceed the
highest lawful rate permitted under applicable law. If, as a result of any
circumstances whatsoever, fulfillment of any provision hereof or of any of such
documents, at the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by applicable usury law, then,
ipso facto, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if, from any such circumstance, the Bank shall ever receive
interest or anything which might be deemed interest under applicable law which
would exceed the highest lawful rate of interest permitted under applicable law,
such amount which would be excessive interest shall be applied to the reduction
of the principal amount owing on account of the Notes or the amounts owing on
other obligations of ROSS to the Bank under any Loan Document and not to the
payment of interest, or if such excessive interest exceeds the unpaid principal
balance of the Notes and the amounts owing on other obligations of ROSS to the
Bank under any Loan Document, as the case may be, such excess shall be refunded
to ROSS. All sums paid or agreed to be paid to the Bank for the use,
forbearance, or detention of the indebtedness of ROSS to the Bank shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
<PAGE> 14
spread throughout the full term of such indebtedness until payment in full of
the principal thereof (including the period of any renewal or extension thereof)
so that the interest on account of such indebtedness shall not exceed the
highest lawful rate of interest permitted under applicable law. The terms and
provisions of this paragraph shall control and supersede every other provision
of all agreements between ROSS and the Bank.
g. Governing Law; Jurisdiction; Process Agent.
THIS LOAN AGREEMENT AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE UNITED STATES OF
AMERICA. ROSS HEREBY EXPRESSLY SUBMITS TO THE COMPETENT JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES DISTRICT COURTS LOCATED
IN NEW YORK, NEW YORK, AS THE BANK MAY ELECT. ROSS IRREVOCABLY CONSENTS TO THE
SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING
OF COPIES OF SUCH PROCESS TO ROSS AT ITS ADDRESS SET FORTH IN THIS AGREEMENT.
ROSS AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. ROSS FURTHER WAIVES ANY OBJECTION TO VENUE
IN SUCH STATE AND ANY OBJECTION TO ANY ACTION OR PROCEEDING IN SUCH STATE ON THE
BASIS OF FORUM NON CONVENIENS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BANK
TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT
TO THE BANK TO BRING ANY ACTION OR PROCEEDING AGAINST ROSS OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTIONS.
h. Counterparts.
This Agreement may be executed in several counterparts,
and by the parties hereto on separate counterparts, and each counterpart, when
so executed and delivered, shall constitute an original instrument, and all such
separate counterparts shall constitute but one and the same instrument.
i. Final Agreement.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
<PAGE> 15
Please sign both originals of this letter indicating your agreement
and return one original to us.
Very truly yours,
THE DAI-ICHI KANGYO BANK, LIMITED,
NEW YORK BRANCH
By: /s/ SHIGETO YANASE
Name: Shigeto Yanase
Title: Senior Vice President
AGREED AND ACKNOWLEDGED:
ROSS TECHNOLOGY, INC.
By: /s/ CARTER GODWIN
Name: Carter Godwin
Title: Chief Accounting Officer
<PAGE> 16
Exhibit "A"
New York, New York, February 21, 1997
........................... after date for value received, the undersigned
promises to pay to the order of THE DAI-ICHI KANGYO BANK, LIMITED, NEW YORK
BRANCH, One World Trade Center, Suite 4911, New York, New York 10048
25,000,000.00 Dollars in current funds of the United States of America, with
interest from the date hereof at the rate of per cent per annum.
The makers, endorsers and guarantors of this note hereby waive presentment
for payment, demand, notice of non-payment and dishonor, protest, and notice of
protest, waive trial by jury in any action or proceeding arising on, out of,
under or by reason of this note; consent to any renewals, extensions and partial
pre-payments of this note, or the indebtedness for which it is given, without
notice to them and consent that no such renewals, extensions or partial payments
shall discharge any party hereto from liability herein in whole or in part.
In the event of happening of any one or more of the following, to-wit: (a)
the non-payment of any of the Obligations; (b) the death, failure in business,
dissolution or termination of existence of the undersigned; (c) any petition in
bankruptcy, or under any Acts of Congress relating to the relief of debtors,
being commenced for the relief or readjustment of any indebtedness of the
undersigned or any endorser or guarantor of this note, either through
reorganization, composition, extension, or otherwise; (d) the making by the
undersigned or any endorser or guarantor of this note of an assignment for the
benefit of creditors or the taking advantage by any of the same of any
insolvency law; (e) the appointment of a receiver of any property of the
undersigned or any endorser or guarantor of this note; (f) the attachment or
distraint of any funds or other property of the undersigned which may be in, or
come into, the possession of or control of the Bank, or of any third party
acting for the Bank, or of the same becoming subject at any time to any
mandatory order of court or other legal process; (g) any government authority or
any court at the insistence of any government authority shall take possession of
any substantial part of the property of the undersigned or shall assume control
over the affairs or operations of the undersigned or a receiver shall be
appointed or if a writ or order of attachment or garnishment, or order of
execution shall be issued or made against any of the property or assets of the
undersigned or any endorser or guarantor of this note then, or at any time
after the happening of any such event, this note and/or any material or other
Obligations which may be taken in renewal or extension of all or any part of the
indebtedness evidenced thereby, shall become due and payable at the option of
the holder, without demand or notice, and, likewise upon the happening of any
such event or at any time thereafter, any or all other Obligations then existing
shall, at the option of the Bank, become due and payable forthwith, without
demand upon or notice to the undersigned. If this note be not paid when due and
if it be placed with an attorney for collection, the makers, endorsers and
guarantors agree to pay all costs of collection, including an attorney's fee of
15% of the amount of this note, which is hereby agreed to be just and reasonable
and which shall be added to the amount under this note
<PAGE> 17
and recoverable with the amount due under this note. The undersigned further
agrees that this note shall be deemed to have been made under and shall be
governed by the laws of the State of New York in all respects, including matters
of construction, validity and performance, and that none of its terms or
provisions may be waived, altered, modified or amended, except if the Bank may
consent thereto in writing duly signed for and on its behalf. The undersigned,
if more than one, shall be jointly and severally liable hereunder.
PAYABLE AT ROSS TECHNOLOGY, INC.
Due on 6-30-97 By: /s/ CARTER L. GODWIN
Name: Carter L. Godwin
Title: Chief Accounting Officer
<PAGE> 1
EXHIBIT 10.43
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH HAVE BEEN
REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY
ROSS TECHNOLOGY, INC. AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT.
DEVELOPMENT AGREEMENT
This Development Agreement (the "Agreement"), effective as of March 31,
1997, (the "Effective Date"), is entered into by and between FUJITSU LIMITED, a
Japanese corporation, with its registered office at 1-1 Kamikodanaka 4-chome,
Nakahara-ku, Kawasaki-shi, Kanagawa-ken, 211-88 Japan ("Fujitsu"), and ROSS
TECHNOLOGY, INC., a Delaware corporation with its principal office at 5316
Highway 290W, Suite 500, Austin, Texas 78735-8930 U.S.A. ("Ross").
RECITALS
WHEREAS, Ross is a designer and developer of microprocessor technology,
including the Colorado 4 hyperSPARC superscalar microprocessor architecture (the
"Colorado 4 Architecture");
WHEREAS, Fujitsu desires to manufacture and sell an embedded
microcontroller based upon the Colorado 4 Architecture;
WHEREAS, Ross has agreed to develop and deliver and license to Fujitsu,
along with certain related technology, a microprocessor core based upon the
Colorado 4 Architecture for use as an embedded microcontroller;
NOW THEREFORE, in consideration of the foregoing and on the terms and
conditions set forth herein, the parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS
"Additional Specifications" shall have the meaning given such term in
Section 5.1.
"Affiliate" means a business entity in which either party owns or controls
more than fifty (50%) of the voting equity.
"Aggregate Net Sales" as to a Fujitsu Product, means (1) with respect to
any sale or other distribution by the Electronics Devices Group (EDG) to another
division of Fujitsu or by Fujitsu to an Affiliate of Fujitsu, the amount
received by the EDG or Fujitsu, as applicable, accounted for as if such sale or
distribution was made to an unrelated third party on an arms-length basis for
fair market value, or (2) with respect to any sale or other distribution by
Fujitsu to a third party, the actual amount received by Fujitsu less (a) one
percent (1%) (representing the allocated cost for freight, handling, service,
insurance and other delivery charges for the Fujitsu Product), (b) sales, use,
excise, value added and other taxes applicable to the sale or other distribution
(other than taxes on Fujitsu's net income), and (c) amounts actually paid or
credited by Fujitsu for returns and exchanges and similar items.
"Confidential Information," with respect to a party, means technical,
business, marketing, planning and other information, ideas, materials or subject
matter of such party, whether disclosed orally, in writing, in magnetic,
photographic or other tangible form or otherwise, and whether disclosed by such
party or a third party, and designated (at the time of disclosure or, if
disclosed orally, within 30 days thereafter) as confidential or proprietary,
<PAGE> 2
including any information designated as "Confidential Information" pursuant to
the Non Disclosure Agreement. "Confidential Information" also includes, with
respect to both parties, the terms and conditions of this Agreement and the
Specifications and Deliverables. "Confidential Information" does not include
information, ideas, materials or other subject matter that (i) is or becomes
generally known or available by publication, through commercial use or otherwise
through no fault of the receiving party; (ii) was known by the receiving party
before receipt from the disclosing party; (iii) is independently developed by
the receiving party without use of or access to the disclosing party's
Confidential Information; (iv) is lawfully obtained from a third party that has
the right to make such disclosure; or (v) is required to be disclosed by a
judicial order or decree of governmental law or regulation, provided that the
receiving party promptly notifies the disclosing party of such requirement and
reasonable opportunity is allowed by the receiving party for the disclosing
party to file for or obtain a protective order or otherwise proceed to protect
under applicable law the interests of the disclosing party. Without limitation
of the generality of, and notwithstanding, the foregoing, "Confidential
Information" includes information related to product and marketing plans,
designs, costs, business opportunities, personnel, research and development and
knowhow of a party or any subsidiary, affiliate, customer or supplier of such
party.
"Deliverables" means the deliverables described in Exhibit B and other
information, materials and subject matter that may be disclosed or provided by
Ross to Fujitsu in furtherance of this Agreement, provided that, with respect to
documentation, only the documents expressly referred to in Exhibit B shall be
considered a "Deliverable" for the purposes of Section 6.
"Derivative Work" means any modification, correction, addition, extension,
upgrade, improvement or other form in which any Product, or any idea, concept,
technique, invention, creation, work, process, design or method embodied
therein, may be recast, transformed or adapted, including, but not limited to,
all works that, if made, used, sold, reproduced, distributed, modified or
disclosed by a person other than Ross, would infringe or misappropriate any
Intellectual Property Rights in any Product.
"Engineering Change Request" or "ECR" means a request by Fujitsu to add or
modify a functional, electrical or physical aspect of the Ross Microprocessor
Core, Test Vehicle or System Development Board, other than due to an Error.
"ES Silicon" means the initial engineering sample silicon chips, and any
additional silicon turns delivered Fujitsu in accordance with Section 6.2.
"Error" means (i) a defect in a Product that causes it not to conform to
the Specifications; or (ii) an error or deficiency in a documentation
Deliverable that renders it materially inaccurate, materially erroneous,
materially unreliable or not in material conformance with the Specifications.
"Existing Core" means the schematics, functional model (M language) and
GDS-II physical database for Ross's existing CS-60 Colorado 4 microprocessor
core without floating point unit (FPU) and the documents relating thereto,
including user manuals.
"Features" means a power management feature and a debugging feature, both
as developed by or on behalf of Ross in accordance with the Additional
Specifications.
-2-
<PAGE> 3
"Fujitsu Derivative" means any material enhancement, material extension or
material modification to the Product made by Fujitsu including, by way of
example, by the addition of new instruction sets, a change to cell libraries
resulting from a change in the number of metal layers or technology conversion
involving a re-layout of the core, but excluding a modification of the cache
configuration.
"Fujitsu Derivative Products" means any microprocessors sold or otherwise
transferred by or on behalf of Fujitsu or a Fujitsu sublicensee that incorporate
a Fujitsu Derivative.
"Fujitsu Products" means any microprocessors sold or otherwise transferred
by or on behalf of Fujitsu or a Fujitsu sublicensee that incorporate the Ross
Microprocessor Core, including any derivatives of the Ross Microprocessor Core
unless such derivatives constitute Fujitsu Derivatives.
"Inventions" means all ideas, inventions or technology arising out of, or
as a result of work done under this Agreement.
"Intellectual Property Rights" means all intellectual property, industrial
property and other intangible rights arising under the laws of any country,
including without limitation all rights with respect to (i) patents and patent
applications and similar rights (including utility patent, design patent and
utility model rights and applications therefor), (ii) copyrights (including any
renewals and extensions thereof), databases and mask works, and any
applications, registrations and other rights with respect thereto, (iii) trade
secrets, confidential information, and technology, and (iv) trademarks, service
marks and tradenames (including goodwill).
"Internal Die Area" means the area inside the I/O ring of a die upon which
the Ross Microprocessor Core has been laid.
"Letter Agreement" means the letter agreement, dated February 12, 1997,
between Fujitsu and Ross.
"Manufacturing Test Vector Suite" means a test vector suite, together with
any available collateral materials, developed in accordance with the
Specifications, that can be used by Fujitsu to test Fujitsu Products during
manufacturing.
"Non Disclosure Agreement" means the non-disclosure agreement, dated July
1, 1993, between Fujitsu and Ross.
"Product" means the Ross Microprocessor Core and all Deliverables.
"Ross Israel" means Ross Semiconductors (Israel) Limited, a wholly-owned
subsidiary of Ross.
"Ross Microprocessor Core" means the microprocessor core based upon the
Existing Core and incorporating the Features, developed in accordance with the
Specifications, including all functional models, prototypes, work in progress,
documentation and other materials related thereto.
"Schedule" means the timetable for services and delivery set forth in
Exhibit A.
-3-
<PAGE> 4
"Services" means the services to be performed hereunder including, without
limitation, the development of the Ross Microprocessor Core and the delivery of
the Deliverables.
"Specifications" means the specifications, including those as to
functionality, performance and interoperability for the Services and Product and
the design of the Ross Microprocessor Core, including (i) the specifications set
forth and the documents referenced in Exhibit C, as modified from time to time
in accordance with Section 5, (ii) the Additional Specifications.
"System Development Board(s)" shall mean one or more system boards
allowing the Test Vehicle to be evaluated in a system environment and to verify
software compatibility.
"Test Vehicle" means a silicon test chip, developed in accordance with the
Specifications comprising the Ross Microprocessor Core in combination with
certain external logic, packaged in a ceramic PGA unit, with each internal pin
of the Ross Microprocessor Core brought out as an external pin. The Test Vehicle
shall be designed as a stand-alone unit to be used for either hardware emulation
systems or hardware development platforms for debugging.
2. ROSS DEVELOPMENT SERVICES
2.1. Development of Ross Microprocessor Core. Ross hereby agrees to
perform the Services in accordance with the Schedule and to develop and complete
the Ross Microprocessor Core in conformance with the Specifications, in each
case on the terms and conditions set forth in this Agreement. Ross may
subcontract for the performance of the Services, to with Ross Israel and, after
receiving Fujitsu's prior written consent, with other third parties, in each
case in accordance with a written agreement incorporating the relevant material
obligations of Ross, and any restrictions on Ross, under this Agreement.
2.2. Deliveries. Pursuant to Ross' commitment under Section 2.1, Ross
hereby agrees to deliver to Fujitsu (i) the Deliverables in accordance with the
Schedule and (ii) at Fujitsu's request from time to time, copies of any work in
progress, prototypes, internal documentation and other materials related to the
Services or Product. Ross acknowledges that time is of the essence in providing
the Deliverables to Fujitsu in accordance with the Schedule. Except as provided
in Section 8.3(a)(ii), Fujitsu shall use the Deliverables relating to the
Existing Core for information and evaluation purposes only and shall not
reproduce the Existing Core or incorporate the Existing Core into any Fujitsu
Product or Fujitsu Derivative Product or any other product of Fujitsu or its
Affiliates. Fujitsu shall use the Deliverables relating to the Ross
Microprocessor Core only for the design of products and derivatives to be used
as embedded microcontrollers and in connection with Fujitsu's license rights
pursuant to Section 8.3.
2.3. Testing Materials and Documentation.
(a) Ross hereby agrees to develop and complete the Manufacturing
Test Vector Suite, Test Vehicle and the initial System Development Board in
accordance with the Schedule and in conformance with Specifications. Fujitsu may
request that Ross develop and deliver additional System Development Boards in
accordance with a schedule to be agreed between the parties. Any such additional
System Development Board shall be an ECR.
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(b) Except as described in subsection (a) above, unless otherwise
agreed to by the parties in writing, each Deliverable shall include any and all
design documentation and all other diagnostic and testing materials relating to
the Deliverable and other materials and information reasonably requested by
Fujitsu, including, without limitation, any and all materials or information
necessary for the design, development, implementation, assembly, testing,
operation, modification or other use of the Deliverable.
2.4. Review. Fujitsu may conduct a reasonable number of periodic reviews,
including reviews at Ross' premises, of the Product and performance of the
Services. At Fujitsu's reasonable request, Ross will provide Fujitsu with
written reports regarding its work on the Product in form and substance
acceptable to Fujitsu and with copies of any work in progress, prototypes,
internal documentation and related materials. Additionally, at Fujitsu's
reasonable request, Ross will make presentations to Fujitsu regarding such work.
Fujitsu will pay Ross' reasonable travel expenses if Fujitsu requests that the
presentation be made at a location outside the Austin, Texas area, provided that
such expenses are approved in advance by Fujitsu.
3. PAYMENT
3.1. Development Fee. Fujitsu shall pay a total of Four Million Five
Hundred Thousand Dollars ($4,500,000) to Ross for the performance of the
Services and the delivery of the Deliverables hereunder (the "Development Fee"),
which shall accrue as follows:
(a) $3.5 million on acceptance by Fujitsu of the Existing Core and
agreement between Fujitsu and Ross as to the additional functionality to be
incorporated into the Ross Microprocessor Core (which agreement shall become
part of the "Specifications");
(b) $0.2 million on acceptance by Fujitsu of the Verilog Model and
Simulation Environment and the Additional Specifications;
(c) $0.3 million on acceptance by Fujitsu of the Tapeout-Ready
Database; and
(d) $0.5 million on acceptance by Fujitsu of the Ross Microprocessor
Core.
Once due and payable by Fujitsu, each of the foregoing amounts shall, subject to
the terms hereof, be non-refundable notwithstanding Ross' failure to deliver, or
Fujitsu's failure to accept, any subsequent Deliverable.
3.2. Advance. Ross hereby acknowledges that, in accordance with the
Letter Agreement, Fujitsu has paid to Ross an advance ("Advance") in the amount
of Three Million Five Hundred Thousand Dollars ($3,500,000) towards the amounts
that would otherwise be payable to Ross hereunder, including as provided in
Section 3.1. Ross agrees that the Advance shall be applied to reduce, dollar for
dollar, the first amounts otherwise payable to by Fujitsu to Ross hereunder,
including amounts accruing to Ross under Section 3.1, until the outstanding
amount of the Advance has been reduced to zero through such accruals or through
repayment of the Advance by Ross. Once the outstanding amount of the Advance has
been reduced to zero, Fujitsu shall promptly release any security interests held
by it, under the Letter Agreement or otherwise, relating solely to the Advance.
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3.3. Payment. Payment of the Development Fees shall be made in the
following manner:
(a) Ross shall forward to Fujitsu an invoice for each portion of the
Development Fee after Ross's receipt of Fujitsu's written notice of acceptance
of the corresponding Deliverables described in Section 3.1.
(b) Fujitsu shall forward to Ross a statement of the outstanding
amount of the Advance, if any, to be credited against the amounts invoiced under
Section 3.3(a) and shall pay the remaining invoiced amounts, if any, by the
twentieth (20th) day of the calendar month following the month in which Fujitsu
receives the Ross invoice, provided that if such invoice is received after the
twentieth (20) day of any calendar month Fujitsu shall pay any remaining
invoiced amount by the twentieth (20th) day of the calendar month which is two
months after the month in which Fujitsu receives the Ross invoice.
3.4. Other Fees.
(a) Fujitsu shall bear all mask charges and silicon costs (subject
to Section 6.2(a)) and the cost of PGA packages for all prototype units. Fujitsu
shall also pay the cost of the test fixture hardware to be used by Ross to
verify the Test Vehicle at rated speed, provided that the purchase of any such
hardware has been pre-approved by Fujitsu in writing.
(b) Any ECRs will be charged separately to Fujitsu by Ross on an
itemized statement at the rate of $20,000 per man-month (or a pro rata charge
for any fraction thereof) plus materials at cost and travel expenses, if any. If
special CAD tools or other software or hardware applicable to the ECR must be
acquired by Ross for the implementation of the ECR, the cost of such tools or
hardware will also be charged separately, provided that the purchase of any such
tools or hardware has been pre-approved by Fujitsu in writing.
(c) Ross shall forward to Fujitsu invoices referencing this
Agreement and setting forth the amount of charges attributable to ECRs and
related expenses after Ross's receipt of Fujitsu's written notice of acceptance
of the corresponding ECRs. Fujitsu shall forward to Ross a statement of the
outstanding amount of the Advance, if any, to be credited against the invoiced
amounts and shall pay any remaining invoiced amounts by the twentieth (20th) day
of the calendar month following the month in which Fujitsu receives the Ross
invoice, provided that if such invoice is received after the twentieth (20) day
of any calendar month Fujitsu shall pay any remaining invoiced amount by the
twentieth (20th) day of the calendar month which is two months after the month
in which Fujitsu receives the Ross invoice.
4. ROYALTIES
4.1. Royalty. As consideration for the grant of the license hereunder,
Fujitsu agrees to pay Ross royalties as follows:
(a) With respect to Fujitsu Products, an amount determined by
multiplying (i) five percent (5%) of the Aggregate Net Sales of all Fujitsu
Products, by (ii) the percentage of the Internal Die Area of such Fujitsu
Products occupied by the Ross Microprocessor Core.
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(b) With respect to Fujitsu Derivative Products, an amount
determined by multiplying (i) three percent (3%) of the Aggregate Net Sales of
all Fujitsu Derivative Products, by (ii) the percentage of the Internal Die Area
of such Fujitsu Derivative Product occupied by the Fujitsu Derivative providing
functionality corresponding to the functionality of the Ross Microprocessor
Core, as reasonably determined by Fujitsu.
(c) Fujitsu agrees to undertake diligent efforts in good faith to
pursue alpha and beta site opportunities with high volume embedded control
businesses, such as telecommunications equipment and computer games, at the
earliest reasonable date and to make Fujitsu Products and Fujitsu Derivative
Products available to customers in a timely manner.
4.2. Payment.
(a) Royalties shall be payable for each of Fujitsu's semi-annual
fiscal periods. Within sixty (60) days after the end of each such semi-annual
fiscal period, Fujitsu shall submit to Ross a complete and accurate report
setting forth for such semi-annual fiscal period (i) the number of Fujitsu
Products and Fujitsu Derivative Products sold or otherwise transferred by
Fujitsu and sublicensees of Fujitsu, (ii) the Internal Die Area data for such
Fujitsu Products and Fujitsu Derivative Products and (iii) the yen royalty
amount owed by Fujitsu. Within sixty (60) days after the end of such semi-annual
fiscal period Fujitsu shall pay the royalty amount set forth in such report.
(b) All Aggregate Net Sales shall be calculated in Japanese yen. The
royalties shall be calculated on such rounded Japanese yen amounts, and then
converted on the same day to and paid in equivalent U.S. Dollars at the
then-current TTS rate quoted by The Tokyo Mitsubishi Bank at its Tokyo
Headquarters. Fujitsu shall be responsible for all bank transfer charges.
4.3. Forecast of Royalties. No later then the last day of each of
Fujitsu's fiscal quarters, Fujitsu shall submit to Ross a nonbinding forecast of
the royalties that will be payable to Ross hereunder with respect to the next
succeeding fiscal quarter.
4.4. Audit of Records. Ross shall have the right, once each year during
the term of the Agreement, to have a mutually acceptable, independent accounting
firm inspect the books and records of Fujitsu and its sublicensees relating to
the Fujitsu Products and Fujitsu Derivative Products to verify the accuracy of
Fujitsu's royalty payments to Ross hereunder. The accounting firm may not be
paid on a contingency or other basis related to the outcome of the inspection,
and shall execute a confidentiality agreement with Fujitsu in a form mutually
acceptable to the parties that prohibits the accounting firm from disclosing
information obtained in connection with the inspection other than disclosure to
Ross of the amount of any underpayment or overpayment. Ross shall maintain in
confidence any information obtained in connection with the inspection. Any such
inspection shall be conducted during Fujitsu's regular business hours, in such a
manner as not to interfere with Fujitsu's normal business activities, and shall
be at Ross's expense; provided, however, that if such inspection reveals that
Fujitsu has underpaid Ross by five percent (5%) or more for the period
inspected, Fujitsu shall reimburse Ross for the reasonable fees and costs
including travel expenses within Japan charged by the accounting firm for such
audit. Prompt adjustment shall be made to correct for any underpayments or
overpayments disclosed by such inspection. Fujitsu shall maintain its
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financial records relating to the Fujitsu Products for a minimum of two (2)
years after the occurrence of the transaction to which such records relate, but
shall be under no obligation (in connection with the foregoing provisions or
otherwise) to maintain records for any longer period.
4.5. Taxes. Fujitsu shall withhold or deduct from payments hereunder,
including any payments pursuant to Section 4, any amount required by applicable
tax authorities to be withheld or deducted, and shall promptly provide a
certificate or other evidence thereof to Ross.
5. SPECIFICATIONS
5.1. Specifications for Testing Materials and Features. The parties shall
develop and agree on the Specifications for the Manufacturing Test Vector Suite,
Test Vehicle and the initial System Development Board and for the Features (the
"Additional Specifications") in accordance with the Schedule. Ross shall have
primary responsibility for identifying and documenting all features which are to
incorporated into the detailed Additional Specifications. Fujitsu agrees to
provide Ross with reasonable assistance and input regarding the development of
the Additional Specifications and to approve the Additional Specifications in
accordance with the Schedule.
5.2. Other Specifications. Ross and Fujitsu each acknowledges that the
Specifications, other than the Additional Specifications, are final in all
material respects as of the date of this Agreement, subject to such minor
modifications as may be required to efficiently implement the intended functions
and performance characteristics of the Ross Microprocessor Core. Ross' budget
for performance of the Services hereunder includes the cost of implementing such
minor modifications from time to time, but does not include the cost of
implementing any material changes to the Specifications, which costs shall be
agreed upon by the parties in advance of any material change in the
Specifications and paid separately by Fujitsu.
6. ACCEPTANCE AND REJECTION OF DELIVERABLES
6.1. General. The following procedures shall apply for the acceptance or
rejection of any Deliverable other than the Test Vehicle:
(a) Initial delivery of a Deliverable (the "Initial Deliverable")
will occur when Ross delivers to a site designated by Fujitsu a Deliverable that
Ross reasonably determines to conform to the applicable Specifications therefor,
accompanied by a written statement listing the items delivered. Fujitsu, with
the assistance of Ross if requested by Fujitsu, will review each Deliverable
upon delivery to determine whether the Deliverable conforms to the
Specifications for such Deliverable. Within the period specified for review of
each Deliverable by Fujitsu on attached Exhibit B, Fujitsu will provide Ross
with either written acceptance of such Deliverable or a statement of Errors to
be corrected or changed.
(b) Ross will promptly correct the Errors in any Deliverable set
forth in the statement of Errors and redeliver the Deliverable (a "Subsequent
Deliverable") to Fujitsu within twenty (20) Fujitsu business days, or such
longer period as Fujitsu and Ross agree is reasonable under the circumstances.
Fujitsu will, within twenty (20) business days after such redelivery, provide
Ross with either written acceptance or another statement of Errors. The
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procedure set forth in Section 6.1(a) and this Section 6.1(b) will be repeated
until Fujitsu accepts the Deliverable or terminates this Agreement pursuant to
Section 6.3.
(c) Fujitsu's design or tapeout of a Fujitsu Product or a Fujitsu
Derivative Product prior to its acceptance of the Ross Microprocessor Core shall
not constitute acceptance thereof but such design or tapeout shall be at
Fujitsu's sole risk.
6.2. Acceptance of Test Vehicle.
(a) Ross shall complete the Test Vehicle tapeout in accordance with
the Schedule. Within five weeks after receipt of the Test Vehicle tapeout,
Fujitsu shall provide the initial ES Silicon to Ross. Within eight weeks after
receipt of the initial ES Silicon, Ross shall provide the ES Silicon test report
and tapeout-ready core design to Fujitsu with either Error corrections or a
certification that no Errors have been found. In the event that Ross has
provided Fujitsu with Error corrections, Fujitsu shall provide an additional ES
Silicon, incorporating such Error corrections, to Ross within five weeks after
receipt of such Error corrections. Within eight weeks after receipt of such
modified ES Silicon, Ross shall provide the ES Silicon test report and
tapeout-ready core design with Error corrections, if any, to Fujitsu. Such
report shall be a Subsequent Deliverable for the purpose of Section 6.3. below.
The procedure set forth in the two preceding sentences will be repeated until
Ross certifies to Fujitsu that no Errors have been found or Fujitsu terminates
this Agreement pursuant to Section 6.3.
(b) After receipt of the certification by Ross that no Errors exist
in the ES Silicon, Ross and Fujitsu shall each conduct system tests, using the
Test Vehicle and initial System Development Board. Such tests shall be completed
within sixty (60) days after delivery of such certification. If any Errors are
found by either party, such party shall promptly advise the other of the Error
and the parties shall discuss the optimal correction or OS/software workaround
for the Error. Ross shall promptly redeliver such the Test Vehicle,
incorporating such corrections or workarounds. Such Test Vehicle shall be a
Subsequent Deliverable for the purpose of Section 6.3. below. The procedure
shall be repeated until each party certifies that no Errors have been found or
Fujitsu terminates this Agreement pursuant to Section 6.3.
6.3. Rejection.
(a) Ross will have at least two opportunities to correct Errors in a
Deliverable, including the Test Vehicle. If Ross fails to deliver a Deliverable
without Errors or otherwise acceptable to Fujitsu after two attempts, Fujitsu
may terminate this Agreement for cause pursuant to Section 13.2, or may continue
to permit Ross to correct the Deliverable. Fujitsu's election to continue
permitting Ross to correct a Deliverable will not affect Fujitsu's right to
terminate this Agreement in accordance with this Section 6.3(a) if thereafter a
Subsequent Deliverable has Errors.
(b) Ross will inform Fujitsu as soon as possible if it believes it
will not be able to deliver a Deliverable, whether an Initial Deliverable or a
Subsequent Deliverable, on time. For each Deliverable that is delivered more
than thirty (30) days late for which there is an applicable milestone payment,
Fujitsu will reduce the applicable milestone payment by a ten
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percent (10%) of such milestone payment. In addition, if such a Deliverable is
more than ninety (90) days late, the applicable milestone payment shall be
reduced by an additional ten percent (10%) and Fujitsu may, in its discretion,
terminate this Agreement pursuant to Section 13.2. For purposes of this Section
6.3(b), a Deliverable will not be deemed delivered until accepted by Fujitsu
after any corrections required pursuant to Section 6.1 or Section 6.2 but the
time required for such corrections shall not be counted in the respective
thirty-day and ninety-day periods.
(c) Fujitsu shall be obligated to act reasonably and in good faith
in failing to accept or rejecting any Deliverable pursuant to this Agreement.
6.4. Modification of Schedule.
(a) If Ross believes that a modification of the Schedule is
appropriate because of problems or events beyond Ross' reasonable control, Ross
may request a modification of the Schedule. Fujitsu will consider such a request
in good faith, taking into account all relevant factors, including the reasons
for the requested modification, Fujitsu's own schedule requirements and Ross's
diligence in performing the Services. In no event, however, will Fujitsu be
obligated to agree to any such request (or to a related waiver of or
modification in the reduction of milestone payments) or to consider increasing
the milestone payments to Ross.
(b) If Fujitsu submits an ECR to Ross which Ross reasonably believes
will require a modification to the Schedule, the parties shall discuss in good
faith the required modification. Fujitsu acknowledges that the implementation of
an ECR may result in schedule changes due to design changes and dependencies and
resource conflicts.
6.5. Post-Acceptance Obligations. Upon Fujitsu's acceptance of a
Deliverable hereunder, Ross shall have no further responsibility with respect
thereto except for any responsibilities specifically provided in this Agreement.
7. SUPPORT
7.1. Error Correction and Support. Ross will provide Fujitsu with
technical assistance relating to the Deliverables and the Ross Microprocessor
Core from the delivery of the first Deliverable until three years after final
acceptance by Fujitsu of the last of the Deliverables accepted by Fujitsu. The
first man-month of such assistance will be provided free of charge and any
remaining assistance will be provided on Ross' standard terms for the provision
of comparable technical support to third parties, as in effect from time to
time. Such support will include correcting promptly any Errors in the Ross
Microprocessor Core and supplying corrections to Fujitsu in a timely fashion,
correcting and updating any documentation, conducting failure analysis,
providing software patches and answering questions that Fujitsu may have
regarding the Deliverables and the Ross Microprocessor Core.
7.2. Disclosure. At any time after final acceptance by Fujitsu of the
last of the Deliverables accepted by Fujitsu, Ross will promptly disclose to
Fujitsu in writing at no charge any Errors, including, but not limited to,
problems with functionality or performance, in such Deliverables or the Ross
Microprocessor Core of which Ross becomes aware.
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8. INTELLECTUAL PROPERTY RIGHTS; LICENSE
8.1. Intellectual Property.
(a) Fujitsu hereby acknowledges and agrees that, as between Fujitsu
and Ross, subject to the licenses expressly granted to Fujitsu herein, Ross owns
all Intellectual Property Rights in and to the Deliverables and the Ross
Microprocessor Core.
(b) Ross hereby acknowledges and agrees that, as between Ross and
Fujitsu, subject to the licenses expressly granted to Ross herein, Fujitsu owns
all Intellectual Property Rights in and to and any materials delivered by
Fujitsu hereunder.
8.2. Inventions.
(a) All right, title, and interest in all Inventions made, created,
developed, written, or conceived solely by Ross personnel in the course of,
arising out of, or as a result of work done under this Agreement, and all
associated Intellectual Property Rights, shall be the sole and exclusive
property of Ross.
(b) All right, title, and interest in all Inventions made, created,
developed, written, or conceived solely by Fujitsu personnel in the course of,
arising out of, or as a result of work done under this Agreement, and all
associated Intellectual Property Rights, shall be the sole and exclusive
property of Fujitsu.
(c) Although the parties do not anticipate joint development of
Inventions hereunder, in the event of joint development of an Invention, the
parties will meet in good faith to discuss, on a case-by-case basis, ownership
and license rights with respect thereto.
8.3. License.
(a) Ross hereby grants to Fujitsu, under all of its Intellectual
Property Rights, an irrevocable, worldwide, nonexclusive, non-transferable,
perpetual, royalty-bearing license, with a right to grant sublicenses in
accordance with Section 8.4 below (i) to use the Existing Core and the
Manufacturing Test Vector Suite for the limited purposes set forth herein, (ii)
to use, reproduce, modify, translate and distribute the Ross SPARC User Guide,
and (iii) to make, have made, use, sell, reproduce, modify, improve, market,
prepare Derivative Works of, distribute or disclose the Specifications,
Deliverables (other than the Existing Core) and the Ross Microprocessor Core for
limited use as an embedded microcontroller and, to the extent necessary or
helpful to the design, development, implementation, assembly, compilation,
testing, operation, modification or other use of Fujitsu Products, any ideas,
concepts, techniques, inventions, creations, works, processes, designs or
methods embodied therein.
(b) Fujitsu shall document all Fujitsu Derivatives and deliver to
Ross a copy of such promptly after development, but in no event later than first
commercial shipment of a Fujitsu Derivative Product implementing such Fujitsu
Derivatives. Fujitsu hereby grants to Ross, under all of its Intellectual
Property Rights, an irrevocable, worldwide, nonexclusive, non-transferable,
perpetual, royalty-free license (with unlimited rights to sublicense) to make,
have made, use, sell, reproduce, modify, improve, market, prepare Derivative
Works of, distribute or disclose any Fujitsu Derivatives.
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8.4. Sublicenses.
(a) Fujitsu shall have the right to grant sublicenses to its
Affiliates under the license set forth in Section 8.3(a) without any additional
payment of fees but subject to the royalty provisions of Section 4.1 with
respect to all licensed products sold or otherwise transferred by such
Affiliates.
(b) Fujitsu shall have the right to grant sublicenses to non-Fujitsu
affiliates under the license set forth in Section 8.3(a) with the prior written
approval of Ross. Prior to commencing negotiation of a prospective sublicense
with a non-Fujitsu affiliate, Fujitsu shall give advance written notice of the
proposed negotiation to Ross. Upon such notice from Fujitsu, Ross and Fujitsu
shall negotiate the terms and conditions of such sublicense in good faith,
including but not limited to the terms and conditions of license fees and
further sublicense rights. Fujitsu acknowledges that Ross has the exclusive
right to license Sun Microsystems and its Affiliates with respect to the Ross
Microprocessor Core or any derivative thereof. In addition, Ross shall have no
obligation to negotiate sublicense terms with Fujitsu if, at the time it
receives the notice referred to above from Fujitsu, Ross itself is negotiating
or intends promptly to negotiate a license with the non-Fujitsu affiliate of the
Ross Microprocessor Core or any derivative thereof.
(c) Unless Ross and Fujitsu otherwise agree in advance in writing
with respect to any particular sublicense agreement, Fujitsu shall be obligated
to pay Ross the royalties provided in Section 4.1 with respect to all Fujitsu
Products and Fujitsu Derivative Products sold or otherwise transferred by the
sublicensee.
8.5. Right of First Refusal to Manufacture. In the event that Ross
desires to produce any embedded microcontroller products based upon the Ross
Microprocessor Core design or derivatives thereof, Fujitsu shall have a right of
first refusal to manufacture such products (provided that Fujitsu is able to
supply such products in the requisite quantities and timeframe and at prices and
on other terms at least as favorable to Ross as are then available from
alternate manufacturing sources of the same product in similar quantities) and
the parties shall promptly negotiate in good faith the terms and conditions of a
supply agreement to that effect.
8.6. Marketing Cooperation and Assistance. The parties agree to
reasonably cooperate with and assist each other in the marketing of embedded
microcontroller products based upon the Ross Microprocessor Core and
derivatives, provided, however, that each party agrees not to solicit
independently the business of a prospective customer for any such product if
such customer's prospective need for the product was not previously known to the
first party and was made known to it by the other party for purposes of
requesting cooperation and assistance pursuant to the provisions of this Section
8.6. The restriction on independent solicitation shall apply for the greater of
(a) 180 days from the date of first notification by the other party or (b) the
period during which the first party is actively cooperating with and assisting
the other party in the prospective sale. At the time that a party requests such
cooperation and assistance, the parties will agree on the nature and amount of
the consideration, if any, to be provided by the requesting party in return for
such cooperation and assistance by the other. Nothing in this Section 8.6 shall
obligate either party to disclose any of its business information to the other
party.
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9. RIGHT TO DEVELOP INDEPENDENTLY
Nothing in this Agreement will impair Fujitsu's right to acquire, license,
develop for itself or have others develop for it similar products or technology
performing the same or similar functions as the product or technology
contemplated by this Agreement, or to market and distribute such similar
products or technology in addition to, or in lieu of, the Fujitsu Product;
provided, however, that Fujitsu shall at all times comply fully with the
confidentiality and limited use provisions and the other covenants contained in
this Agreement.
10. WARRANTIES AND INDEMNIFICATION
10.1. Ross Warranties. Ross represents and warrants that it has the
unrestricted right to disclose, use, and grant and assign (without liability to
others) all the subject matter, including ideas, concepts, techniques,
inventions, creations, works, processes, designs and methods, that Ross will
disclose or use in its performance of the Services or that Ross will grant and
assign under this Agreement. Ross further represents and warrants that: (a) Ross
has full power and authority to enter into this Agreement, to carry out its
obligations under this Agreement and to grant the rights granted to Fujitsu
hereunder; (b) this Agreement has been duly executed and delivered by Ross and
constitutes a legally valid and binding obligation of Ross, enforceable against
Ross in accordance with its terms; (c) the execution and delivery by Ross of,
and the performance by Ross of its obligations under, this Agreement do not and
will not (i) conflict with or contravene the certificate of incorporation or
bylaws of Ross or (ii) result in a breach of or constitute a default under any
agreement, instrument or order to which Ross or any of its assets is subject;
(d) the Deliverables and the Ross Microprocessor Core are and will be original
with Ross and will not incorporate any ideas, concepts, techniques, inventions,
creations, works, processes, designs or methods of, or developed by Ross for,
any third party; and (e) the Deliverables and the Ross Microprocessor Core do
not and will not infringe any Intellectual Property Rights of others other than
patent rights and, to Ross' knowledge, do not and will not infringe any patent
rights of others.
10.2. Fujitsu Warranties. Fujitsu represents and warrants that: (a)
Fujitsu has full power and authority to enter into this Agreement, to carry out
its obligations under this Agreement and to grant the rights granted to Ross
hereunder; (b) this Agreement has been duly executed and delivered by Fujitsu
and constitutes a legally valid and binding obligation of Fujitsu, enforceable
against Fujitsu in accordance with its terms; and (c) the execution and delivery
by Fujitsu of, and the performance by Fujitsu of its obligations under, this
Agreement do not and will not (i) conflict with or contravene the certificate of
incorporation or bylaws of Fujitsu or (ii) result in a breach of or constitute a
default under any agreement, instrument or order to which Fujitsu or any of its
assets is subject.
10.3. Indemnity and Duty to Correct.
(a) Indemnity. Ross will indemnify, hold harmless and, at Fujitsu's
request, defend Fujitsu and any divisions, subsidiaries, affiliates, directors,
officers, employees, agents, distributors, customers, assignees and licensees of
Fujitsu from and against any claim, action or suit to the extent based on (i) a
claim that the Services or the Product infringes or misappropriates any
Intellectual Property Right of a third party, or (ii) any breach or alleged
breach by Ross of any representation, warranty or covenant made, or obligation
assumed, by Ross pursuant to this Agreement, including, but not limited to, all
liabilities, costs,
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judgments, expenses and the reasonable fees of attorneys and other professionals
that are attributable to such claim, action or suit. Fees of attorneys and other
professionals and related costs will be payable when and as incurred. Fujitsu
will give Ross reasonably prompt notice in writing of any such claim, action or
suit. Each party will provide the other with reasonable cooperation and
information to assist in defense of the claim, action or suit. If Fujitsu elects
to have Ross defend such claim, action or suit, Fujitsu nonetheless will have
the right, at Fujitsu's expense, to appoint separate counsel to participate in
such claim, action or suit. If Fujitsu elects to defend itself, Ross will
nonetheless have the right, at Ross's own expense, to appoint separate counsel
to participate in any such claim, action or suit. Ross will not enter into any
settlement of any claim, action or suit described in this Section 10.2(a)
without the prior written consent of Fujitsu, which consent will not be
unreasonably withheld.
(b) Duty to Correct. If the Ross Microprocessor Core becomes or is
likely to become the subject of a claim, action or suit described in Section
10.2(a), Ross will, at Ross's election and expense: (i) procure for Fujitsu the
past and future right to make, have made, use, sell, reproduce, modify, prepare
Derivative Works of, distribute, and disclose the Ross Microprocessor Core, with
full rights to authorize others to do the same; (ii) replace or modify the Ross
Microprocessor Core with another product that is noninfringing, provides the
same functionality, performance, quality and interoperability as the infringing
Ross Microprocessor Core and is reasonably satisfactory to Fujitsu; or (iii) if
such past and future rights cannot be procured or the Ross Microprocessor Core
cannot be replaced or modified at reasonable expense, reimburse Fujitsu for the
total amount paid under this Agreement. The obligations of this Section 10.2(b)
are in addition to the warranty and other rights that may otherwise be available
to Fujitsu under this Agreement or under applicable law.
10.4. Limitation of Liability. EXCEPT AS PROVIDED IN THIS SECTION 10 OR
OTHERWISE EXPRESSLY STATED IN THIS AGREEMENT, NEITHER PARTY IS MAKING (OR WILL
BE DEEMED TO MAKE) ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF PROFIT
OR LOSS OF USE, WITH RESPECT TO ANY CLAIMS ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT UNLESS OTHERWISE SPECIFICALLY AND EXPLICITLY PROVIDED HEREIN,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO
EVENT SHALL EITHER PARTY'S AGGREGATE CUMULATIVE LIABILITY FOR CLAIMS BASED UPON
BREACH OF REPRESENTATION OR WARRANTY AND CLAIMS OF INDEMNITY UNDER THIS
AGREEMENT EXCEED THE SUM OF $4.5 MILLION. THIS LIMITATION OF LIABILITY SHALL
APPLY TO ANY CLAIM OR CAUSE OF ACTION, WHETHER IN CONTRACT OR TORT, UNDER ANY
THEORY.
11. CONFIDENTIALITY
11.1. Use Restrictions. Each party will protect the other's Confidential
Information from unauthorized dissemination and use with the same degree of care
that such party uses to protect its own like information. Neither party will use
the other's Confidential Information for purposes other than those necessary to
further the purposes of this Agreement, or disclose to third parties the other's
Confidential Information, except to the extent specified in the prior
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<PAGE> 15
written consent of the other party, necessary to comply with applicable law or
the valid order of a court of competent jurisdiction, provided that such party
will promptly inform the other party of such obligation to disclose and
cooperate with the other party in minimizing the disclosure, including seeking a
protective order, necessary to exercise or enforce its rights pursuant to this
Agreement, or specified in Section 11.2.
11.2. Limited Disclosure. Notwithstanding the terms of Section 11.1,
Fujitsu hereby consents to Ross's disclosure of Fujitsu Confidential Information
to Ross Israel to the extent necessary to carry out Ross's obligations hereunder
and to Ross' disclosure of the terms, conditions or text of this Agreement to
the extent required by law or the regulations of any governmental agency. In
addition, the parties anticipate that Ross may issue a press release describing
its agreement to provide the Services. Fujitsu will have the right to
pre-approve in writing any such press release or other communications with third
parties relating to the Services or Ross Microprocessor Core, which approval
will not be unreasonably withheld.
12. TERM
This Agreement will commence on the Effective Date and will continue until
terminated as provided in this Agreement.
13. TERMINATION
13.1. Termination by Either Party. Either party will have the right to
terminate this Agreement immediately upon written notice at any time if:
(a) The other party is in material breach of any warranty, term,
condition or covenant of this Agreement other than those contained in Section 11
and fails to cure the breach within thirty (30) days after written notice of the
breach;
(b) The other party is in material breach of any warranty, term,
condition or covenant of Section 11; or
(c) The other party (i) becomes insolvent; (ii) fails to pay its
debts or perform its obligations in the ordinary course of business as they
mature; (iii) admits in writing its insolvency or inability to pay its debts or
perform its obligations as they mature; or (iv)becomes the subject of any
voluntary or involuntary proceeding in bankruptcy, liquidation, dissolution,
receivership, attachment or composition or general assignment for the benefit of
creditors that is not dismissed with prejudice within sixty (60) days after the
institution thereof.
13.2. Termination by Fujitsu. In addition, subject to the provisions of
Section 6, Fujitsu may terminate this Agreement if Ross fails to timely deliver
or correct any Deliverable or if Fujitsu reasonably concludes that such a
failure is likely. Any such termination shall become effective upon thirty (30)
days' prior written notice from Fujitsu to Ross.
13.3. Effect of Termination.
(a) Fujitsu's Breach. In the event of termination of this Agreement
due to a breach by Fujitsu, the rights and licenses granted by Ross to Fujitsu
will immediately terminate and Fujitsu will have no further right to use the
Ross Microprocessor Core or Deliverables or to
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<PAGE> 16
manufacture, market, sell or sublicense Fujitsu Products. Except for termination
pursuant to subsection (b) below, any sublicense granted by Fujitsu pursuant to
Section 8.4 will expire or terminate contemporaneously with the expiration or
termination of this Agreement. The license from Fujitsu to Ross with respect to
Fujitsu Derivatives (including the right to grant sublicenses) under Section
8.3(b) will survive the termination of this Agreement as a result of a breach by
Fujitsu. Such continuing license is subject to Ross' continuing compliance with
the terms of this Agreement.
(b) Ross's Breach. The grant of rights from ROSS to Fujitsu made in
this Agreement (including the right to grant sublicenses pursuant to Section
8.4) will survive the termination of this Agreement as a result of a breach by
Ross as, and to the extent, necessary for Fujitsu and its sublicensees to
continue the manufacture and support of the Fujitsu Products. Such continuing
rights are subject to Fujitsu's continued compliance with the terms of this
Agreement (including payment of royalties pursuant to Section 4). Nothing will
require Ross to provide any Error corrections or support or maintenance to
Fujitsu after termination. Upon any such termination, Ross immediately will
deliver to Fujitsu all work in progress with respect to the Services and
Product, including all versions and components thereof, and at Fujitsu's
request, will confirm in writing Fujitsu's license rights with respect thereto.
Without limitation of the generality of the rights set forth in this Section
13.3(b), in the event of any termination of this Agreement, Fujitsu will have
the option to complete development of the Product.
(c) In General. Upon the expiration or earlier termination of this
Agreement, each party will be released from all obligations and liabilities to
the other occurring or arising after the date of such expiration or earlier
termination, except that the provisions of Sections 1, 4, 8.1, 8.2, 8.3 and 8.4,
and 9 through 14 will survive expiration or earlier termination. Expiration or
earlier termination will not relieve Ross or Fujitsu from any liability arising
from any breach of this Agreement. Neither party will be liable to the other for
damages of any kind solely as a result of terminating this Agreement in
accordance with its terms, and termination of this Agreement by a party will be
without prejudice to any other right or remedy of such party under this
Agreement or applicable law.
(d) Offset Payment. In the event of a termination by Fujitsu
pursuant to Section 13.2 resulting directly from Fujitsu's final rejection of
the Verilog Model, Simulation Environment, Additional Specifications or the
Tapeout-Ready Database under Section 6.3, Ross shall pay to Fujitsu the
applicable one (but not both) of the following amounts as a partial offset to
the research, development and other expenses (other than the Development Fee)
that will be incurred by Fujitsu in connection with this development program and
to compensate Fujitsu for the delay in its embedded control program that the
parties recognize and agree may occur as a result of the rejection: (i) in the
case of a rejection of the Verilog Model, Simulation Environment and Additional
Specifications, $1.5 million; or (ii) in the case of a rejection of the
Tapeout-Ready Database, $0.7 million.
13.4. Payments by Fujitsu; Refund by Ross. In the case of termination
prior to completion of the Services, Fujitsu's sole monetary obligation will be
to pay Ross the fee set forth in Section 3.2 for all milestones fully completed
by Ross and Deliverables accepted by Fujitsu pursuant to the terms of this
Agreement. In the event that the Advance exceeds such the amount of such fee,
Ross shall promptly refund the difference to Fujitsu.
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<PAGE> 17
14. GENERAL
14.1. No Other Obligations. Fujitsu has no obligation or duty to Ross
with respect to the matters described herein except as expressly set forth in
this Agreement. Without limitation of the generality of the foregoing, Fujitsu
may market, or not market at all, the Fujitsu Product, or any components
thereof, in any manner that Fujitsu chooses.
14.2. Relationship of Parties. Ross is an independent contractor. Neither
Ross nor Ross's employees, consultants, contractors or other personnel are
agents, employees or joint venturers of Fujitsu, nor do they have any authority
to bind Fujitsu by contract or otherwise to any obligation. They will not
represent to the contrary, either expressly, implicitly, by appearance or
otherwise. Ross will determine, in Ross's sole discretion, the manner and means
by which the Services are accomplished, subject to the express condition that
Ross will at all times comply with applicable law and the terms of this
Agreement.
14.3. Taxes and Benefits. It is Ross's obligation to report as income and
pay all taxes with respect to all compensation received by Ross pursuant to this
Agreement and pay all taxes due on such compensation. Ross will indemnify
Fujitsu against and hold it harmless from any obligation imposed on Fujitsu to
pay any sales or use taxes, withholding taxes, social security, unemployment
insurance, workers' compensation insurance, disability insurance or similar
items, including interest and penalties thereon, in connection with any payments
made to Ross by Fujitsu pursuant to this Agreement.
14.4. Assignment. The rights and liabilities of the parties hereto will
bind and inure to the benefit of their respective assignees and successors,
provided that, as Fujitsu has specifically contracted for Ross's services, Ross
may not assign or delegate its obligations under this Agreement either in whole
or in part, whether voluntarily, by operation of law or otherwise, except to the
extent expressly provided for in this Agreement or otherwise agreed in writing
by Fujitsu. Any attempted assignment in violation of the provisions of this
Section 14.4 will be void.
14.5. Equitable Relief. Because in connection with the performance of
this Agreement each party will have access to and become acquainted with
confidential and proprietary information of the other party, the unauthorized
use or disclosure of which would cause irreparable harm and significant injury
which would be difficult to ascertain and which would not be compensable by
damages alone, each party hereby agrees that the other party will have the right
to enforce this Agreement and any of its provisions by injunction, specific
performance or other equitable relief without prejudice to any other rights or
remedies that such party may have for breach of this Agreement.
14.6. Bankruptcy Provisions. All rights and licenses granted under or
pursuant to Sections 8.3 and 8.4 of this Agreement by Ross to Fujitsu are, and
shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S.
Bankruptcy Code, licenses of rights to "intellectual property" as defined under
Section 101 of the U.S. Bankruptcy Code. The parties agree that Fujitsu, as a
licensee of such rights under this Agreement, shall retain and may fully
exercise all of its rights and elections under the U.S. Bankruptcy Code. The
parties further agree that, in the event of the commencement of a bankruptcy
proceeding by or against Ross under the U.S. Bankruptcy Code, Fujitsu shall be
entitled to a complete duplicate of (or complete access to, as appropriate) any
such intellectual property (including, without
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<PAGE> 18
limitation, any items to be delivered pursuant to Section 2.2) and the same, if
not already in its possession, shall be promptly delivered to Fujitsu upon
Fujitsu's written request (i) upon any such commencement of a bankruptcy
proceedings, unless Ross elects to continue to perform all of its obligations
under this Agreement, or (ii) if not delivered under (i) above, upon the
rejection of this Agreement by or on behalf of Ross. Such intellectual property
shall be used by Fujitsu only for the purposes otherwise permitted under this
Agreement.
14.7. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the United States and the State of California as
applied to agreements entered into and to be performed entirely within
California between California residents.
14.8. Arbitration. Any dispute, controversy or claim arising out of or
relating to this Agreement or the subject matter hereof, or the interpretation,
enforceability, validity, performance, breach or termination hereof or thereof,
including, without limitation, this arbitration clause, shall be solely and
finally settled by arbitration in Los Angeles, California in accordance with the
commercial arbitration rules of the American Arbitration Association, as
modified by the provisions of this Section 14.8. Each party waives any rights to
bring any such dispute, controversy or claim in any other forum or proceeding,
including, without limitation, the International Trade Commission of the United
States or any other administrative or judicial forum. The arbitration shall be
conducted in accordance with such rules by three arbitrators selected by the
parties (if the parties are able to agree within thirty (30) days) and otherwise
selected in accordance with such rules. Each of the arbitrators appointed shall
have at least five (5) years' experience in the field that is the principal
subject matter of the dispute. After soliciting the views of the parties, the
arbitrators shall order such discovery as they may deem reasonable for a full
and fair understanding of the facts and issues raised in the arbitration. The
arbitration, including the proceedings, pleadings and evidence in connection
therewith, shall be maintained as confidential. An award rendered in connection
with the arbitration shall be final and binding on the parties, and any judgment
upon such an award may be entered in any court of competent jurisdiction. The
award shall be in writing and shall provide written reasons in detail for the
award unless the parties agree otherwise. The award shall also provide for the
fees and expenses of the arbitrators and for the reasonable attorneys' fees and
expenses of the prevailing party, as determined by the arbitrators, all to be
borne by the non-prevailing party.
14.9. Severability. If any provision of this Agreement, or portion
thereof, shall be held to be unenforceable, that provision of the Agreement will
be enforced to the maximum extent permissible so as to effect the intent of the
parties, and the remainder of this Agreement will continue in full force and
effect.
14.10. Notices. All notices required or permitted under this Agreement
will be in writing, will reference this Agreement and will be deemed given: (a)
when delivered personally; (b) when sent by confirmed facsimile; (c) ten (10)
days after having been sent by registered or certified air mail, return receipt
requested, postage prepaid; or (d) the third business day after deposit with a
commercial overnight carrier specifying next-day delivery, with written
verification of receipt. All communications will be sent to the address set
forth below (or to such other address as may be designated by a party by giving
written notice to the other party pursuant to this Section 14.10):
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<PAGE> 19
Fujitsu:
Fujitsu Limited
1-1 Kamikodanaka 4-chome,
Nakahara-ku, Kawasaki-shi,
Kanagawa-ken, 211-88
Japan
Facsimile: (044) 754-3786
Attention: Manager
Processor Design Dept.
Applied System LSI Div.
Ross:
Ross Technology, Inc.
5316 Highway 290W, Suite 500,
Austin, Texas 78735-8930
U.S.A.
Facsimile: (512) 892-3402
Attention: President
14.11. No Waiver. No obligation of a party hereunder shall be deemed
waived unless the other party has expressly agreed in writing to a waiver of
such obligation. The failure of a party to enforce a provision of this Agreement
shall not be deemed a waiver thereof. Waiver by a party of any provision will
not be deemed a waiver of future enforcement of that or any other provision.
14.12. No Rights in Third Parties. This Agreement is made for the benefit
of Fujitsu and Ross and not for the benefit of any third parties.
14.13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but which collectively
will constitute one and the same instrument.
14.14. Headings and References. The headings and captions used in this
Agreement are for convenience only and are not to be considered in construing or
interpreting this Agreement.
14.15. Construction. This Agreement has been negotiated by the parties
and their respective counsel. This Agreement will be interpreted fairly in
accordance with its terms and without any strict construction in favor of or
against either party.
14.16. Complete Agreement. This Agreement, including all exhibits,
together with the Letter Agreement and Non-Disclosure Agreement, constitutes the
entire agreement between the parties with respect to the subject matter hereof,
and supersedes and replaces all prior or contemporaneous understandings,
agreements, representations or warranties, written or oral, regarding such
subject matter, including without limitation the Letter Agreement and the Non
Disclosure Agreement which are each hereby terminated. No amendment to or
modification of this Agreement will be binding unless in writing and signed by a
duly authorized representative of the party against which enforcement is sought.
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<PAGE> 20
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives:
FUJITSU LIMITED ROSS TECHNOLOGY, INC.
By: /s/ Takamitsu Tsuchimoto By: /s/ Fred T. May
Name: Takamitsu Tsuchimoto Name: Fred T. May
Title: Member of the Board Title: Chairman and Acting
and CEO Electronics President and CEO
Device Group
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<PAGE> 21
EXHIBIT A
SCHEDULE
**
A-1
<PAGE> 22
EXHIBIT B
DELIVERABLES
**
B-1
<PAGE> 23
EXHIBIT C
<TABLE>
<CAPTION>
<S> <C>
**
</TABLE>
C-1
<PAGE> 1
EXHIBIT 10.44
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH HAVE
BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
BY ROSS TECHNOLOGY, INC. AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT.
DEVELOPMENT AGREEMENT
This Development Agreement (the "Agreement"), made this 25th day of June
1997 and effective as of April 1, 1997 (the "Effective Date"), is entered into
by and between FUJITSU LIMITED, a Japanese corporation with its registered
office at 1-1 Kamikodanaka 4-chome, Nakahara-ku, Kawasaki-shi, Kanagawa-ken,
211-88 Japan ("Fujitsu"), and ROSS TECHNOLOGY, INC., a Delaware corporation with
its principal office at 5316 Highway 290W, Suite 500, Austin, Texas 78735-8930
U.S.A. ("Ross" and, together with Fujitsu, referred to collectively as the
"Parties" and each individually as a "Party").
RECITALS
WHEREAS, Ross is developing a proprietary UltraSPARC(TM) compatible
microprocessor known as Viper ("Viper");
WHEREAS, Fujitsu desires to have the right, subject to the terms and
conditions of this Agreement, to manufacture and sell Viper worldwide and to
utilize Viper-related technology in the development of future generations of
microprocessors and other products;
WHEREAS, Fujitsu is willing to pay certain development costs for Viper and
to sublicense to Ross certain rights to technology owned by Sun Microsystems,
Inc. and licensed to Fujitsu which Ross desires to incorporate into Viper;
NOW THEREFORE, in consideration of the foregoing and on the terms and
conditions set forth herein, the Parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS
"Acceptance Criteria" has the meaning given such term in Section 6.1.
"Affiliate" means, with respect to any Person (the "Specified Person"),
any Person other than the Specified Person directly or indirectly controlling,
directly or indirectly controlled by or under direct or indirect common control
with, the Specified Person, provided that Ross and Fujitsu shall not be
considered Affiliates of each other for the purposes of this Agreement. For
purposes of this definition, the term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities or
by contract or otherwise.
"Confidential Information," with respect to a Party, means technical,
business, marketing, planning and other information, ideas, materials or subject
matter of such Party, including with respect to Ross information and data
regarding Viper and with respect to Fujitsu and HaL information and data
regarding a proprietary microprocessor architecture and related technology owned
by HaL known as Denali, whether disclosed orally, in writing, in magnetic,
photographic or other tangible form or otherwise, and whether disclosed by such
Party or a third party, and designated (at or before the time of disclosure or,
if disclosed orally, within thirty (30) days thereafter) as confidential or
proprietary, including any information previously disclosed and subject to
confidential treatment under the NDA. "Confidential Information" also includes,
with respect to both Parties, the terms, conditions
<PAGE> 2
and existence of this Agreement and the Specifications. "Confidential
Information" does not include information, ideas, materials or other subject
matter that (i) is or becomes generally known or available by publication,
through commercial use or otherwise through no fault of the receiving Party and
not, to the knowledge of the receiving Party, as a result of a breach of
confidentiality by any party; (ii) was known by the receiving Party before
receipt from the disclosing Party; (iii) is independently developed by the
receiving Party without use of the disclosing Party's Confidential Information;
(iv) is lawfully obtained from a third party that has the right to make such
disclosure; or (v) is required to be disclosed by a judicial order or decree of
governmental law or regulation, provided that the receiving Party promptly
notifies the disclosing Party of such requirement and reasonable opportunity is
allowed by the receiving Party for the disclosing Party to file for or obtain a
protective order or otherwise proceed to protect under applicable law the
interests of the disclosing Party. Without limitation of the generality of, and
notwithstanding, the foregoing, "Confidential Information" includes information
related to product and marketing plans, designs, costs, business opportunities,
personnel, research and development and knowhow of a Party or any Subsidiary,
Affiliate, customer or supplier of such Party.
"Deliverables" means the deliverables described in Exhibit B and other
information, materials and subject matter that may be disclosed or provided by
Ross to Fujitsu in furtherance of this Agreement, provided that with respect to
documentation, only that documentation listed on Exhibit B shall be a
"Deliverable" for purposes of this Agreement.
"Deliverable Specifications" means the specifications for Deliverables
other than the Product as set forth in Exhibit B or as otherwise agreed in
writing between the Parties.
"Derivative Product" means any modification, correction, addition,
extension, upgrade, improvement or other form in which any Deliverable or the
Product, or any idea, concept, technique, invention, creation, work, process,
design or method embodied therein, may be recast, transformed or adapted,
including, but not limited to, all works that incorporate any Intellectual
Property Rights contained in any Deliverable or the Product.
"Engineering Change Request" or "ECR" means request made by Fujitsu and
agreed by Ross to add a material functional, electrical or physical aspect, or
materially modify a functional, electrical or physical aspect, of the Product,
after the Final Specifications have been finalized and approved, other than due
to an Error.
"Error" means (i) a defect in a Deliverable or the Product that causes it
not to conform to the Specifications; or (ii) an error or deficiency in any
documentation Deliverable that renders it materially inaccurate, materially
erroneous or materially unreliable.
"Existing Viper Technology" means the Viper Technology that is (1)
protected under any patent existing on the Effective Date, (2) the subject of a
patent application filed prior to the Effective Date, or (3) existing on the
Effective Date, protectable under patent and described on Exhibit E, provided
that a patent application is filed with respect to such technology within the
period indicated on Exhibit E or such longer period as otherwise agreed in
writing between the Parties.
"FCS" means the first date that a product is available for shipment to
customers for revenue.
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<PAGE> 3
"Final Specifications" means specifications delivered in accordance with
Section 5 and Exhibit A, including those as to functionality, performance,
interoperability and functional features designed to enhance reliability, for
the Product and the design of the Product agreed to in writing between the
Parties, as modified from time to time in accordance with Section 5.
"Fujitsu Technology" means the rights granted to Ross pursuant to Section
8.1(d). "Fujitsu V9 and UPA-1 Test Suites" means test programs developed by
Fujitsu and/or HaL to verify the functionality of SPARC V9 processor implemented
by Fujitsu and/or HaL.
"HaL" means HaL Computer Systems, Inc., a Delaware corporation.
"Intellectual Property Rights" means all intellectual property, industrial
property and other intangible rights arising under the laws of any country,
including without limitation all rights with respect to (i) patents and patent
applications and similar rights (including utility patent, design patent and
utility model rights and applications therefor), (ii) copyrights (including any
renewals and extensions thereof), databases and mask works, and any
applications, registrations and other rights with respect thereto, and (iii)
trade secrets, knowhow, confidential information, and technology.
"Licensable Viper Design Methodology" means those portions of the Viper
Design Methodology described on Exhibit D-1 and those portions not described on
Exhibit D-2.
"NDA" has the meaning given such term in Section 14.17.
"Non-Licensable Viper Design Methodology" means those portions of the
Viper Design Methodology described on Exhibit D-2.
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a limited liability company, a trust, an unincorporated
organization and a court, regulatory or administrative agency, or other
governmental authority.
"Pre-Viper Design Methodology" means the simulation environments, design
environments, design tools, libraries, scripts, layout generators and test and
checking tools developed by Ross before work began on the Viper Technology,
including without limitation (a) that employed in the design and implementation
of the Ross "Colorado" family of microprocessors, but not including any such
environments, tools, libraries, scripts or generators employed in the design and
implementation of the Viper Technology and (b) the Ross distributed system
simulation environment.
"Pre-Viper Technology" means (i) technology developed by Ross before work
began on the Viper Technology, including without limitation that related to the
Ross "Colorado" family of microprocessors, that is protected or protectable
under any (1) patent, (2) mask work or (3) copyright law, and (ii) Pre-Viper
Design Methodology.
"Product" means (i) a single chip that incorporates the Viper
Microprocessor Core and UPA, (ii) a processor module that incorporates such
single chip, an L2 cache and other components, and (iii) an open boot program
(OBP) and power on self test (POST) software for Viper for Solaris, each
designed to conform to the Specifications.
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<PAGE> 4
**
"Related Products" means any Derivative Product that incorporates (i) 90%
or more of the Viper Microprocessor Core (excluding SRAM cell transistors within
cache blocks) with external SPARC Instruction Set Architecture ("ISA")
interface, (ii) a UPA-1 or UPA-2 interface (any version), and (iii) the process
line width geometry (e.g. .25(micron)) utilized in the Product, provided that
any Derivative Product that incorporates a shrink or other material change in
process technology, a different processor/memory interface or a different
external ISA interface would not be a "Related Product."
"Schedule" means the timetable for services and delivery set forth in
Exhibit A.
"Services" has the meaning given such term in Section 2.1.
"Software Sublicense Agreement" has the meaning given such term in Section
3.1(b).
"Specifications" means the Deliverable Specifications and, until replaced
by the Final Specifications, the Target Specifications.
"Sublicense Agreement" has the meaning given such term in Section 3.1(a).
"Subsidiary" means, with respect to any Person, any entity of which an
aggregate of more than 50% of the voting securities of all classes or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other Persons performing similar functions are owned
directly or indirectly by such Person.
"Sun" means Sun Microsystems, Inc.
"Sun License Agreement" means the Sun Microelectronics License Agreement
(UPA Interconnect Architecture), dated July 25, 1996, by and between Sun and
Fujitsu.
"Sun Software License Agreement" means the Sun Microelectronics Software
License Agreement, dated February 19, 1997, by and between Sun and Fujitsu.
"Sun Technology" means the rights granted to Ross pursuant to the
Sublicense Agreement, the Software Sublicense Agreement, **.
"System" means an apparatus that integrates at least one CPU with other
interconnected units, provided that the apparatus can execute operating system
functions.
"Tapeout" means the first design release for manufacturing.
"Target Specifications" means specifications, including those as to
functionality, performance, interoperability and functional features designed to
enhance reliability, for the
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<PAGE> 5
Product and the design of the Product set forth in Exhibit C and in the
documents referred to therein.
"Transferred Business" means any Person or other business unit that is an
Affiliate of a Party and contains a business unit acquired from the other Party
by the Party or any Affiliate on or before the Effective Date.
"UPA-1" means the processor/memory bus architecture and specification
developed and utilized by Sun in connection with its UltraSPARC-1 and
UltraSPARC-2 microprocessors.
"UPA-2" means the processor/memory bus architecture and specification
developed by Sun, known internally at Sun as the "Safari" bus, which the Parties
understand will be utilized by Sun in connection with its forthcoming
UltraSPARC-3 microprocessor.
"UPA" shall mean the UPA-1 unless Fujitsu and Ross jointly agree in
writing that it shall mean the UPA-2.
"Viper Design Methodology" means the simulation environments, design
environments, design tools, libraries, scripts, layout generators and test and
checking tools employed in the design and implementation of the Viper
Technology.
"Viper Microprocessor Core" means the processor core of a single chip
"Product" which has the CPU features described in Exhibit C excluding the UPA
bus interface and which is uniquely defined as the collection of schematics and
layouts of a single chip "Product" excluding the UPA bus interface block.
"Viper Technology" means the architecture, circuitry, logic, layout,
packaging, and module design and specifications heretofore developed by or on
behalf of Ross in connection with Viper or developed by or on behalf of Ross
pursuant to this Agreement (including, without limitation the Product and all
such items developed for, but not implemented in the Product), and all
Intellectual Property Rights pertaining thereto. "Viper Technology" shall
include any Pre-Viper Technology that is incorporated by Ross in the Product or
used by Ross in the development of the Product but such Technology in the form
it existed prior to such incorporation or use shall also be Pre-Viper
Technology.
2. ROSS DEVELOPMENT SERVICES
2.1. Product Development. Ross hereby agrees to deliver the Deliverables
and develop and complete the Product in conformance with the Specifications and
the Schedule and to perform the other services described in this Agreement, in
each case on the terms and conditions set forth in this Agreement (the
"Services").
2.2. Deliveries. Pursuant to Ross' commitment under Section 2.1, Ross
hereby agrees to deliver to Fujitsu (1) the Deliverables in accordance with the
Schedule and (2) at Fujitsu's reasonable request from time to time, copies of
any work in progress, internal documentation and other materials related to the
Deliverables or Product. Fujitsu agrees that the amount of time it will take
Ross to fulfill any such request shall be taken into account in determining
whether such request is reasonable, but Fujitsu shall have no obligation to
agree to any modification of the Schedule other than as provided in Section 6.3.
Unless otherwise
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<PAGE> 6
agreed to by the Parties in writing, each Deliverable shall include any and all
design documentation and diagnostic and testing materials relating to the
Deliverable and other materials and information reasonably requested by Fujitsu,
including, without limitation, any and all materials or information necessary
for the design, development, implementation, assembly, testing, operation,
modification or other use of the Deliverable, provided that failure to deliver
any documentation relating to a Deliverable that is not in itself a Deliverable
shall not constitute or be deemed a failure to deliver or a delay in delivery of
such Deliverable for purposes of Section 6. Ross acknowledges that time is of
the essence in providing the Deliverables to Fujitsu in accordance with the
Schedule.
2.3. Review. Fujitsu may conduct a reasonable number of periodic reviews,
including reviews at Ross' premises, of the Product and the Deliverables. At
Fujitsu's reasonable request, Ross will provide Fujitsu with written reports
regarding its work on the Product in form and substance acceptable to both
Fujitsu and Ross and with copies of any work in progress, internal documentation
and related materials. Additionally, at Fujitsu's reasonable request, Ross will
make presentations to Fujitsu regarding such work. Fujitsu agrees that the
amount of time it will take Ross to fulfill any such request shall be taken into
account in determining whether such request is reasonable, but Fujitsu shall
have no obligation to agree to any modification of the Schedule other than as
provided in Section 6.3. The Parties currently anticipate satisfying Fujitsu's
information requirements through weekly status reports, and monthly schedule and
quarterly review meetings. Fujitsu will pay Ross' reasonable travel expenses if
Fujitsu requests that the presentation be made at a location outside the Austin,
Texas area, provided that such expenses are approved in advance by Fujitsu.
2.4. Design Methodology.
(a) Fujitsu agrees that Ross has no obligation under this Agreement
to (i) customize or modify the Viper Design Methodology for any design
environment other than that for which it was designed by Ross, (ii) provide any
documentation for the Viper Design Methodology over and above that which is or
was created for Ross' internal needs, or (iii) update or support the Viper
Design Methodology or any associated documentation in the future.
Notwithstanding the preceding sentence, Ross agrees to provide any new or
updated Viper Design Methodology (together with any associated documentation)
not previously provided to Fujitsu at the same time it delivers any Deliverable
to Fujitsu and to provide a final, complete set of Viper Design Methodology to
Fujitsu upon FCS. Following FCS, Ross shall have no obligation to provide any
Viper Design Methodology to Fujitsu.
(b) Fujitsu shall be entitled to receive any Pre-Viper Design
Methodology (other than the Ross distributed system simulation environment) that
is employed in the design and implementation of the Viper Technology. Upon
request therefor by Fujitsu and following mutual consultations in good faith,
Ross agrees to provide any such Pre-Viper Design Methodology to Fujitsu and such
Pre-Viper Design Methodology shall thereupon become Non-Licensable Viper Design
Methodology.
(c) If Fujitsu reasonably believes that a grant of a license to any
Non-Licensable Viper Design Methodology (except for any such Viper Design
Methodology that was once Pre-Viper Design Methodology) is necessary for the
exercise by any Person to whom Fujitsu has granted a license in the New
Technology of the other rights granted to such
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Person pursuant hereto, upon the request of Fujitsu and subject to the written
consent of Ross, which shall not be unreasonably withheld, such Non-Licensable
Viper Design Methodology shall become Licensable Viper Design Methodology.
2.5. UPA-2. In the event that the Parties agree that the Product will be
UPA-2 rather than UPA-1 based or agree that the Services shall include the
development of a UPA-2 based product in addition to the Product, the Parties
will discuss in good faith amendments to this Agreement, including to the
Schedule, the Deliverables, the Specifications and the payments to be made
against delivery of the Deliverables in order to implement such change or
addition. Fujitsu acknowledges that such change or addition may require expenses
and payments in addition to those provided hereunder.
3. FUJITSU CONTRIBUTIONS
3.1. Sun Sublicenses.
(a) Fujitsu agrees to grant Ross a sublicense of certain license
rights granted to Fujitsu pursuant to the Sun License Agreement for use by Ross
in performance of the Services and in the development, manufacture, marketing
and sale of the Product and Derivative Products. Such sublicense shall be
conditioned upon (a) execution of a sublicense agreement between Fujitsu and
Ross substantially in the form attached hereto as Attachment 1 (the "Sublicense
Agreement") and (b) the payment by Ross to Fujitsu of any applicable per-copy
royalty fee payable pursuant to the Sun License Agreement, as amended, with
respect to any Products or Derivative Products manufactured, marketed or sold by
Ross that incorporate the licensed rights. Fujitsu hereby waives any license fee
that might otherwise be payable by Ross with respect to the Sublicense
Agreement.
(b) Fujitsu agrees to grant Ross a sublicense of certain license
rights granted to Fujitsu pursuant to the Sun Software License Agreement for use
by Ross in performance of the Services and in the development, manufacture,
marketing and sale of the Product and, to the extent permitted by the Sun
Software License Agreement, Derivative Products. Such sublicense shall be
conditioned upon (a) amendment of the Sun Software License Agreement to
incorporate license rights sufficient to permit the manufacture, marketing and
sale of the Products by Ross and, to the extent permitted by the Sun Software
License Agreement, Derivative Products, (b) execution of a sublicense agreement
between Fujitsu and Ross in a form reasonably acceptable to Fujitsu (the
"Software Sublicense Agreement") and (c) the payment by Ross to Fujitsu of any
applicable license fee and/or per-copy royalty fee payable pursuant to the Sun
Software License Agreement, as amended, with respect to any Products or
Derivative Products manufactured, marketed or sold by Ross that incorporate the
licensed rights. To the extent permitted by Sun, Fujitsu agrees to pass through
to Ross in the Software Sublicense Agreement any representations and warranties
or indemnities with respect to the Sun Technology provided by Sun pursuant to
the Software License Agreement. If the Sun Software License Agreement does not
permit Fujitsu to sublicense Ross for all Ross Derivative Products, Fujitsu
agrees to seek, in good faith, an amendment to the Sun Software License
Agreement permitting such sublicense but shall have no obligation to obtain such
amendment.
(c) **
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(d) **
(e) **
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(f) ** In the event that Ross ceases to be a Subsidiary of Fujitsu,
the continuation of any sublicense already executed or agreed to between Fujitsu
and Ross shall be subject to the terms of the applicable agreement between
Fujitsu and Sun.
(g) Any per-copy royalty fees payable by Ross to Fujitsu or by
Fujitsu to Ross pursuant to the terms of this Section 3.1 or the terms of the
Sublicense Agreement, Software Sublicense Agreement, ** shall be in
reimbursement of, and shall not exceed, the per-copy royalty fees then payable
to Sun by Fujitsu or Ross, as the case may be, pursuant to the corresponding
master license agreement.
3.2. Subcontractor. Fujitsu may, in its sole discretion, elect to engage
HaL as a subcontractor to assist Fujitsu in the performance of its obligations
hereunder. In the event Fujitsu does so engage HaL, it shall enter into a
subcontract agreement with HaL on terms and conditions consistent with the terms
and conditions hereof (including as to restrictions on the disclosure of
Confidential Information) (the "Subcontract Agreement"). Fujitsu agrees to cause
HaL to comply with the terms and conditions of the Subcontract Agreement. Any
specific reference in this Agreement to HaL shall be deemed to be to HaL as a
subcontractor of Fujitsu.
3.3. Engineers. At the request of Ross, Fujitsu will consider making
available to Ross, to assist in performance of the Services, Fujitsu and/or HaL
engineers familiar with the SPARC architecture and with the development of
SPARC-compatible microprocessors. The decision to make such engineers available
will be made by Fujitsu and HaL, in their sole discretion, after consultation
with Ross, and will reflect, among other things, the staffing constraints, if
any, faced by HaL or Fujitsu with respect to its separate development projects
from time to time. Any engineers will be made available on terms to be mutually
agreed in writing after consultation among Fujitsu, HaL, and Ross and such
engineers, to the extent they are assisting Ross in the performance of the
Services, shall be subject to the direction and control of Ross unless otherwise
agreed. No dispatch by Fujitsu or HaL of engineers to Ross will modify in any
respect Ross' sole responsibility for performing the Services and completing and
delivering the Deliverables and the Product on the terms provided herein.
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3.4. Other Services.
(a) Fujitsu may, in its sole discretion, elect to conduct alpha-site
system verification. In the event that Fujitsu becomes an alpha-site, it will
provide to Ross, without charge, the complete results of such verification and
debugging as Fujitsu elects to perform in its sole discretion.
(b) At the request of Ross, Fujitsu may, in its sole discretion,
elect to provide system test vehicles and system development boards for the
Product. In the event that Fujitsu so elects it may elect to charge Ross
separately, on terms to be mutually agreed in writing between the Parties, for
such system test vehicles and system development boards.
4. PAYMENT
4.1. Payment for Deliverables.
(a) Fujitsu shall pay the amount set forth in Exhibit A for each
Deliverable by the twentieth (20th) day of the calendar month following the
month in which Fujitsu accepts such Deliverable, provided that if such
Deliverable is accepted after the twentieth (20th) day of any calendar month
Fujitsu shall pay the amount by the twentieth (20th) day of the calendar month
which is two months after the month in which Fujitsu accepts such Deliverable.
Any amount due from Fujitsu hereunder that is more than thirty (30) days late
shall bear interest from the due date until the date of actual payment at the
rate of nine percent (9%) per annum compounded semiannually. Once due and
payable by Fujitsu, each of the amounts set forth in Exhibit A shall, subject to
the terms hereof, be payable and non-refundable even in the event of Ross'
failure to deliver, or Fujitsu's failure to accept or rejection of, any
subsequent Deliverable.
(b) Fujitsu's payment obligations will be subject to receipt by
Fujitsu of an invoice from Ross referencing this Agreement and setting forth the
correct amount owed by Fujitsu. Such invoices shall be forwarded by Ross to
Fujitsu by facsimile to the address set forth for notices in Section 14.11.
(c) Ross acknowledges that it has been informed by Fujitsu that the
payment terms set forth in subsections(a) and (b) above are the standard payment
terms within Fujitsu but that such terms may be altered in certain
circumstances. Fujitsu agrees with respect to the first and second Deliverables
listed in the Schedule to use its best efforts to pay the respective amounts set
forth in the Schedule for such Deliverable no later than, in the case of the
first Deliverable, the seventh (7th) day, and, in the case of the second
Deliverable, the fourteenth (14th) day, after acceptance of such Deliverable.
4.2. Engineering Change Requests.
(a) Any ECRs will be charged separately to Fujitsu by Ross on an
itemized statement at the rate of $20,000 per man-month (or a pro rata charge
for any fraction thereof) plus materials at cost and travel expenses, if any. If
special CAD tools or other software or hardware applicable to the ECR must be
acquired by Ross for the implementation of the ECR, the purchase of any such
tools or hardware shall be pre-approved by Fujitsu in writing and Fujitsu and
Ross will separately agree, in advance in writing, on an item by item
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basis, on the allocation of the cost of such tools or hardware (and any
ownership or other rights of the Parties with respect thereto) between the
Parties.
(b) Ross shall forward to Fujitsu invoices referencing this
Agreement and setting forth the amount of charges attributable to ECRs and
related expenses after Ross' receipt of Fujitsu's written notice of acceptance
of the corresponding ECRs. Such invoices shall be forwarded by Ross to Fujitsu
by facsimile to the address set forth for notices in Section 14.11. Fujitsu
shall pay any invoiced amounts by the twentieth (20th) day of the calendar month
following the month in which Fujitsu receives the Ross invoice, provided that if
such invoice is received after the twentieth (20th) day of any calendar month
Fujitsu shall pay any invoiced amount by the twentieth (20th) day of the
calendar month which is two months after the month in which Fujitsu receives the
Ross invoice.
5. SPECIFICATIONS
The Parties shall develop and agree on detailed Final Specifications in
accordance with the Schedule. The Final Specifications shall be based on, and
not inconsistent with, the Target Specifications, which the Parties acknowledge
are less detailed than the Final Specifications but are otherwise final in all
material respects (except as otherwise provided in Exhibit C) as of the date of
this Agreement. Ross shall have primary responsibility for identifying and
documenting all features which are to incorporated into the Final
Specifications. Fujitsu agrees to provide Ross with reasonable assistance and
input regarding the development of the Final Specifications and to approve the
Final Specifications in accordance with the Schedule. Once delivered and
accepted hereunder, the Final Specifications shall be final in all material
respects, subject to such minor modifications as may be required to efficiently
implement the intended functions and performance characteristics of the Product,
and shall replace the Target Specifications. Ross' budget for performance of the
Services hereunder includes the cost of implementing such minor modifications
from time to time, but does not include the cost of implementing any ECRs, which
costs shall be charged in accordance with Section 4.2.
6. ACCEPTANCE AND REJECTION OF DELIVERABLES
6.1. General. The following procedures shall apply to the acceptance or
rejection of any Deliverable:
(a) Initial delivery of a Deliverable (the "Initial Deliverable")
will occur when Ross delivers to a site in the United States or Japan designated
by Fujitsu a Deliverable that Ross reasonably determines to conform to the
applicable Specifications therefor and that is in a form appropriate for review
and, if applicable, testing by Fujitsu, accompanied by a written statement
listing the items delivered and stating that they are ready for Fujitsu's review
and, if applicable, acceptance testing. Fujitsu, with the assistance of Ross if
requested by Fujitsu, will review and, if applicable, test each Deliverable upon
delivery to determine, in accordance with the acceptance criteria specified for
such Deliverable on attached Exhibit B (the "Acceptance Criteria"), whether the
Deliverable conforms to the Specifications for such Deliverable. Within the
period specified for review of each Deliverable by Fujitsu on Exhibit B, Fujitsu
will provide Ross with either written acceptance of such Deliverable or a
statement of Errors to be corrected or changed. The first shipment by Fujitsu of
the Product for revenue shall constitute final acceptance of the Product.
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(b) Ross will promptly correct the Errors in any Deliverable set
forth in the statement of Errors and redeliver the Deliverable (a "Subsequent
Deliverable") to Fujitsu within fifteen (15) Fujitsu business days, or such
longer period as is reasonably required to correct such Error (not to exceed
seventy-five (75) business days in the aggregate) or as Fujitsu and Ross
otherwise agree is reasonable under the circumstances. Fujitsu will, within
fifteen (15) business days after such redelivery or such other period as is set
forth opposite such Deliverable in Exhibit B, provide Ross with either written
acceptance or another statement of Errors. The procedure set forth in Section
6.1(a) and this Section 6.1(b) will be repeated until Fujitsu accepts the
Deliverable, agrees to an alternative acceptance arrangement with Ross, or
terminates this Agreement pursuant to Section 6.2.
6.2. Rejection.
(a) Ross will have at least five opportunities to correct each Error
in a Deliverable, provided that the time expended to correct such Error shall
not exceed seventy-five (75) business days in the aggregate. If, after five
attempts, Ross fails to deliver a Deliverable that either (i) contains no Errors
or otherwise meets the Acceptance Criteria or (ii) is nonetheless acceptable to
Fujitsu, Fujitsu may terminate this Agreement for cause pursuant to Section
13.2, or may continue to permit Ross to correct the Deliverable. Fujitsu's
election to continue permitting Ross to correct a Deliverable will not affect
Fujitsu's right to terminate this Agreement in accordance with this Section
6.2(a) if thereafter a Subsequent Deliverable has Errors.
(b) Ross will inform Fujitsu as soon as possible if it believes it
will not be able to deliver a Deliverable, whether an Initial Deliverable or a
Subsequent Deliverable, on time. For each Deliverable that is delivered more
than thirty (30) days late (after adjustment for any Schedule modification
pursuant to Section 6.3) and for which there is an applicable milestone payment,
Ross will accrue a late delivery penalty equal to ten percent (10%) of such
milestone payment. In addition, if a Deliverable is more than one hundred and
twenty (120) days late (after adjustment for any Schedule modification pursuant
to Section 6.3), Ross will accrue a late delivery penalty equal to an additional
ten percent (10%) and Fujitsu may, in its discretion, terminate this Agreement
pursuant to Section 13.2. For purposes of this Section 6.2(b), a Deliverable
will not be deemed delivered until accepted by Fujitsu after any corrections
required pursuant to Section 6.1, provided that if such Deliverable is
ultimately accepted by Fujitsu the period of Fujitsu's evaluation and acceptance
testing of such Deliverable shall not be counted in the respective thirty and
one hundred and twenty day periods.
(c) All accrued late delivery penalties shall be payable by Ross to
Fujitsu at the time the final payment is due from Fujitsu hereunder (whether on
final acceptance of the Product or earlier termination). Such late delivery
penalties may be reduced as follows:
(i) if FCS occurs in accordance with the Schedule, no late
penalty shall be payable for any Deliverable;
(ii) if Ross delivers the next subsequent Deliverable (the
"Next Deliverable") to a late Deliverable (the "Late Deliverable") on or before
the date set for delivery of the Next Deliverable on the Schedule, no late
delivery penalty shall be payable for the Late Deliverable;
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(iii) subject to subsection(iv) below, if the Next Deliverable
is also late but is not as late as the Late Deliverable, then the late delivery
penalty for the Late Deliverable shall be reduced by multiplying such late
delivery penalty by a fraction (i) the numerator of which is the number of days
by which the Next Deliverable was late and (ii) the denominator of which is the
number of days by which the Late Deliverable was late, provided that Fujitsu
shall still be entitled to charge any late delivery penalty otherwise applicable
to the Next Deliverable; and
(iv) if FCS does not occur in accordance with the Schedule but
is not as late as a Late Deliverable or the applicable Next Deliverable, then
subsection (iii) shall not apply and the late delivery penalty for such Late
Deliverable shall instead by reduced by multiplying such late delivery penalty
by a fraction (i) the numerator of which is the number of days by which FCS was
late and (ii) the denominator of which is the number of days by which the Late
Deliverable was late.
(d) Fujitsu shall be obligated to act reasonably and in good faith
in failing to accept or rejecting any Deliverable pursuant to this Agreement.
6.3. Modification of Schedule.
(a) If Ross believes that a modification of the Schedule is
appropriate because of problems or events beyond Ross' reasonable control, Ross
may request a modification of the Schedule without the reduction of milestone
payments. Fujitsu will consider such a request in good faith, taking into
account all relevant factors, including the reasons for the requested
modification, Fujitsu's own schedule requirements and Ross' diligence in
performing the Services. In no event, however, will Fujitsu be obligated to
agree to any such request (or to a related waiver of or modification in the
reduction of milestone payments) or to consider increasing the milestone
payments to Ross.
(b) If Fujitsu submits an ECR to Ross which Ross reasonably believes
will require a modification to the Schedule, the Parties shall discuss in good
faith and agree on the required modification. Fujitsu acknowledges that the
implementation of an ECR may result in Schedule changes due to design changes
and dependencies and resource conflicts.
7. SUPPORT
7.1. Error Correction and Support.
(a) Ross will provide Fujitsu with technical assistance relating to
the Deliverables and the Product from and after the delivery of the first
Deliverable on the terms and conditions set forth in this Section 7.1. Such
support will include correcting promptly any Errors in the Deliverables and the
Product, supplying corrections to Fujitsu in a timely fashion and correcting and
updating any documentation ("Error Corrections"), and conducting failure
analysis, providing software patches and answering questions that Fujitsu may
have regarding the Deliverables and the Product ("Other Support"). Following
final acceptance by Fujitsu of the Product, support shall no longer be provided
with respect to any Deliverable other than the Product except to the extent any
such Deliverable is not superseded by the Product.
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(b) Ross shall provide the following support to Fujitsu:
(i) prior to final acceptance of the Product, Ross will
provide Fujitsu with Error Corrections and Other Support free of charge;
(ii) after final acceptance of the Product, if Fujitsu or any
of its Affiliates purchase Products or Derivative Products from Ross, Ross
shall provide Error Corrections for such Products or Derivative Products
to Fujitsu on the terms and conditions set forth in the purchase
agreements for such Products or Derivative Products;
(iii) after final acceptance of the Product, if Fujitsu and
its Affiliates manufacture the Product or a Derivative Product and Fujitsu
and Ross reasonably agree on Error Corrections to be made, Ross shall
provide such Error Corrections to Fujitsu at half of the costs actually
incurred by Ross in providing such Error Corrections, provided that Ross
shall have no obligation to make Error Corrections not agreed by Ross and
Fujitsu shall have no obligation to pay for Error Corrections not agreed
by Fujitsu and, provided further, that subsection (ii) above shall apply,
in lieu of this subsection (iii), to any Error Corrections required for
Products or Derivative Products purchased by Fujitsu from Ross;
(iv) for the first twelve (12) month period following final
acceptance of the Product, (i) Ross shall provide up to 20 hours per month
of Other Support without charge, (ii) Ross shall provide an additional 140
hours per month of Other Support on Ross' standard terms for the provision
of comparable technical support to third parties, as in effect from time
to time, and (iii) the Parties shall separately agree on the terms of any
Other Support beyond 160 hours per month; and
(v) during the second and third twelve (12) month periods
following final acceptance of the Product, Ross shall provide up to 160
hours per month of Other Support on Ross' standard terms for the provision
of comparable technical support to third parties, as in effect from time
to time.
(c) Unless otherwise agreed between Ross and Fujitsu, any support to
be provided to Fujitsu pursuant to this Section 7.1 shall be provided only to
the processor group of Fujitsu which will in turn provide support to any other
group of Fujitsu, except when the processor group reasonably determines that it
is not appropriate for it to act as an intermediary in the provision of such
support. Ross shall have no obligation to provide any technical assistance or
support other than as specifically set forth in this Section 7.1 or elsewhere in
this Agreement or after any termination of this Agreement.
7.2. Training. The Parties agree that Ross shall train, in Austin,
without charge one engineer designated by Fujitsu to provide support functions
within Fujitsu related to the Deliverables and the Product (in addition to the
support to be provided by Ross pursuant to Section 7.1). Fujitsu agrees to
provide at its expense a file server and workstations, together with any
necessary third party software licenses, at Ross with sufficient capacity to
sustain the transfer to Fujitsu of the Deliverables and to be used for the
acceptance of the Deliverables and Product, training and support functions.
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7.3. Disclosure. At any time after final acceptance by Fujitsu of the
last of the Deliverables accepted by Fujitsu, Ross and Fujitsu will each
promptly disclose to the other Party in writing at no charge any Errors,
including, but not limited to, problems with functionality or performance, in
such Deliverables or the Product of which such Party becomes aware.
8. OWNERSHIP RIGHTS AND LICENSE
8.1. Joint Ownership and License.
(a) All right, title and interest in the Specifications,
Deliverables and Product to the extent created, conceived or developed by Ross
pursuant to this Agreement (including any discoveries created, conceived or
developed by Ross in consultation with Fujitsu) or by Fujitsu and/or HaL
engineers working with Ross pursuant to Section 3.3, including, but not limited
to, (i) the Licensable Viper Design Methodology (ii) all modifications and
additions (including Error corrections) to the Specifications, Deliverables and
Product (including any prototypes, work in progress, documentation or other
materials related thereto) made during the term of this Agreement, (iii)
worldwide ownership of all Intellectual Property Rights with respect to the
Specifications, Deliverables and Product (including any prototypes, work in
progress, documentation or other materials related thereto) and (iv) any ideas,
concepts, techniques, inventions, creations, works, processes, designs or
methods that are embodied therein or that are necessary for the design,
development, implementation, assembly, testing, operation, modification or other
use thereof, (but expressly excluding the Non-Licensable Design Methodology, the
Existing Viper Technology, the Pre-Viper Technology, the Sun Technology and the
Fujitsu Technology) (collectively, the "New Technology"), is hereby vested
equally in Ross and Fujitsu as joint owners and each Party hereby assigns, and
agrees to assign, to the other Party an irrevocable, worldwide, nonexclusive,
perpetual, royalty-free undivided fifty percent (50%) interest in and to all of
the New Technology without any obligation to account to or obtain the consent of
the other Party for the exercise of any rights by a Party, the grant of any
license by a Party or otherwise with respect to the New Technology except as
follows:
**
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(iv) neither Party shall, without the prior written consent of
the other Party, sell, convey, transfer or assign, in whole or in part,
its ownership interest in the New Technology.
For the avoidance of doubt, following the sixth anniversary of the
execution of this Agreement, each Party shall have the unrestricted right to
grant licenses of the New Technology without any obligation to provide payment
in connection with any such license to the other Party.
(b) All right, title and interest is hereby vested equally in Ross
and Fujitsu as joint owners and each Party hereby assigns, and agrees to assign,
to the other Party an irrevocable, worldwide, nonexclusive, perpetual,
royalty-free undivided fifty percent (50%) interest in and to all of the
Non-Licensable Viper Design Methodology without any obligation to account to or
obtain the consent of the other Party for the exercise of any rights by a Party
or otherwise with respect to the Non-Licensable Viper Design Methodology, except
that neither Party shall have the right to grant a license in the Non-Licensable
Viper Design Methodology to any Person.
(c) Fujitsu acknowledges that, as between Ross and Fujitsu, Ross is
the sole owner of the Existing Viper Technology and the Pre-Viper Technology.
Ross hereby grants to Fujitsu an irrevocable, worldwide, nonexclusive,
nontransferable, perpetual, royalty-free license to make, use, sell, reproduce,
modify, prepare Derivative Products thereof, and distribute Products and
Derivative Products thereof incorporating the Existing Viper Technology, with
the right to grant sublicenses of such rights in connection with licenses of the
New Technology, except as such rights are limited pursuant to this Section 8.
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Ross agrees not to grant a license in the Existing Viper Technology except with
the prior written consent of Fujitsu or in connection with a license of the New
Technology. For the avoidance of doubt and subject to the terms of any other
agreement between the Parties with respect to the Pre-Viper Technology, the
Parties agree that Ross shall have the right to exploit the Pre-Viper Technology
without restriction (including without limitation the right to create derivative
works and the right to grant licenses thereof on such terms as Ross may
determine in its sole discretion, provided that the creation of any such
derivative work or the grant of any such license by Ross shall constitute a
representation by Ross that such derivative work is not a Derivative Product or
such license is not a license of Viper Technology, as the case may be) and Ross
does not hereby grant any rights to Fujitsu in the Pre-Viper Technology.
(d) Ross acknowledges that, as between Ross and Fujitsu, Fujitsu is
the sole owner of the Fujitsu V9 and UPA-1 Test Suites. Fujitsu hereby grants to
Ross an irrevocable, worldwide, nonexclusive, nontransferable, perpetual,
royalty-free license to use the Fujitsu V9 and UPA-1 Test Suites in the
development or manufacture of Products and Derivative Products thereof, with the
right to grant sublicenses of such rights in connection with licenses of the New
Technology, except as such rights are limited pursuant to this Section 8. Ross
shall be responsible for modifying the Fujitsu V9 and UPA-1 Test Suites for the
Ross environment and Fujitsu shall provide without charge reasonable support to
enable Ross to do so and to utilize the Fujitsu V9 and UPA-1 Test Suites.
(e) All right, title and interest in the New Technology, including
any work in progress, prototypes, internal documentation and other materials
related thereto, and any ideas, concepts, techniques, inventions, creations,
works, processes, designs or methods intended to be embodied therein, shall vest
jointly in the Parties when and as created, conceived or developed, without the
need for any further act by either Party, and whether or not delivered
hereunder, and regardless of which Party created, conceived or developed the New
Technology. Each Party will take all steps necessary (i) to convey to the other
Party joint ownership rights in the New Technology, including executing or
causing to be executed assignments and all other instruments and documents as
the other Party may consider necessary or appropriate to carry out the intent of
this Section 8.1(e) and, (ii) subject to Section 8.4, to establish, evidence,
maintain, defend and enforce the Intellectual Property Rights therein.
8.2. Derivative Products. Notwithstanding Section 8.1, all right, title
and interest in any Derivative Product developed by either Party after the
acceptance by Fujitsu of the Product or earlier termination of this Agreement,
including, but not limited to, worldwide ownership of all Intellectual Property
Rights embodied in such Derivative Product, other than the Existing Viper
Technology, the Fujitsu Technology, the New Technology, the Pre-Viper
Technology, the Viper Design Methodology and the Sun Technology, shall belong
solely to the Party developing such Derivative Product. Neither Party shall have
the obligation to grant a license in any such Derivative Product
to the other Party. If Fujitsu begins the design or tapeout of a Derivative
Product prior to its final acceptance of the Product, it shall do so at its own
risk. The limitations set forth in Section 8.3 with respect to the sale and
distribution of the Product shall not apply to Derivative Products other than
Related Products.
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8.3. Right to Distribute Product and Derivative Products.
(a) Without limiting the generality of Section 8.1, each Party shall
have the right to make, use, sell, reproduce, modify, and distribute without
restriction hereunder (i) any Derivative Product developed by such Party other
than a Related Product and, (ii) except as set forth in Section 8.3(b), the
Product and any Related Products, with, in either case, no obligation of payment
to the other Party except as provided in Section 3.1.
(b) Subject to Section 13.4, the following limitations shall apply
to the sale of Products and Related Products:
(i) Fujitsu shall have the exclusive right to sell Products
and UPA-1-based Related Products internally to itself and its Affiliates.
(ii) Ross shall have the exclusive right to sell Products and
Related Products other than Systems to all third parties, other than
Fujitsu and its Affiliates, provided that Fujitsu shall have the
non-exclusive right to sell Products and UPA-1-based Related Products to
customers of Fujitsu and its Affiliates as upgrades to systems purchased
in Japan from Fujitsu or its Affiliates.
(iii) Notwithstanding the provisions of Sections 8.3(b)(i) and
8.3(b)(ii), both Parties shall have the right to sell Systems (including
without limitation Systems incorporating Products or Related Products) to
any Person.
(iv) If either Party does not complete a UPA-2 based Related
Product within two (2) years after FCS of the Product (or, in the event
the Services are not completed, within three (3) years after Tapeout of
the Product) and the other Party does complete a UPA-2 based Related
Product within such period, the other Party shall not be subject to the
restrictions of this Section 8.3(b) with respect to its UPA-2 based
Related Product. For purposes of this Section 8.3(b)(iv), "completion" of
a UPA-2 based Related Product shall mean FCS of that Related Product.
(c) Notwithstanding the provisions of Section 8.1(a), the Parties
shall have the right to grant such licenses in the New Technology (and
corresponding sublicenses in the Existing Technology and the Fujitsu Technology)
to end users in connection with the sale of Products or Derivative Products as
are reasonably required in connection with the use of the Products or Derivative
Products, as the case may be.
(d) Fujitsu may elect, in its sole discretion, to purchase from Ross
any Products or Related Products that Ross is currently manufacturing for
commercial sale or to permit any of its Affiliates to do so. In the event that
Fujitsu or its Affiliates wish to purchase Products or Related Products from
Ross, Ross agrees to sell Products or Related Products to Fujitsu and its
Affiliates on a most favored customer basis, subject to Ross' prior commitments
to other customers. The terms and conditions of such sales shall be subject to a
separate purchase agreement to be negotiated between Fujitsu and Ross.
8.4. Protection of Intellectual Property Rights; Cooperation.
(a) The Parties agree to cooperate to obtain, maintain, protect,
enforce and defend (collectively, "Protect") all Intellectual Property Rights in
the New Technology (the
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"Co-Owned Intellectual Property"). Each Party shall give the other Party all
reasonable assistance in obtaining such proprietary rights protection and in
preparing and prosecuting any patent, copyright, mask work or other filing or
application made by the other Party. The Parties shall share on a 50-50 basis
the expenses of obtaining such protection and preparing and prosecuting such
filings and applications in all jurisdictions, in accordance with the
Intellectual Property Protection Plan.
(b) No later than September 30, 1997, Ross shall submit to Fujitsu
for its approval a plan for the protection of the Co-Owned Intellectual Property
in the United States and outside of the United States and Japan, and Fujitsu
shall submit to Ross for its approval a plan for the protection of the Co-Owned
Intellectual Property in Japan (such plans collectively, the "Intellectual
Property Protection Plan"). The Intellectual Property Protection Plan will,
among other things, provide for each Party to provide periodic updates to the
other on its efforts in obtaining and maintaining such protection, for
coordination of filings of the same applications in multiple countries and for
the Parties to discuss as needed any changes to the Plan. The Intellectual
Property Plan will be modified and updated as needed on a quarterly basis to
reflect new inventions, new filings and other relevant changes. Subject to each
Party complying with such plan and acting diligently to protect the interests of
both Parties in the Co-Owned Intellectual Property, Ross shall have the
exclusive right to apply or register for any relevant form of legal protection
(including patent or copyright protection) for the Co-Owned Intellectual
Property in the United States, Fujitsu shall have such rights in Japan and the
Parties shall share such rights outside of the United States and Japan in
accordance with the Intellectual Property Protection Plan.
(c) Ross and Fujitsu shall also have the exclusive right to bring
infringement actions or proceedings in the United States and Japan,
respectively, against a third party with respect to the Co-Owned Intellectual
Property. Each Party agrees to notify the other Party in writing upon its
discovery of any unauthorized use or infringement of the Co-Owned Intellectual
Property. If the Party with the right to bring such action fails to exercise its
right to bring an infringement action or proceeding against any third party
within a reasonable time after discovery of any unauthorized use or infringement
of the Co-Owned Intellectual Property by such Party or delivery of such
notice by the other Party, or fails to diligently pursue such cause of action,
the Parties agree to meet in good faith to agree upon an appropriate course of
action. In the event that the Parties do not reach an agreement within thirty
(30) days of beginning such discussions, the Party without the right to bring
the cause of action shall have the right to demand that the other Party bring or
diligently pursue such cause of action. In the event that the Party with the
right to bring the cause of action continues to fail to do so (or continues to
fail to diligently pursue such cause of action), the right to such cause of
action shall be deemed assigned to the other Party. In such event, the other
Party may pursue such cause of action at its sole cost and expense and may
retain for its own account any and all amounts recovered.
8.5. Non-Assertion. Fujitsu agrees not to sue or bring any judicial,
administrative or other proceeding of any kind against Ross, its Subsidiaries,
its joint development partner granted a license pursuant to Section 8.1(a)(i)(A)
or end-users for infringement of Fujitsu Patents on account of the performance,
during the Immunity Period, of the Services or the manufacture, use, sale or
distribution, during the Immunity Period, of the Product or, with respect to the
same Fujitsu Patents as those that may be utilized in the Product or in any
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technology that the Parties agree is Viper Technology, any Derivative Product
fifty percent (50%) or more of which (including the Viper Microprocessor Core if
incorporated therein) was designed by Ross or its Subsidiary. "Fujitsu Patents"
means all patents and patent applications throughout the world owned directly or
beneficially by Fujitsu at any time prior to the final acceptance of the Product
or earlier termination of this Agreement, and the "Immunity Period" shall
commence on the Effective Date and shall terminate on the tenth anniversary of
the date of execution of this Agreement.
9. RIGHT TO DEVELOP INDEPENDENTLY
Nothing in this Agreement will impair either Party's right to acquire,
license, develop for itself or have others develop for it similar products or
technology performing the same or similar functions as the product or technology
contemplated by this Agreement, or to market and distribute such similar
products or technology in addition to, or in lieu of, the Product and its
Derivative Products; provided that such Party shall at all times comply fully
with the confidentiality and limited use provisions and any other applicable
covenants contained in this Agreement.
10. WARRANTIES AND INDEMNIFICATION
10.1. Warranties By Ross. Ross represents and warrants that it has the
unrestricted right to disclose, use, and grant and assign (without liability to
others) all the subject matter, including ideas, concepts, techniques,
inventions, creations, works, processes, designs and methods, other than the Sun
Technology and the Fujitsu Technology and any patent rights of third parties,
that Ross will disclose or use in its performance of the Services or that Ross
will grant and assign under this Agreement. Ross represents and warrants that
the Pre-Viper Design Methodology and the other Pre-Viper Technology is not
necessary for the exercise by Fujitsu of its rights hereunder. Ross further
represents and warrants that: (a) Ross has full power and authority to enter
into this Agreement, to carry out its obligations under this Agreement and to
grant the rights granted to Fujitsu hereunder; (b) this Agreement has been duly
executed and delivered by Ross and constitutes a legally valid and binding
obligation of Ross, enforceable against Ross in accordance with its terms; (c)
the execution and delivery by Ross of, and the performance by Ross of its
obligations under, this Agreement do not and will not (i) conflict with or
contravene the certificate of incorporation or bylaws of Ross or (ii) result in
a breach of or constitute a default under any agreement, instrument or order to
which Ross or any of its assets is subject; (d) the Deliverables and Product
(including any prototypes, work in progress, documentation or other materials
related thereto) do not and will not infringe any Intellectual Property Rights
of others other than patent rights and, to Ross' knowledge, do not infringe any
patent rights of others; and (e) Ross has not previously granted and will not
grant to any third party any rights in the Deliverables or Product that are
inconsistent with the rights granted to Fujitsu hereunder.
The Viper Design Methodology is provided to Fujitsu hereunder by Ross "AS
IS" without representation or warranty of any kind by Ross.
10.2. Warranties By Fujitsu. Fujitsu represents and warrants that it has
the unrestricted right to disclose, use, and grant and assign to Ross (without
liability to others) the Fujitsu Technology (including without limitation any
Intellectual Property Rights of HaL included therein) and the right to
sublicense to Ross the Sun Technology in accordance with
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the terms of the Sublicense Agreement. Fujitsu represents and warrants that: (a)
Fujitsu has full power and authority to enter into this Agreement, to carry out
its obligations under this Agreement and to grant the rights granted to Ross
hereunder; (b) this Agreement has been duly executed and delivered by Fujitsu
and constitutes a legally valid and binding obligation of Fujitsu, enforceable
against Fujitsu in accordance with its terms; (c) the execution and delivery by
Fujitsu of, and the performance by Fujitsu of its obligations under this
Agreement do not and will not (i) conflict with or contravene the certificate of
incorporation or bylaws of Fujitsu or (ii) result in a breach of or constitute a
default under any agreement, instrument or order to which Fujitsu or any of its
assets is subject; and (d) Fujitsu has not previously granted and will not grant
to any third party any rights in the Fujitsu Technology or the Sun Technology
that are inconsistent with the rights granted to Ross hereunder.
The Fujitsu V9 and UPA-1 Test Suites are provided to Ross hereunder by
Fujitsu "AS IS" without representation or warranty of any kind by Fujitsu.
10.3. Indemnity and Duty to Correct.
(a) Indemnity by Ross. Ross will indemnify, hold harmless and, at
Fujitsu's request, defend Fujitsu, and any divisions, Subsidiaries, Affiliates,
directors, officers, employees, agents, distributors, customers, assignees and
licensees of Fujitsu, from and against any claim, action or suit brought by a
third party unrelated to Fujitsu to the extent that the same is based on (i) a
claim that the Services, the Product (including any prototypes, work in
progress, documentation or other materials related thereto) or any Deliverable
infringes or misappropriates any Intellectual Property Right of a third party,
or (ii) any breach or alleged breach by Ross of any representation, warranty or
covenant made, or obligation assumed, by Ross pursuant to this Agreement,
including, but not limited to, all liabilities, costs, judgments, expenses and
reasonable fees of attorneys and other professionals that are attributable to
such claim, action or suit. Fees of attorneys and other professionals and
related costs will be payable when and as incurred. Fujitsu will give Ross
reasonably prompt notice in writing of any such claim, action or suit. Each
Party will provide the other with reasonable cooperation and information to
assist in defense of the claim, action or suit. If Fujitsu elects to have Ross
defend such claim, action or suit, Fujitsu nonetheless will have the right, at
Fujitsu's expense, to appoint separate counsel to participate in such claim,
action or suit. If Fujitsu elects to defend itself, Ross will nonetheless have
the right, at Ross' own expense, to appoint separate counsel to participate in
any such claim, action or suit. Ross will not enter into any settlement of any
claim, action or suit described in this Section 10.3(a) without the prior
written consent of Fujitsu, which consent will not be unreasonably withheld.
(b) Indemnity by Fujitsu. Fujitsu will indemnify, hold harmless and, at
Ross' request, defend Ross, and any Subsidiaries, Affiliates, directors,
officers, employees, agents, distributors, customers, assignees and licensees of
Ross, from and against any claim, action or suit brought by a third party
unrelated to Ross to the extent that the same is based on any breach or alleged
breach by Fujitsu of any representation, warranty or covenant made, or
obligation assumed, by Fujitsu pursuant to this Agreement, including, but not
limited to, all liabilities, costs, judgments, expenses and reasonable fees of
attorneys and other professionals that are attributable to such claim, action or
suit. Fees of attorneys and other professionals and related costs will be
payable when and as incurred. Ross will give Fujitsu reasonably prompt notice in
writing of any such claim, action or suit. Each Party will provide the other
with reasonable cooperation and information to assist in defense of the claim,
action or suit.
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If Ross elects to have Fujitsu defend such claim, action or suit, Ross
nonetheless will have the right, at Ross' expense, to appoint separate counsel
to participate in such claim, action or suit. If Ross elects to defend itself,
Fujitsu will nonetheless have the right, at Fujitsu's own expense, to appoint
separate counsel to participate in any such claim, action or suit. Fujitsu will
not enter into any settlement of any claim, action or suit described in this
Section 10.3(b) without the prior written consent of Ross, which consent will
not be unreasonably withheld.
(c) Duty to Correct. If, during the ten year period beginning on the
Effective Date, the Product becomes the subject of a claim, action or suit
described in Section 10.3(a), at Fujitsu's request Ross, at Ross' expense and
election, will either: (i) procure for Fujitsu the past and future right to
make, use, sell, reproduce, modify, prepare Derivative Products thereof, and
distribute Products and Derivative Products thereof, with rights to authorize
others to do the same to the extent otherwise permitted by Section 8; (ii)
replace or modify the Product with another product that is noninfringing,
without loss of functionality, performance, quality and interoperability as the
infringing Product; or (iii) if such past and future rights cannot be procured
or the Product cannot be replaced or modified at reasonable expense, reimburse
Fujitsu for the total amount paid by Fujitsu under this Agreement. The
obligations of this Section 10.3(c) are in addition to the warranty and other
rights that may otherwise be available to Fujitsu under this Agreement or under
applicable law.
10.4. Limitation of Liability. EXCEPT AS PROVIDED IN THIS SECTION 10 OR
OTHERWISE EXPRESSLY STATED IN THIS AGREEMENT, NEITHER PARTY IS MAKING (OR WILL
BE DEEMED TO MAKE) ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF PROFIT
OR LOSS OF USE, WITH RESPECT TO ANY CLAIMS ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT UNLESS OTHERWISE SPECIFICALLY AND EXPLICITLY PROVIDED HEREIN,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO
EVENT SHALL EITHER PARTY'S AGGREGATE CUMULATIVE LIABILITY FOR CLAIMS OF THE
OTHER PARTY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT (OTHER THAN ANY
CLAIMS PURSUANT TO SECTION 10.3 WHICH SHALL NOT BE SO LIMITED) EXCEED, IN THE
CASE OF ANY LIABILITY OF ROSS, THE AGGREGATE AMOUNT PAID UNDER THIS AGREEMENT BY
FUJITSU OR, IN THE CASE OF ANY LIABILITY OF FUJITSU, THE AGGREGATE COSTS
INCURRED BY ROSS IN DEVELOPING THE PRODUCTS AND DELIVERABLES HEREUNDER (OTHER
THAN ANY PORTION OF SUCH AMOUNTS PROVIDED BY FUJITSU). THIS LIMITATION OF
LIABILITY SHALL APPLY TO ANY CLAIM OR CAUSE OF ACTION, WHETHER IN CONTRACT OR
TORT, UNDER ANY THEORY.
11. CONFIDENTIALITY
11.1. Use Restrictions. Each Party will protect the other's Confidential
Information from unauthorized dissemination and use with the same degree of care
that such Party uses to protect its own like information. Neither Party will use
the other's Confidential Information or disclose to third parties the other's
Confidential Information, except as and to the extent
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reasonably necessary in connection with the licenses and sublicenses permitted
by this Agreement or the exercise of other rights contemplated by this
Agreement, and where appropriate subject to similar confidentiality
restrictions, or to the extent specified in the prior written consent of the
other Party, or necessary to comply with applicable law or the valid order of a
court of competent jurisdiction, provided that such Party will promptly inform
the other Party of such obligation to disclose and cooperate with the other
Party in minimizing the disclosure, including seeking a protective order,
necessary to exercise or enforce its rights pursuant to this Agreement, or
specified in Section 11.2. Fujitsu agrees not to disclose the Viper Detailed
Schedule, dated May 12, 1997, and any updates thereto (collectively, the
"Detailed Schedules") other than on a need-to-know basis within Fujitsu and HaL,
provided that neither this limitation nor any other part of this Section 11
shall limit Fujitsu's right to obtain Confidential Information from Ross.
11.2. Limited Disclosure. Notwithstanding the terms of Section 11.1, Ross
hereby consents to Fujitsu's disclosure of Ross Confidential Information (other
than the Detailed Schedules which shall be provided only on a need-to-know
basis) to HaL while HaL is a Subsidiary of Fujitsu and to the extent necessary
to carry out Fujitsu's obligations hereunder or to facilitate the participation
of HaL engineers in performance of the Services pursuant to Section 3.3. Each
Party consents to the disclosure by the other Party of the terms, conditions or
text of this Agreement to the extent required by law, the regulations of any
governmental agency or the order of any court or governmental agency. In
addition, the Parties anticipate that Ross may issue a press release describing
its agreement to provide the Services. Fujitsu will have the right to
pre-approve in writing any such press release or other communications with third
parties relating to the Services or Product, which approval will not be
unreasonably withheld. Also, without the consent of the other Party each Party
shall have the right to disclose, to the extent reasonably requested by a
potential customer, summaries and data sheets based upon or derived from the
Specifications ("Customer Materials"), to such potential customer under usual
and customary non-disclosure arrangements. In the event that either Party
discloses Customer Materials, it shall indemnify the other Party against any
claims brought by a recipient of Customer Materials and such indemnification
shall not be limited by the provisions of Section 10.4.
12. TERM
This Agreement will commence on the Effective Date and will continue until
the earlier of (a) completion of all Services and support by Ross as specified
in this Agreement, or (b) termination as provided in this Agreement, subject in
each instance to the survival of certain provisions in accordance with Section
13.3.
13. TERMINATION
13.1. Termination by Either Party. Either Party will have the right to
terminate this Agreement immediately upon written notice at any time if:
(a) The other Party (i) is in breach of any material warranty, term,
condition or covenant of this Agreement, or (ii) commits any other breach of
this Agreement that individually or in the aggregate could have a material
adverse effect on the other Party's rights hereunder, in each instance other
than those contained in Section 11 and other than delivery, acceptance or
rejection of the Product or any Deliverable, which shall be exclusively
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governed by the provisions of Sections 6 and 13.2, and in either case fails to
cure the breach within thirty (30) days after written notice of the breach or
such longer period as may be provided under this Agreement or agreed in writing
by the Parties;
(b) The other Party is in material breach of any warranty, term,
condition or covenant of Section 11; or
(c) The other Party (i) undergoes a material adverse change in its
financial condition after the date of execution of this Agreement; (ii) fails to
pay its debts or perform its obligations in the ordinary course of business as
they mature; (iii) admits in writing its insolvency or inability to pay its
debts or perform its obligations as they mature; or (iv) becomes the subject of
any voluntary or involuntary proceeding in bankruptcy, liquidation, dissolution,
receivership, attachment or composition or general assignment for the benefit of
creditors that is not dismissed within sixty (60) days after the institution
thereof.
13.2. Termination by Fujitsu. In addition, Fujitsu may terminate this
Agreement as and to the extent specifically provided in Section 6. Any such
termination shall become effective upon ten (10) days' prior written notice from
Fujitsu to Ross.
13.3. Effect of Termination. Upon the expiration or earlier termination
of this Agreement, Ross immediately will deliver to Fujitsu the original or a
copy of all work in progress with respect to the Services, Deliverables and
Product, including all versions and components thereof, and either Party at the
request of the other Party will confirm in writing and provide appropriate
assignments, instruments and other documents in accordance with Section 8.1 and
the Parties' joint ownership rights in the New Technology and the Non-Licensable
Viper Design Methodology and Fujitsu's rights in the Existing Viper Technology.
Also upon expiration or earlier termination of this Agreement, each Party will
be released from all obligations and liabilities to the other occurring or
arising after the date of such expiration or earlier termination, except that
the provisions of Sections 1 and 9 through 14 will survive expiration or earlier
termination. Subject to Section 13.4, the provisions of Section 8 will also
survive expiration or earlier termination except that, in the event of
termination, the restrictions set forth in Section 8.1(a)(iii) shall not apply
to the Party with the right to terminate the Agreement pursuant to Section 13.1
or Section 13.2 (meaning that such Party shall not be obligated to make any
payment to the other Party for any license of the New Technology). Expiration or
earlier termination will not relieve Ross or Fujitsu from any liability arising
from any breach of this Agreement. Neither Party will be liable to the other for
damages of any kind solely as a result of terminating this Agreement in
accordance with its terms, and termination of this Agreement by a Party will be
without prejudice to any other right or remedy of such Party under this
Agreement or applicable law.
13.4. Option to Complete; Termination of Sales Restrictions. Without
limitation of the generality of the rights set forth in Section 8,
(a) in the event of any termination of this Agreement by either
Party pursuant to Section 13.1 or Section 13.2 prior to completion of all
Services, either Party will have the option to complete, or to engage any third
party to complete, development of the Product and either Party shall have the
right to grant such third party a license in, in the case of Fujitsu, the
Existing Viper Technology and the New Technology and, in the case of Ross,
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the Fujitsu Technology and the New Technology to develop the Product for such
Party without the consent of, or any payment to, the other Party notwithstanding
the restrictions set forth in Section 8.1; and
(b) the limitations set forth in Section 8.3 shall be terminated in
the event of termination of this Agreement by either Party pursuant to Section
13.1 or Section 13.2 (i) prior to Tapeout, or (ii) following Tapeout but prior
to completion of all services if (A) Ross ceases business operations and such
cessation continues for a period of three months or more or (B) Ross otherwise
fails to complete development of the Product within three months following the
date on which Fujitsu has completed development of the Product.
13.5. Payments by Fujitsu.
(a) In the case of termination for cause by Fujitsu other than for
late delivery of any Deliverable, upon delivery by Ross of the work in progress
described in Section 13.3, Fujitsu will pay to Ross a pro rata portion of the
next scheduled milestone payment. Such pro rata amount shall be calculated by
multiplying such scheduled payment by a fraction (i) the numerator of which is
the number of days elapsed since the last milestone payment and (ii) the
denominator of which is the number of days from the last milestone payment until
the next scheduled milestone payment.
(b) In the case of termination for cause by Fujitsu for late
delivery of any Deliverable, upon delivery by Ross of the work in progress
described in Section 13.3, Fujitsu will pay to Ross 50% of the next scheduled
milestone payment.
(c) Other than as set forth in the subsection (a) or (b), Fujitsu's
sole monetary obligation after termination will be to pay Ross the fee set forth
in Exhibit A for all milestones fully completed by Ross and Deliverables
accepted by Fujitsu pursuant to the terms of this Agreement.
14. GENERAL
14.1. No Other Obligations. Without limitation of the generality of
Section 9, implied or otherwise, neither Party has any obligation or duty to the
other Party with respect to the matters described herein, or relating to the
subject matter hereof except as expressly set forth in this Agreement. Without
limitation of the generality of the foregoing, subject to Section 8.3 and the
other provisions of this Agreement, either Party may market, or not market at
all, the Product and its Derivative Products, or any components thereof, in any
manner that such Party chooses.
14.2. Relationship of Parties. Ross is an independent contractor. Neither
Party nor such Party's employees, consultants, contractors or other personnel
are agents, employees or joint venturers of the other Party, nor do they have
any authority to bind the other Party by contract or otherwise to any
obligation. They will not represent to the contrary, either expressly,
implicitly, by appearance or otherwise. Ross will determine, in Ross' sole
discretion, the manner and means by which the Services are accomplished, subject
to the express condition that Ross will at all times comply with applicable law
and the terms of this Agreement.
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14.3. Export Control. Notwithstanding any other provision of this
Agreement to the contrary, each of the Parties agrees that no products, items,
commodities or technical data or information obtained from a Party nor any
direct product of such technical data or information is intended to or shall be
exported or reexported, directly or indirectly, to any destination restricted or
prohibited by applicable law without necessary authorization by the relevant
governmental authority, including (without limitation) the Japanese Ministry of
International Trade and Industry, the United States Bureau of Export
Administration (the "BEA") or other governmental authorities of the United
States with jurisdiction with respect to export matters.
14.4. Taxes and Benefits. It is Ross' obligation to report as income and
pay all taxes with respect to all compensation received by Ross pursuant to this
Agreement and pay all taxes due on such compensation. Ross will indemnify
Fujitsu against and hold it harmless from any obligation imposed on Fujitsu to
pay any sales or use taxes, withholding taxes, social security, unemployment
insurance, workers' compensation insurance, disability insurance or similar
items, including interest and penalties thereon, in connection with any payments
made to Ross by Fujitsu pursuant to this Agreement.
14.5. Assignment. The rights and liabilities of the Parties hereto will
bind and inure to the benefit of their respective assignees and successors,
provided that neither Party may assign or delegate its obligations under this
Agreement either in whole or in part, whether voluntarily, by operation of law
or otherwise except as otherwise agreed in writing by the other Party. Any
attempted assignment in violation of the provisions of this Section 14.5 will be
void.
14.6. Equitable Relief. Because in connection with the performance of
this Agreement, each Party will have access to and become acquainted with
confidential and proprietary information of the other Party, the unauthorized
use or disclosure of which would cause irreparable harm and significant injury
which would be difficult to ascertain and which would not be compensable by
damages alone, each Party hereby agrees that the other Party will have the
right, pending resolution of a dispute in accordance with Section 14.9 or to the
extent necessary to enforce an equitable remedy awarded by an arbitrator in
accordance with Section 14.9, to enforce this Agreement and any of its
provisions by injunction, specific performance or other equitable relief without
prejudice to any other rights and remedies that such Party may have for breach
of this Agreement.
14.7. Bankruptcy Provisions. All licenses and other rights granted under
or pursuant to this Agreement are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to
"intellectual property" as defined under Section 101 of the U.S. Bankruptcy
Code. The Parties agree that the licensee or holder of such rights under this
Agreement shall retain and may fully exercise all of its rights and elections
under the U.S. Bankruptcy Code. The Parties further agree that, in the event of
the commencement of a bankruptcy proceeding by or against one Party under the
U.S. Bankruptcy Code, the other Party shall be entitled to a complete duplicate
of (or complete access to, as appropriate) all embodiments of such intellectual
property, and the same, if not already in its possession, shall be promptly
delivered to the other Party upon such Party's written request, provided that
such intellectual property shall be used by the receiving Party only for the
purposes otherwise contemplated by this Agreement and provided further
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that this sentence shall not apply to any intellectual property of any third
party which is the subject of a sublicense granted hereunder.
14.8. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the United States and the State of California as
applied to agreements entered into and to be performed entirely within
California between California residents.
14.9. Arbitration. Any dispute, controversy or claim arising out of or
relating to this Agreement or the subject matter hereof, or the interpretation,
enforceability, validity, performance, breach or termination hereof or thereof,
including, without limitation, this arbitration clause, shall be solely and
finally settled by arbitration in Los Angeles, California in accordance with the
commercial arbitration rules of the American Arbitration Association (the "AAA
Rules"), as modified by the provisions of this Section 14.9. To the maximum
extent permitted by applicable law, each Party waives any rights to bring any
such dispute, controversy or claim in any other forum or proceeding, including,
without limitation, the International Trade Commission of the United States or
any other administrative or judicial forum. The arbitration shall be conducted
in accordance with the AAA Rules by three arbitrators selected by the Parties.
If the Parties are unable to agree upon the arbitrators within thirty (30) days,
the arbitrators shall be selected in accordance with the AAA Rules, and each of
the arbitrators selected shall have at least five (5) years' experience in the
field that is the principal subject matter of the dispute. After soliciting the
views of the Parties, the arbitrators shall order such discovery as they may
deem reasonable for a full and fair understanding of the facts and issues raised
in the arbitration. The arbitration, including the proceedings, pleadings and
evidence in connection therewith, shall be maintained as confidential. An award
rendered in connection with the arbitration shall be final and binding on the
Parties, and any judgment upon such an award may be entered in any court of
competent jurisdiction. The award shall be in writing and shall provide written
reasons in detail for the award unless the Parties agree otherwise. The award
shall also provide for the fees and expenses of the arbitrators and for the
reasonable attorneys' fees and expenses of the prevailing Party, as determined
by the arbitrators, all to be borne by the non-prevailing Party.
14.10. Severability. If any provision of this Agreement, or portion
thereof, shall be held to be unenforceable, that provision of the Agreement will
be enforced to the maximum extent permissible so as to effect the intent of the
Parties, and the remainder of this Agreement will continue in full force and
effect.
14.11. Notices. All notices required or permitted under this Agreement
will be in writing, will reference this Agreement and will be deemed given:
(a) when delivered personally; (b) when sent by confirmed facsimile; (c) ten
(10) days after having been sent by registered or certified air mail, return
receipt requested, postage prepaid; or (d) the third business day after deposit
with a commercial overnight carrier specifying next-day delivery, with written
verification of receipt. All communications will be sent to the address set
forth below (or to such other address as may be designated by a Party by giving
written notice to the other Party pursuant to this Section 14.11):
-27-
<PAGE> 28
Fujitsu:
Fujitsu Limited
1-1 Kamikodanaka 4-chome, Nakahara-ku,
Kawasaki-shi, Kanagawa-ken, 211-88
Japan
Facsimile: 81-44-754-3886
Attention: General Manager, Processor
Development Division,
Technology Group
Ross:
Ross Technology, Inc.
5316 Highway 290W, Suite 500
Austin, Texas 78735-8930
U.S.A.
Facsimile: 1-512-892-3402
Attention: President
14.12. No Waiver. No obligation of a Party hereunder shall be deemed
waived unless the other Party has expressly agreed in writing to a waiver of
such obligation. The failure of a Party to enforce a provision of this Agreement
shall not be deemed a waiver thereof. Waiver by a Party of any provision will
not be deemed a waiver of future enforcement of that or any other provision.
14.13. No Rights in Third Parties. This Agreement is made for the benefit
of Fujitsu and Ross and not for the benefit of any third parties.
14.14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but which collectively
will constitute one and the same instrument.
14.15. Headings and References. The headings and captions used in this
Agreement are for convenience only and are not to be considered in construing or
interpreting this Agreement.
14.16. Construction. This Agreement has been negotiated by the Parties
and their respective counsel. This Agreement will be interpreted fairly in
accordance with its terms and without any strict construction in favor of or
against either Party.
14.17. Complete Agreement. This Agreement, including all schedules,
attachments and exhibits (each of which is hereby incorporated as though set
forth in full herein), constitutes the entire agreement between the Parties with
respect to the subject matter hereof, and supersedes and replaces all prior or
contemporaneous understandings, agreements, representations or warranties,
written or oral, regarding such subject matter, provided that the Mutual
Non-Disclosure Agreement, dated as of September 9, 1996, among Ross, HaL and
Fujitsu (the "NDA") shall remain in effect except in the event of any
inconsistency or conflict with the terms hereof in which case the terms hereof
shall prevail. No amendment to or
-28-
<PAGE> 29
modification of this Agreement will be binding unless in writing and signed by a
duly authorized representative of the Party against which enforcement is sought.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized representatives:
FUJITSU LIMITED ROSS TECHNOLOGY, INC.
By: /s/ Illegible By: Jack W. Simpson, Sr.
----------------------------- ---------------------------------
Name: Name: Jack W. Simpson Sr.
Title: Title: President and CEO
-29-
<PAGE> 30
EXHIBIT A
SCHEDULE
**
A-1
<PAGE> 31
EXHIBIT B
**
B-1
<PAGE> 32
EXHIBIT C
**
<PAGE> 33
EXHIBIT D-1
LICENSABLE VIPER DESIGN METHODOLOGY
1. LAYOUT LIBRARIES AND LAYOUT TOOLS
- Cadence layout technology file and environment files
- GDT Led technology file
- Standard Cell library layout (Cadence layout database)
- GDT [-] Cadence layout conversion scripts
- Floorplanning scripts, Cadence Skill generators, and documentation
- Scripts and documentation to setup and run Avanti Place & Route
- Cadence P/N transistor and inv/nand2/nor2 Skill layout generators
- ISS layout parasitic extraction deck and libraries
2. LAYOUT VERIFICATION LIBRARIES AND LAYOUT VERIFICATION TOOLS
- Cadence DRACULA DRC/LVS decks, scripts, and documentation
- ISS DRC/LVS decks, scripts, and documentation
- Cadence Diva DRC/LVS decks
3. FUNCTIONAL VERIFICATION LIBRARIES AND FUNCTIONAL VERIFICATION TOOLS
- Assemblers/disassemblers
- Verilog standard cell gate simulation library
- Cadence Verilog schematic netlister
- Borg Verilog database and simulation manager environment, scripts, and
documentation
- Verilog code, scripts, and documentation for test benches, transaction
generators, and signal monitors
4. TIMING ANALYSIS LIBRARIES
- Pearl timing libraries
- Synopsis synthesis/timing libraries
D-1
<PAGE> 34
EXHIBIT D-2
NON-LICENSABLE VIPER DESIGN METHODOLOGY
1. CIRCUIT DESIGN LIBRARIES
- Cadence transistor/gate schematic primitives library and documentation
- Cadence HSPICE netlister and documentation
- HSPICE transistor/resistor simulation and optimization libraries
2. FUNCTIONAL VERIFICATION TOOLS
- "George" random test generation programs and documentation
- Directed test generation tools and documentation
D-2
<PAGE> 35
EXHIBIT E
EXISTING VIPER TECHNOLOGY
**
<PAGE> 1
EXHIBIT 10.45
THE DAI-ICHI KANGYO BANK, LIMITED
NEW YORK BRANCH
Cable Address PHONE:(212)466-5700
"BANKDAIKAN" ONE WORLD TRADE CENTER, 48TH FLOOR FAX: (217)524-0679
NEW YORK, N.Y. 10048
Ross Technology, Inc.
5316 Highway 290 West, Suite 500
Austin, Texas 78735
Attn: R. Ross
Chairman and President
Gentlemen:
This loan agreement (the "Loan Agreement") is made effective as
of the 15th day of November, 1996 by and between Ross Technology, Inc., a
Delaware corporation ("Ross"), and THE DAI-ICHI KANGYO BANK, LIMITED, NEW YORK
BRANCH, and its successors and assigns (the "Bank"), Ross and the Bank hereby
agree as follows:
1. ADVANCES
a. Revolving Facility.
Upon the terms and conditions and relying upon
representations and warranties herein set forth, the Bank agrees to make
multiple advances (each an "Advance") to Ross in a maximum aggregate amount of
U.S. $25,000,000.00 (the "Facility Commitment"), with effect from November 15,
1996. Within the limits of the Facility Commitment and subject to the terms
and conditions contained herein, Ross may borrow, repay and reborrow until the
Maturity Date (as hereafter defined).
b. Note.
Each Advance made pursuant to the Facility
Commitment shall be evidenced by a separate promissory note (each a "Note",
collectively, the "Notes"), which shall be (i) dated the date of the Advance;
(ii) in the principal amount of the Advance; (iii) in substantially the form
attached to this Loan Agreement as Exhibit A, with the blanks appropriately
filled; (iv) payable to the order of the Bank in one (1) installment of
principal in the amount of the Advance on a date no later than June 30, 1997
(the "Maturity Date") and (v) subject to acceleration upon the occurrence of an
event of default (as set forth therein). Each Note shall bear interest on the
unpaid principal amount thereof from time to time outstanding,
<PAGE> 2
payable on the date indicated in the Note (but in any event no later than the
Maturity Date), at a rate per annum (calculated based on a year of 360 days)
which shall be equal to the lesser of (i) the Bank's Quoted Rate or (ii) the
highest lawful rate of interest permitted under applicable law. For purposes
of this Loan Agreement, the Bank's Quoted Rate means, as of the particular day
on which an inquiry is made by Ross, the rate quoted to Ross by a responsible
officer of the Bank in New York, New York for such Advance, in accordance
with the borrowing procedure set forth in paragraph 1.c. below.
c. Borrowing Procedure and Funding.
(1) At any time before the Maturity Date, Ross may
request an Advance under the Facility Commitment using the following borrowing
procedure:
(a) Ross shall telephone the Bank in New
York and ask a responsible officer of the Bank to provide the Bank's Quoted
Rate for the proposed Advance. Ross shall indicate at the time of such request
the amount, the term, the borrowing date (which must be a Business Day). To be
considered, such request must be made on or before 11:00 a.m. (New York time)
on the proposed borrowing date. For the purposes of this Loan Agreement, a
"Business Day" shall mean any day on which the Bank is open for business in
New York, New York.
(b) If Ross accepts the Bank's Quoted Rate
for such Advance, Ross shall complete a Note with the Bank's Quoted Rate, the
amount of the Advance and the due date of the Advance, shall (x) send by
telecopier to the Bank a completed copy of the Note and (y) send by courier the
original of such note for overnight delivery to the Bank in New York. The
sending of the Note by telecopier shall constitute irrevocable notice by Ross
to the Bank that it is requesting the Advance on the basis of the terms
contained in such Note.
(2) Upon due receipt by the Bank of the telecopied
form of the Note on or before noon (New York time) on the proposed borrowing
date, properly completed with the Bank's Quoted Rate for the Advance, the amount
of the Advance and the due date of the Advance as provided above, the Bank shall
pay or deliver the proceeds of the Advance into Ross' account with the Bank in
New York, New York. In the event any discrepancy between the terms of the
telecopied form of the Note and the original Note as received by the Bank, the
terms in the telecopied form of the Note shall prevail.
(3) Unless an Event of Default (as hereafter
defined) has occurred, the proceeds of the Advance in Ross' account with the
Bank shall be available for withdrawal from the account in immediately
available funds upon receipt by the Bank of the telecopied form of the
promissory note, duly completed as aforesaid.
2
<PAGE> 3
d. Payments and Prepayments.
(1) Ross shall have the right at any time and from time
to time to prepay each Note, in whole or in part, provided that each partial
prepayment shall be in an aggregate principal amount of $1,000,000.00, or
multiples thereof, and if to be applied to a Note, shall be applied to the
principal installments thereof in the inverse order of their due dates.
(2) All payments and prepayments made in accordance with
the provisions of this Loan Agreement or of the Notes in respect of principal or
interest on the Notes under this Loan Agreement shall be made to the Bank at its
office in New York, New York, no later than 2:00 p.m., New York time, in
immediately available funds. All payments (whether of principal, interest,
reimbursements or otherwise) under this Agreement or on the Notes shall be made
by Ross without set-off or counterclaim and shall be made free and clear of and
without deduction for any present or future tax, levy, impost or any other
charge, if any, of any nature whatsoever now or hereafter imposed by any taxing
authority.
(3) If any payment shall become due on a Saturday,
Sunday, or public holiday on which the Bank is not open for business, such
payment shall be made on the next preceding day on which the Bank is open for
business.
(4) Ross hereby authorizes the Bank, if and to the
extent payment by Ross is not made when due hereunder, to charge from time to
time against any balance in Ross' account maintained with the Bank any amount so
due.
(5) Ross shall pay a default rate on any principal and
interest which is not paid when due in an amount equal to the lesser of (A) the
Bank's Prime Rate, plus two percent (2%) per annum or (B) the highest lawful
rate permitted under applicable law. For the purposes of this provision, the
"Bank's Prime Rate" shall mean the fluctuating rate of interest from time to
time quoted by the Bank in New York as its Prime Rate.
2. CONDITIONS
a. Initial Advance. The obligation of the Bank to make
the initial Advance under the Facility Commitment is subject ot the following
conditions: (1) The representations and warranties contained in this Loan
Agreement shall be true and correct; (2) no Event of Default, or event which
with the passage of time would constitute an Event of Default, shall have
occurred and be continuing; (3) the Bank shall have received the applicable Note
duly executed by Ross; (4) the Bank shall have received a Letter of Guaranty
(the "Guaranty") of Fujitsu Limited, a Japanese limited liability company
("Fujitsu") in form acceptable to the Bank; (5) the Bank shall have received
Corporation Resolutions of Ross in form acceptable to Bank, and (6) the Bank
shall have received such other documents and certificates relating to the
transactions herein contemplated as the Bank may request. In
3
<PAGE> 4
addition, all legal matters incident to the transactions herein contemplated
shall be satisfactory to counsel for the Bank.
b. Subsequent Advances. The obligation of the Bank to
make subsequent Advances hereunder is subject to the following conditions: (1)
The representations and warranties contained in this Loan Agreement shall be
true and correct; (2) no Event of Default, or event which with the passage of
time would constitute an Event of Default, shall have occurred and be
continuing; (3) the Guaranty shall remain in effect; and (4) the Bank shall have
received such other documents and certificates relating to the transactions
herein contemplated as the Bank may request.
3. REPRESENTATIONS AND WARRANTIES.
a. Representations and Warranties of Ross.
Ross represents and warrants the following: (1) Ross is
a corporation duly incorporated, validly existing, and in good standing under
the laws of the State of Delaware and has the corporate power to own its
properties and to carry on its business as now conducted; (2) Ross has the
corporate power and authority to make, execute, deliver and carry out the
transactions contemplated in this Loan Agreement and to perform its obligations
hereunder and all such action has been duly authorized by all necessary
corporate proceedings on its part; (3) the Loan Agreement and the Notes have
been duly and validly executed and delivered by Ross and constitute valid and
legally binding agreements of Ross: (4) all financial information furnished by
Ross to the Bank is true and correct and has been prepared in conformity with
generally accepted accounting principles consistently applied in the United
States throughout the period involved and fully and accurately reflects the
financial condition of Ross and the results of its operations as at the dates
and for the periods indicated and as of the date of this Loan Agreement;
(5) there is no action or proceeding pending or, to the knowledge of Ross,
threatened against Ross or before any court, administrative agency or
arbitrator which might have a material adverse effect on Ross or its business,
and there is no outstanding judgment, order or decree affecting Ross before
or by any administrative or governmental authority; (6) Ross is not in default
under or in violation of the provisions of any instrument evidencing any debt or
of any agreement relating thereto or any judgment, order, writ, injunction or
decree of any court or any order, regulation or demand of any administrative
or governmental instrumentality which default or violation might have a material
adverse effect on Ross or its business; and (7) neither the consummation of the
transactions contemplated nor fulfillment of and compliance with the respective
terms, conditions and provisions of any material agreement to which Ross is a
party will conflict with or result in a breach of any of the terms, conditions
or provisions of, or constitute a default under, or result in any violation
of the registered charter or bylaws of Ross, any law or any regulation of any
administrative or governmental instrumentality, any order, writ, injunction or
decree of any court, or the terms, conditions or provisions of any agreement
or instrument to which Ross is a party or by which it is bound or to which it is
subject.
4
<PAGE> 5
b. Survival Of Representations And Warranties.
All representations and warranties made by Ross under this
Loan Agreement shall survive the delivery of the Notes to the Bank and the
making of the Advances hereunder, and no investigation at any time made by or on
behalf of the Bank shall diminish the Bank's rights to rely thereon. All
statements contained in any certificate or other written instrument delivered by
Ross or by any person authorized by Ross under or pursuant to this Loan
Agreement or in connection with the transactions contemplated hereby shall
constitute representations and warranties hereunder as of the time made by Ross.
4. COVENANTS. Ross covenants and agrees that until payment in
full of the Notes and the other liabilities of Ross hereunder, Ross will:
(a) as soon as available, and in any event on or before the
45th day after the close of each of the first three quarterly periods of each
fiscal year of Ross, deliver to the Bank the unaudited consolidated and
consolidating financial statement of Ross and its subsidiaries as at the close
of such quarterly period and from the beginning of such fiscal year to the end
of such period, such financial statement to be certified by a responsible
officer of Ross as having been prepared in accordance with generally accepted
accounting principals consistently applied and as a fair presentation of the
condition of Ross and its subsidiaries, and a compliance certificate stating
that there exists no Event of Default or if any such Event of Default exists,
stating that the nature thereof, the period of existence thereof and what action
Ross has taken or proposes to take with respect thereto.
(b) as soon as available, and in any event on or before the
120th day after the close of each fiscal year of Ross, deliver to the Bank the
annual audited consolidated and consolidating financial statements of Ross and
its subsidiaries, such financial statement to be certified by a responsible
officer of Ross as having been prepared in accordance with generally accepted
accounting principals consistently applied and as a fair presentation of the
condition of Ross and its subsidiaries and a compliance certificate stating that
there exists no Event of Default or if any such Event of Default exists, stating
the nature thereof, the period of existence thereof and what action Ross has
taken or proposes to take with respect thereto.
(c) promptly, and in any case within 10 days, after any officer
of Ross obtains knowledge of an Event of Default, deliver to the Bank an
officer's certificate specifying the nature of such Event of Default, the period
of existence thereof, and what action Ross has taken and proposes to take with
respect thereto.
(d) deliver to the Bank such additional financial or other
information as the Bank may reasonably request from time to time.
(e) permit the Bank to have access to its books of record and
account;
5
<PAGE> 6
(f) maintain insurance with financially sound, responsible and
reputable companies in such types and amounts and against such casualties,
risks and contingencies as is customarily carried by owners of similar
businesses and properties;
(g) maintain its corporate existence, comply with all statues
and governmental regulations and pay all taxes, assessments, governmental
charges, claims for labor, supplies, rent and other obligations which if unpaid
might become a lien against the property of Ross except liabilities being
contested in good faith;
(h) whenever and as often as the Bank may reasonably request,
promptly execute and deliver all such further instruments and do such other
acts as the Bank may reasonably request to carry out more effectually the
purposes and intent of this Loan Agreement; and
(i) furnish to the Bank, within five business days after any
material report (other than financial statements) or other communication is
sent by Ross to its stockholders or filed by Ross with the Securities and
Exchange Commission or any successor or analogous governmental authority,
copies of such report or communication and, promptly upon the request of the
Bank, such additional financial or other information concerning the assets,
liabilities, operations, and transactions of Ross as the Bank may from time to
time reasonably request.
The Bank acknowledges that Ross' financial statements heretofore delivered to
the Bank have been prepared on the basis of Ross being a subsidiary of Fujitsu
and not as a stand-alone company and that, accordingly, certain information
necessary for the financial statements of a stand-alone company have not been
and will not be included in Ross' financial statements and to that extent
Ross' financial statements will not be prepared in accordance with Generally
Accepted Accounting Principles.
5. EVENTS OF DEFAULT; REMEDIES.
a. Events of Default; Remedies.
If any of the following events shall occur (each of which
shall constitute an "Event of Default" under this Loan Agreement):
(1) Ross does not pay, repay or prepay any principal of or
interest on any Note when due;
(2) Ross does not pay any other obligation or amount
payable under this Loan Agreement or any Note when due;
6
<PAGE> 7
(3) Ross does not pay principal or interest on any other debt
when due, or the holder of such other debt declares, or may declare, such debt
due prior to its stated maturity because of Ross' default thereunder;
(4) any representation or warranty made by Ross herein or
otherwise furnished to the Bank in connection with this Loan Agreement shall be
incorrect, false or misleading in any material respect when made;
(5) Ross fails to deliver an original Note to the Bank in
accordance with paragraph 1(c) of this Loan Agreement within ten (10) days
following receipt by the Bank of the telecopied form of such Note, or the
original note contains any material variation from the telecopied form of such
Note;
(6) Ross violates any convenant, agreement or condition
contained in herein and such violation shall not have been remedied within
thirty (30) days after written notice has been received by Ross from the Bank
or the holder of a Note;
(7) Ross (i) makes an assignment for the benefit of creditors;
(ii) admits in writing its inability to pay its debts generally as they become
due; (iii) generally fails to pay its debts as they become due; (iv) files a
petition or answer seeking for itself, or consenting to or acquiescing in, any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any applicable law; (v) there is appointed
a receiver, custodian, liquidator, fiscal agent, or trustee of Ross or of the
whole or any substantial part of its assets; or (vi) any court enters an order,
judgment or decree approving a petition filed against Ross seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any applicable law and either such order,
decree or judgment so filed against it is not dismissed or stayed (unless and
until such stay is no longer in effect) within thirty (30) days of entry
thereof or an order for relief is entered pursuant to any such law;
(8) any order is entered in any proceeding against Ross
decreeing the dissolution, liquidation, winding-up or split-up of Ross, and
such order remains in effect for thirty (30) days;
(9) Ross or any other person claims, or any court finds or
rules, that the Bank does not have a valid claim against Fujitsu under the
Guaranty; or
(10) Fujitsu violates any convenant, agreement or condition
contained in the Guaranty;
THEN, the Bank may declare each Note and all interest accrued and unpaid
thereon, and all other amounts payable under the Notes and this Loan Agreement,
to be forthwith due and payable, whereupon the Notes, all such interest and all
such other amounts, shall become and be forthwith due and payable without
presentment, demand, protest, or further notice of any kind
7
<PAGE> 8
(including, without limitation, notice of default, notice of intent to
accelerate and notice of acceleration), all of which are hereby expressly
waived by Ross; provided, however, that with respect to any Event of Default
described in subparagraphs (6), (7) or (8) above, the entire unpaid principal
amount of the Notes, all interest accrued and unpaid thereon, and all such
other amounts payable under the Notes and this Loan Agreement, shall
automatically become immediately due and payable, without presentment, demand,
protest, or any notice of any kind (including, without limitation, notice of
default, notice of intent to accelerate and notice of acceleration), all of
which are hereby expressly waived by Ross.
b. Other Remedies.
In addition to and cumulative of any rights or remedies
expressly provided for in this Loan Agreement, if any one or more Events of
Default shall have occurred, the Bank may proceed to protect and enforce its
rights hereunder by any appropriate proceedings. The Bank may also proceed
either by the specific performance of any covenant or agreement contained in
this Loan Agreement, the Notes, the Guaranty, or by enforcing the payment of the
Notes or by enforcing any other legal or equitable right provided under this
Loan Agreement or such other documents or otherwise existing under any law in
favor of the holder of the Notes. The Bank shall not, however, be under any
obligation to marshall any assets in favor of Ross or any other person.
c. Cumulative Rights.
No remedy, right or power conferred upon the Bank is
intended to be exclusive of any other remedy, right or power given hereunder or
now or hereafter existing at law, in equity, or otherwise, and all such
remedies, rights and powers shall be cumulative.
6. OTHER PROVISIONS.
a. No Waiver: Modifications.
No failure or delay on the part of the Bank in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No course of dealing between Ross and the Bank shall operate as
a waiver of any right of the Bank. No modification or waiver of any provision of
this Loan Agreement, any Note or the Guaranty nor consent to any departure by
Ross therefrom shall in any event be effective unless the same shall be in
writing, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on Ross in
any case shall entitle Ross to any other or further notice or demand in similar
or other circumstances.
8
<PAGE> 9
b. Notices.
All notices and other communications provided for herein
shall be in writing (including telex, facsimile, or cable communication) and
shall be mailed, telecopied, telexed, cabled or delivered addressed to a party
at the address set forth on the first page of this Loan Agreement, or to such
other address as shall be designated by such party in a written notice to the
other party. All such notices and communications shall, when mailed, telecopied,
telexed, transmitted, or cabled, become effective when deposited in the mail,
confirmed by telex answerback, transmitted to the telecopier, or delivered to
the cable company, except that notices and communications to the Bank shall
not be effective until actually received by the Bank.
c. Reimbursement of Expenses.
Any provision hereof to the contrary notwithstanding,
Ross agrees to reimburse the Bank for its funding losses and any breakage costs
in connection with Advances made hereunder, as well as the Bank's reasonable
out-of-pocket expenses, including the reasonable fees and expenses of counsel
to the Bank, in connection with transactions contemplated by this Loan Agree-
ment, including its preparation and its enforcement. Ross agrees to pay any and
all stamp and other taxes related to this Loan Agreement and the transactions
contemplated hereby, and to save the Bank harmless from any and all liabilities
with respect to or resulting from any delay or omission to pay any such taxes
which may be payable or determined to be payable in connection with the
execution and delivery of this Loan Agreement or any of the Notes. The
obligations of Ross under this paragraph shall survive the termination of this
Loan Agreement and the payment of the Notes.
d. Set-Off.
If one or more Events of Default shall occur, the Bank
shall have the right, in addition to all other rights and remedies available to
it, to set off against the unpaid balance of any Note any debt owing to Ross by
the Bank, including, without limitation, any funds in any deposit account,
whether general or special in nature, maintained by Ross with the Bank, and
nothing in this Loan Agreement shall be deemed a waiver or prohibition of the
Bank's right of banker's lien or set-off.
e. Indemnification.
Ross agrees to indemnify, defend, and save harmless the
Bank and its officers, directors, employees, agents, and attorneys, and each of
then (the "Indemnified Parties"), from and against all claims, actions, suits,
and other legal proceedings, damages, costs, interest, charges, taxes (other
than income taxes of the Bank), counsel fees, and other expenses and penalties
which any of the Indemnified Parties may sustain or incur by reason of or
arising out of (i) the making of the Advances hereunder, the execution and
delivery of this Loan Agreement and the Notes and the consummation of the
transactions contemplated thereby
9
<PAGE> 10
and the exercise of any of the Bank's right under this Loan Agreement and any
Note; provided, that no Indemnified Party shall be entitled to the benefits of
this paragraph to the extent its own gross negligence or willful misconduct
contributed to its loss; and provided, further, that it is the intention of
Ross to indemnify the Indemnified Parties against the consequences of their own
negligence. This Loan Agreement is intended to protect and indemnify the
Indemnified Parties against all risks hereby assumed by Ross. The obligations
of Ross under this paragraph shall be notwithstanding any other provision of
this Loan Agreement to the contrary and shall survive the repayment of the
Notes and any termination of this Loan Agreement.
f. Interest.
All agreements between Ross and the Bank, whether now
existing or hereafter arising and whether written or oral, are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
demand being made on any note or otherwise, shall the amount paid, or agreed to
be paid, to the Bank for the use, forbearance, or detention of the money to be
loaned under this Loan Agreement or otherwise or for the payment or performance
of any covenant or obligation contained herein or in the Notes exceed the
highest lawful rate permitted under applicable law. If, as a result of any
circumstances whatsoever, fulfillment of any provision hereof or of any of such
documents, at the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by applicable usury law, then,
ipso facto, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if, from any such circumstance, the Bank shall ever receive
interest or anything which might be deemed interest under applicable law which
would exceed the highest lawful rate of interest permitted under applicable law,
such amount which would be excessive interest shall be applied to the reduction
of the principal amount owing on account of the Notes or the amounts owing on
other obligations of Ross to the Bank under any Loan Document and not to the
payment of interest, or if such excessive interest exceeds the unpaid principal
balance of the Notes and the amounts owing on other obligations of Ross to the
Bank under any Loan document, as the case may be, such excess shall be refunded
to Ross. All sums paid or agreed to be paid to the Bank for the use,
forbearance, or detention of the indebtedness of Ross to the Bank shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full term of such indebtedness until payment in full of
the principle thereof (including the period of any renewal or extension
thereof) so that the interest on account of such indebtedness shall not exceed
the highest lawful rate of interest permitted under applicable law. The
terms and provisions of this paragraph shall control and supersede every
other provision of all agreement between Ross and the Bank.
g. Governing Law; Jurisdiction; Process Agent.
THIS LOAN AGREEMENT AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE UNITED STATES OF
AMERICA. ROSS HEREBY EXPRESSLY SUBMITS TO THE COMPETENT JURISDICTION OF THE
COURTS OF THE STATE OF NEW
10
<PAGE> 11
YORK OR OF THE UNITED STATES DISTRICT COURTS LOCATED IN NEW YORK, NEW YORK, AS
THE BANK MAY ELECT. ROSS IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL
PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH
PROCESS TO ROSS AT ITS ADDRESS SET FORTH IN THIS AGREEMENT. ROSS AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. ROSS FURTHER WAIVES ANY OBJECTION TO VENUE IN SUCH STATE AND
ANY OBJECTION TO ANY ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM
NON CONVENIENS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BANK TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE
BANK TO BRING ANY ACTION OR PROCEEDING AGAINST ROSS OR ITS PROPERTY IN THE
COURTS OF ANY OTHER JURISDICTIONS.
h. Counterparts.
This Agreement may be executed in several counterparts,
and by parties hereto on separate counterparts, and each counterpart, when so
executed and delivered, shall constitute an original instrument, and all such
separate counterparts shall constitute one and the same instrument.
i. Final Agreement.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
11
<PAGE> 12
Please sign both originals of this letter indicating your
agreement and return one original to us.
Very truly yours,
THE DAI-ICHI KANGYO BANK, LIMITED,
NEW YORK BRANCH
By: /s/ SHIGETO YANASE
---------------------------
Name: Shigeto Yanase
---------------------------
Title: Senior Vice President
---------------------------
AGREED AND ACKNOWLEDGED:
ROSS TECHNOLOGY, INC.
By: /s/Roger D. Ross
---------------------
Name: Roger D. Ross
Title: Chairman
Attest: /s/ Carter L. Godwin
--------------------
Carter L. Godwin
12
<PAGE> 13
$ New York, New York,
----------
................after date for value received, the undersigned promises to pay
to the order of THE DAI-ICHI KANGYO BANK, LIMITED, NEW YORK BRANCH, One World
Trade Center, Suite 4911, New York, New York 10048 _____________ Dollars in
current funds of the United States of America, with interest from the date
hereof at the rate of________per cent per annum.
The makers, endorsers and guarantors of this note hereby waive
presentment for payment, demand, notice of non-payment and dishonor, protest,
and notice of protest, waive trial by jury in any action or proceeding arising
on, out of, under or by reason of this note; consent to any renewals,
extensions and partial pre-payments of this note, or the indebtedness for which
it is given, without notice to them and consent that no such renewals,
extensions or partial payments shall discharge any party
hereto_______liability herein in whole or in part.
In the event of happening of any one or more of the following, to-wit:
(a) the non-payment of any of the Obligations; (b) the death, failure in
business, dissolution or termination of existence of the undersigned; (c) any
petition in bankruptcy, or under any Acts of Congress relating to the relief of
debtors, being commenced for the relief or readjustment of any indebtedness of
the undersigned or any endorser or guarantor of this note, either through
reorganization, composition, extension, or otherwise; (d) the making by the
undersigned or any endorser or guarantor of this note of an assignment for the
benefit of creditors or the taking advantage by any of the same of any
insolvency law; (e) the appointment of a receiver of any property of the
undersigned or any endorser or guarantor of this note; (f) the attachment or
distraint of any funds or other property of the undersigned which may be in, or
come into, the possession of or control of the Bank, or of any third party
acting for the Bank, or of the same becoming subject at any time to any
mandatory order of court or other legal process; (g) any government authority or
any court at the insistence of any government authority shall take possession of
any substantial part of the property of the undersigned or shall assume control
over the affairs or operations of the undersigned or a receiver shall be
appointed or if a writ or order of attachment or garnishment, or order of
execution shall be issued or made against any of the property or assets of the
undersigned or any endorser or guarantor of this note -- then, or at any time
after the happening of any such event, this note and/or any material or other
Obligations which may be taken in renewal or extension of all or any part of the
indebtedness evidenced thereby, shall become due and payable at the option of
the holder, without demand or notice, and, likewise upon the happening of any
such event or at any time thereafter, any or all other Obligations then existing
shall, at the option of the Bank, become due and payable forthwith, without
demand upon or notice to the undersigned. If this note be not paid when due and
if it be placed with an attorney for collection, the makers, endorsers and
guarantors agree to pay all costs of collection, including an attorney's fee of
15% of the amount of this note, which is hereby agreed to be just and reasonable
and which shall be added to the amount under this note and recoverable with the
amount due under this note. The undersigned further agrees that this note shall
be deemed to have been made under and shall be governed by the laws of the State
of New York in all respects, including matters of construction, validity and
performance, and
<PAGE> 14
that none of its terms or provisions may be waived, altered, modified or
amended, except if the Bank may consent thereto in writing duly for and
on its behalf. The undersigned, if more than one, shall be jointly and severally
liable hereunder.
PAYABLE AT ROSS TECHNOLOGY
Due on /s/
- ------------ ----------- ------------------------------
By:
----------------------------
Name:
--------------------------
Title:
------------------------
<PAGE> 1
EXHIBIT 11
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
EARNINGS (LOSS) PER SHARE COMPUTATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, APRIL 1, APRIL 3,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) .................... $(86,705) $ 18,160 $(10,669)
Dividends related to preferred stock . -- (832) (176)
-------- -------- --------
Net income (loss) applicable to common
shareholders ....................... (86,705) $ 17,328 $(10,845)
======== ======== ========
Shares used in earnings per share
computations ....................... 23,396 20,880 7,356
======== ======== ========
Net income (loss) per common share ... $ (3.71) $ 0.83 $ (1.47)
======== ======== ========
</TABLE>
COMPUTATION OF SHARES USED IN EARNINGS PER SHARE COMPUTATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, APRIL 1, APRIL 3,
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
Average outstanding common shares ... 23,396 14,067 7,200
Average common equivalent shares -
dilutive effect of preferred
shares ............................ -- 4,312 *
Average common equivalent shares -
dilutive effect of option shares .. * 2,501 156
------ ------ -----
Shares used in earnings per share
computation ....................... 23,396 20,880 7,356
====== ====== =====
</TABLE>
*Excluded due to anti-dilutive effect.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
------------
ROSS Semiconductors (Israel) Ltd.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Ross Technology, Inc.
We consent to incorporation by reference in the registration statement (No.
333-00920) on Form S-8 of Ross Technology, Inc. of our report dated June 23,
1997 relating to the consolidated balance sheets of Ross Technology, Inc. and
subsidiary as of March 31, 1997 and April 1, 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three year period ended March 31, 1997 and the related
schedule, which report appears in the March 31, 1997 annual report on Form 10-K
of Ross Technology, Inc.
Our report dated June 23, 1997, contains an explanatory paragraph that states
that the Company is dependent on its Parent, Fujitsu Limited, for its cash and
capital requirements.
KPMG PEAT MARWICK LLP
Austin, Texas
June 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
Ross Technology, Inc. and Subsidiary
Financial Data Schedule for Commercial
and Industrial Companies(*)
<LEGEND>
*THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, THE CONSOLIDATED STATEMENTS OF INCOME AND THE
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-02-1996
<PERIOD-END> MAR-31-1997
<CASH> 2,811
<SECURITIES> 0
<RECEIVABLES> 14,617
<ALLOWANCES> 1,555
<INVENTORY> 16,308
<CURRENT-ASSETS> 37,067
<PP&E> 17,752
<DEPRECIATION> 10,972
<TOTAL-ASSETS> 54,819
<CURRENT-LIABILITIES> 75,044
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> (20,248)
<TOTAL-LIABILITY-AND-EQUITY> 54,819
<SALES> 83,104
<TOTAL-REVENUES> 83,104
<CGS> 107,951
<TOTAL-COSTS> 107,951
<OTHER-EXPENSES> 59,433
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,472
<INCOME-PRETAX> (85,752)
<INCOME-TAX> 953
<INCOME-CONTINUING> (86,705)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86,705)
<EPS-PRIMARY> (3.71)
<EPS-DILUTED> (3.71)
</TABLE>
