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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[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 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
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Commission file number: 0-27016
ROSS TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
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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
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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 30, 1998, was approximately $500,000 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
30, 1998, was 23,476,965.
DOCUMENTS INCORPORATED BY REFERENCE
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 30, 1998
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PART I
Item 1. Business.................................................................... 1
Item 2. Properties.................................................................. 10
Item 3. Legal Proceedings........................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......................... 10
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.... 10
Item 6. Selected Consolidated Financial Data........................................ 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 14
Item 8. Financial Statements and Supplementary Data................................. 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 20
PART III
Item 10. Directors and Executive Officers of the Registrant.......................... 20
Item 11. Executive Compensation...................................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 30
Item 13. Certain Relationships and Related Transactions.............................. 31
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............ 33
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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, including renewal of its
present loan and loan guaranty arrangements (which currently expire on December
31, 1998); the Company's ability to satisfy all debts in full and in a timely
manner; the impact on revenue, margins and inventories of the Company's recent
announcements concerning the Company's financial position and intention to
engage in an orderly shutdown of its operations; the Company's dependence on
distributors and resellers for certain product sales to end-users; 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; 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 Securities and Exchange Commission filings, including without limitation 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
RECENT DEVELOPMENTS
As a result of the continuing and substantial deterioration of the Company's
financial position, on June 1, 1998, the Company announced that it would
commence an orderly shutdown of its operations. The decision was precipitated by
a continuing decrease in revenues from the Company's sales of its 32-bit
products. The Company is exploring certain strategic alternatives, including an
acquisition of the entire Company by a third party and the sale of various
assets, including the Viper development team and associated intellectual
property, Austin manufacturing operation and the Company's Design Center in
Israel. To date, the Company has been unable to locate a buyer for the entire
Company and believes it is highly unlikely that it will be able to do so. A
letter of intent with respect to the sale of the manufacturing operations was
entered into on June 25, 1998. In addition, the Company and Fujitsu Limited, the
Company's majority stockholder ("Fujitsu"), are negotiating an asset purchase
agreement pursuant to which Fujitsu will purchase certain intellectual property
rights from the Company (with a royalty-free license back to the Company for
some of those rights). The Company is also actively involved in discussions with
potentially interested parties, including Fujitsu, with regard to other of its
assets. There is no assurance that any further agreements will be reached or
that agreements reached will close in accordance with their terms. In the
absence of a sale of the entire Company, the Company intends to cease all of its
operations by the end of calendar 1998.
Under the plan approved by the Company's Board of Directors, it is
anticipated that the Company will continue its operations, at a scaled back
level, through the end of calendar year 1998. Under this plan, the Company hopes
to avoid undue disruption to its customers, which will have an opportunity to
place orders for their forecasted needs, which the Company will strive to meet.
The Company believed that by endeavoring to keep its design and product
engineers in place as well as a scaled-back test site, it would have a better
chance of finding a buyer for the Company or all or part of its assets,
including its intellectual property. The Company has formed a business unit,
named BridgePoint, that contains its significantly scaled back sales, service
and manufacturing operations employees, as well as the inventory related to its
32-bit products. It is currently anticipated that BridgePoint will serve the
ROSS customers until calendar year end 1998, and may be sold separately or as a
part of the entire Company (a letter of intent with respect to the sale of the
BridgePoint operations was entered into on June 25, 1998).
The Company at this time will seek to maximize its asset value for its
creditors. While the Company hopes to pay all of its creditors in full, its
ability to do so is dependent upon its ability to generate sufficient cash from
the sale of products and assets. The Company believes that it is highly unlikely
that there will be any funds or assets available for distribution to any
stockholders.
As part of the preparation for the shutdown of the Company's business, the
Company has issued notices to its employees under the Federal Workers Adjustment
and Retraining Notification Act. These notices provided advance notice to all
employees of the scheduled termination of their employment in connection with
the shutdown. Approximately 93 employees, or 46% of the Company's work force
will be laid off as of July 31, 1998, excluding the approximately 30 full and
part time employees at the ROSS Design Center in Israel. The Company's 64-bit
"Viper" Development Team (including the Vice President of Engineering and the
Chief Architect), the BridgePoint operations, sales and service personnel
(including the Vice President of Manufacturing) and an administrative team
(including the Chief Executive Officer, Chief Financial Officer and Corporate
Controller), will continue to operate the smaller ROSS Company and pursue
alternatives, although the Company intends to lay-off the Viper development team
on July 31, 1998 if an agreement to sell those operations has not been reached
by that time. See Item 7 - Management Discussion and Analysis of Financial
Condition and Results of Operations and "End of Life Program."
On May 18, 1998, the Company was informed by the Nasdaq National Market of
the Company's failure to maintain
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certain listing requirements - failure to maintain a closing bid price of
greater than or equal to $1.00 per share and failure to maintain a market value
of public float greater than or equal to $5 million. If the Company is unable to
demonstrate compliance with these two rules before August 13, 1998, the
Company's securities will be delisted at the opening of business on August 17,
1998. The Company does not believe that it will be able to demonstrate
compliance with such rules by the August 13, 1998 deadline. The Company's Common
stock would continue to trade on the over-the-counter bulletin board market
maintained by the Nasdaq National Market.
The description of the Company's business contained below is qualified in
its entirety by the information contained in this section ("Recent
Developments").
GENERAL
The Company designs, manufactures and markets high-performance
microprocessors and associated semiconductor products and system boards,
workstations and servers based upon the SPARC architecture, a reduced
instruction set computing ("RISC") architecture that was originally developed by
Sun Microsystems, Inc. ("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 and other original equipment manufacturers
("OEMs"), and as upgrades to end-users of SPARC workstations. As discussed
above, in the absence of a sale of the entire Company, the Company intends to
shutdown its operations by the end of calendar 1998
ROSS was originally incorporated in Texas in August 1988 and was acquired by
Cypress Semiconductor Corporation ("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 30, 1998, Fujitsu and Sun owned approximately 60.0% and 4.5%, respectively,
of the outstanding Common Stock and Fujitsu owns 100% of the Company's Series B
Convertible Preferred 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 subsidiary.
"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.
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.
Since its inception, the Company has developed four generations of advanced
RISC 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(TM) microprocessor in Sun's
SPARCstation(TM) 20 Model HS11 in late 1994, its 125 MHz hyperSPARC(TM)
microprocessor in Sun's SPARCstation(TM) 20 Model HS21 in early 1995, and its
150 MHz hyperSPARC microprocessor in Sun's SPARCstation(TM) 20 Models 151 and
152MP in October 1995. Other OEMs have selected the Company's advanced RISC
microprocessors for use in their products. Fujitsu, historically the Company's
second largest customer (and currently its largest customer) introduced systems
based on three new
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derivatives of the Company's "Colorado 3" hyperSPARC(TM) 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(TM) products feature high-performance integer,
floating-point and memory-management capabilities for multi-tasking operating
environments. The hyperSPARC(TM) 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(TM) products conform to the SPARC Version 8
(32-bit) 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(TM) products as single- or dual-processor
MBus 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(TM) multi-die packages ("MDPs") integrate multiple,
discrete die into a single pin-grid-array 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. The hyperSPARC(TM) 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(TM)
second-level caches are offered in 256 kilobyte, 512 kilobyte, and one megabyte
configurations. All hyperSPARC(TM) 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.
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(TM) 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(TM) 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(TM) MBus modules.
The Company's MBus support ASICs provide a high speed interface between the
CPU/cache, memory and input/output 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(TM) 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(TM) 20 systems.
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SPARCplug(TM) is a SPARCstation(TM) 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(TM) enables a single machine to combine a complete SPARC/Solaris(TM)
system with a standard PC environment, providing full "cut-and-paste" Windows
interoperability. In June 1997, the Company announced a SPARCplug(TM) Station,
which fits into a "four-high" drive bay tower, and may be used in both
workstation and server configurations. The Company will not continue offering
the SPARCplug(TM) product for sale.
ROSS also previously offered system-level SPARC solutions including complete
workstations as well as motherboard upgrades with a range of speed and
performance solutions. Its products integrate hyperSPARC(TM) modules with the
Company's MBus support ASICs. In connection with the Company's planned
shut-down, the Company has decided to discontinue offering all system-level
products.
Dependence on SPARC Architecture
All of the Company's products, as well as all of the Company's products
currently under development, are based on the SPARC architecture. The Company
does not anticipate continued acceptance of the 32-bit SPARC architecture by
Sun, Fujitsu and other major computer system manufacturers, as well as by the
end users of these systems. Likewise, the Company does not anticipate adoption
of the Company's new 64-bit SPARC products which are currently behind schedule
in development and will not be finished except possibly if the Company is sold
as a whole.
In 1995 Sun introduced a new line of workstations based upon a new 64-bit
bus architecture microprocessor, UltraSPARC(TM), designed by Sun
Microelectronics ("SME"), a division of Sun Microsystems. These products are
incompatible with the MBus architecture on which all of the Company's products
are based. Sun has adopted the 64-bit architecture for its entire product line,
and accordingly Sun's purchases of product from the Company have decreased
dramatically during Fiscal 1998. Sun's decision to focus product development
efforts on 64-bit systems combined with significant market acceptance of such
systems has significantly limited the total available market for the Company's
MBus-based products and has contributed to the Company's decision to engage in
an orderly shutdown of its operations.
CUSTOMERS
The Company sells its semiconductor and board products to manufacturers of
SPARC computer systems, including Sun, Fujitsu and other OEMs, and to
distributors, value added resellers ("VARS"), and end-users desiring to upgrade
the power and performance of their existing SPARC workstations and servers.
End of Life Program
The Company has announced an end of life ("EOL") program for its
hyperSPARC(TM) products. Customers were notified that the Company anticipates
accepting EOL orders until July 31, 1998, while reserving the right to stop
accepting such orders at any time without notice. Also, all such orders must be
shipped on or before November 28, 1998 or earlier as may be specified by the
Company. All EOL orders will be non-cancelable and non-returnable. To date, few
EOL orders have been received by the Company and the Company does not expect to
have significant further product sales prior to completion of its orderly
shutdown. While the effects of the Company's June 1, 1998, shutdown announcement
are not yet known to the Company at this time, the Company believes that the
announcement could have a material adverse effect on the Company's business,
results of operations and financial condition.
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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. Sales to Sun decreased during fiscal 1998 in
both dollar and percentage terms. Sun accounted for 15%, 28% and 45%,
respectively, of the Company's net sales in the fiscal years ended March 30,
1998 ("Fiscal 1998") March 31, 1997, ("Fiscal 1997") and April 1, 1996 ("Fiscal
1996"), followed by Fujitsu, which accounted for 36% of net sales in Fiscal 1998
and 22% and 19%, respectively, of net sales for Fiscal 1997 and Fiscal 1996.
The Company expects a significant portion of any future sales to remain
concentrated within a limited number of customers. Sales to the Company's major
customers have also decreased significantly and will not be replaced. In
addition, future sales to any particular customer may fluctuate significantly
from recent periods. This situation has contributed significantly to the
Company's decision to engage in an orderly shutdown of its operations.
Upgrade Customers
The Company's upgrade customer base is composed of the end-users of
SPARCstation(TM) 5, 10 and 20 class workstations and SPARCserver(TM) 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. Given the Company's EOL program,
the Company does not expect significant future sales to upgrade customers.
SALES, MARKETING AND SUPPORT
Sales and Marketing
The Company employs various channels of sales and distribution for its
hyperSPARC(TM) 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 30, 1998, the Company's internal sales force consisted of 24
individuals who shared responsibility for direct sales and the support of
manufacturer representatives and VARs, all but two of which are expected to be
laid off on July 31, 1998.
The Company's strategy for upgrade sales had been to focus its resources on
the training and support of distributors and VARs, which the Company believed
was 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. The Company also grants some
distributors limited rights to return products. The Company reduces recognition
of net sales and profit on sales to distributors to the extent of the rights of
return and price protection.
The Company's marketing communications activities included 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 published hyperACTIVITY(TM), a periodic newsletter which
is mailed to customers, prospective customers and others.
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Following the Company's shut-down announcement on June 1, 1998, marketing
activities were terminated.
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. The Company
anticipates that all of its warranty obligations will be assumed by the
purchaser of its BridgePoint manufacturing operations, if that proposed
transaction is consummated. In the absence of such consummation, the Company
will seek to outsource those obligations to a third party manufacturer. For the
EOL orders, the warranty will be honored for 12 months from the date of
shipment, or November 30, 1999, whichever is earlier.
Export Sales
Export sales, primarily to customers in Japan and Europe, accounted for 48%,
34% and 36% of the Company's sales in Fiscal 1998, 1997, and 1996, respectively.
Substantially all of the Company's foreign sales are denominated in U.S.
dollars.
Service and Technical Support
The Company had two distinct channels of technical support to service its
OEM and upgrade customer bases. Technical support for OEMs was provided through
the Company's Applications Engineering Department, which provided 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 included 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 provided pre- and post-sales assistance to the Company's
upgrade prospects and customer base. The Applications Engineering Department was
terminated on June 1, 1998.
The primary channel for technical support to service workstation customers
is via service providers such as Computervision.
BACKLOG
As of March 30, 1998, the Company's total backlog was approximately $1.4
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 and the Company does not know what effect
the EOL program will have on its backlog.
MANUFACTURING
The Company's microprocessor manufacturing strategy has been 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,
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while performing test and verification functions internally to ensure product
quality and yields. Specifically, the Company outsources wafer fabrication, die
packaging and daughtercard 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
was 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
believed that this strategy enabled it to operate more efficiently with fewer
personnel, while capitalizing on the latest advances in semiconductor process
technology and manufacturing techniques.
The Company's manufacturing strategy with respect to workstations and
servers, which is similar to its microprocessor strategy, was 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
outsourced the manufacturing and assembling of its motherboards. Before
qualifying a third-party manufacturer, the Company's personnel were 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 was 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.
The Company expects to cease all of its manufacturing operations by the end
of calendar 1998. See "Recent Developments".
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 pursuant to an
agreement in principle on a wafer pricing model that reflects current and future
industry pricing standards. The Company had also established a relationship with
NEC for the potential production of microprocessor logic chips, although the
program will not be implemented. During Fiscal 1998, Fiscal 1997 and Fiscal
1996, Fujitsu supplied 100% of the dollar amount of the Company's silicon wafer
purchases for production and the Company expects that Fujitsu will supply all of
the Company's silicon wafer requirements through completion of the EOL program.
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(TM) products from MMS using MMS' advanced substrate
technology. The Company's multi-die packages are also manufactured by nChip and
Fujitsu 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 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 business and operating results.
7
<PAGE> 12
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, workstation and server 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. The Company
faces competition from SME, Digital Equipment Corporation, Hewlett-Packard, IBM
and Silicon Graphics. The Company does not have the resources and capabilities
at this time to compete effectively, which has contributed to the Company's
decision to engage in an orderly shutdown of its operations.
At this time, the Company does not offer a competitive product as evidenced
by the lack of a major design win for its latest generation hyperSPARC(TM)
microprocessor, Colorado 4, product and it is currently behind schedule to
deliver to market, on a timely basis, the Company's current 64-bit Viper
microprocessor development project. The Company does not currently have the
financial resources necessary to complete the Viper development project and does
not expect to complete this project.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are currently focused on the
Viper development project, a 64-bit microprocessor. At this time, the project is
behind schedule as defined by a development agreement entered into between
Fujitsu and the Company (see Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operation" - "Research and Development.") and
the Company does not expect to complete development of this product. The Company
and Fujitsu are currently having discussions regarding termination of the Viper
development project.
The Company intends to terminate employment of the members of the Viper
development team on July 31, 1998, if an agreement to sell those operations has
not been reached by that time. The Company believes that it is highly unlikely
that such an agreement will be reached by then.
The Company's net research and development expenditures were $5.8 million,
$24.7 million and $15.9 million during Fiscal 1998, 1997 and 1996, respectively.
During Fiscal 1998, the Company received $17.0 million in contract payments
associated with two separate development contracts with Fujitsu, thereby
significantly lowering its R&D expenditures for Fiscal 1998.
PATENTS AND PROPRIETARY RIGHTS
The Company has endeavored 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 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
8
<PAGE> 13
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 (the Company has ceased patent prosecution in connection
with its shutdown decision), 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 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 and Fujitsu have entered into an asset purchase agreement
pursuant to which Fujitsu will purchase certain intellectual property rights
from the Company relating to its 32-bit operations, including four patents (with
a royalty-free license back to the Company for some of those rights). See Item
13 - "Certain Relationships and Related Transactions."
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 30, 1998, the Company's domestic work force consisted of 236
full-time employees and 49 employees who worked on a temporary or part-time
basis. In addition, the Company had two full-time employees in its European
office, which will be closed as part of the Company's shutdown of its
operations. The Company's design subsidiary, ROSS Semiconductors (Israel), Ltd.
("ROSS Israel"), had a workforce consisting of 30 full-time and part-time
employees. The Company and Fujitsu have reached an agreement in principle on the
sale of the Company's Israeli operations to Fujitsu for $2.5 million.
9
<PAGE> 14
As previously discussed, the Company has begun an orderly shutdown of its
operations. As part of this process, the Company will reduce its domestic work
force by 46% on July 31, 1998, and has established an Employee Retention and
Severance Plan for the remainder of its work force - Viper development team,
BridgePoint operations group and an administrative team, although the Company
intends to terminate the Viper development team on July 31, 1998, in the absence
of an agreement to sell such operations by that same date. The combined cost of
the lay-off and the Employee Retention and Severance Plan totals approximately
$5.2 million, of which $3.2 million relates to prior contractual obligations of
the Company and obligations of the Company under its general severance policy.
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
two leased buildings containing an aggregate of 95,200 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 62,200 square feet, provides facilities for all administration,
sales and marketing personnel, design, product engineering and production
control personnel.
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.
The Company is seeking to cancel or sublease all leases on or before the end
of calendar 1998.
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
in the early stages of discovery and no trial date has been set. 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, although the result of this lawsuit will not affect the Company's
decision to proceed with an orderly shutdown of its operations.
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
10
<PAGE> 15
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 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, although the result of this lawsuit
will not affect the Company's decision to proceed with an orderly shutdown of
its operations.
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
On January 30, 1998, Fujitsu, in its capacity as majority stockholder,
executed a written consent to approve an amendment to the Company's Stock Option
and Restricted Stock Purchase Plan 3.0 (the "Stock Option Plan) to (i) increase
the number of shares subject to the Stock Option Plan from 7,200,000 to
9,695,000 and (ii) increase the maximum number of options or shares of
restricted stock that an individual could receive under the Stock Option Plan in
any fiscal year from 600,000 to 1,000,000. An information statement regarding
the action taken was circulated to the Company's stockholders. Consents from
other stockholders were not solicited.
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>
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
June 30, 1997........ 3 1/8 1 9/16
September 29, 1997... 2 5/8 1 7/16
December 29, 1997.... 2 5/8 1
March 30, 1998....... 1 1/2 1
</TABLE>
(b) Holders. As of June 30, 1998, there were approximately 211 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 ever paying any dividends. The Company currently intends
to retain its earnings, if any, to finance the orderly shutdown of its
operations.
11
<PAGE> 16
On May 18, 1998, the Company was informed by the Nasdaq National Market of
the Company's failure to maintain certain listing requirements - failure to
maintain a closing bid price of greater than or equal to $1.00 per share and
failure to maintain a market value of public float greater than or equal to $5
million. If the Company is unable to demonstrate compliance with these two rules
before August 13, 1998, the Company's securities will be delisted at the opening
of business on August 17, 1998. The Company does not believe that it will be
able to demonstrate compliance with such rules by the August 13, 1998 deadline.
The Company's Common stock would continue to trade on the over-the-counter
bulletin board market maintained by the Nasdaq National Market.
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 28,
YEAR ENDED DECEMBER 29, 1993 TO YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 28, 1992 TO JULY APRIL 4, APRIL 3, APRIL 1, MARCH 31, MARCH 30,
1992 27, 1993 1994 1995 1996 1997 1998
------------ ------------- ------------ ---------- ---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales ..................... $ 38,145 $ 7,023 $ 10,373 $ 39,021 $100,805 $ 83,104 $ 42,057
Gross profit (loss) ........... 18,142 301 1,605 12,293 46,884 (24,847) (1,181)
Income (loss) from operations . (2,272) (9,202) (21,222) (8,939) 19,317 (84,280) (36,195)
Income (loss) before income
taxes ....................... (2,240) (9,223) (21,515) (10,581) 17,843 (85,752) (38,271)
Net income (loss) ............. $ (1,478) $ (7,641) (21,515) (10,669) 18,160 (86,705) (38,271)
Basic net income (loss) per
common share(3)......... $ (2.92) $ (1.47) $ 1.23 $ (3.71) $ (1.63)
Weighted average shares
outstanding(3) - Basic.... 7,356 7,356 14,067 23,396 23,450
Diluted net income (loss) per
common share.............. $ (2.92) $ (1.47) .82 (3.71) (1.63)
Weighted average common and
common equivalent shares
outstanding - Diluted 7,356 7,356 21,033 23,396 23,450
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
----------------------- -----------------------------------------------
DECEMBER 28, JULY 27, APRIL 4, APRIL 3, APRIL 1, MARCH 31, MARCH 30,
1992 1993 1994 1995 1996 1997 1998
------------ -------- -------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 316 $ 457 $ 2,458 $ 1,936 $ 17,941 $ 2,811 $ 787
Working capital (deficit)...... 1,881 (1,791) (15,581) (25,932) 44,336 (37,977) (12,305)
Total assets................... 14,883 9,363 24,069 39,489 97,893 54,819 18,487
Notes payable.................. -- 4,000 20,500 36,344 -- 43,500 15,000
Accumulated deficit............ (1,478) (9,119) (21,515) (32,184) (14,856) (101,561) (139,832)
Total stockholders's equity
(deficit)...................... $ 8,352 $ 1,638 $ (3,615) $(14,284) $ 66,274 $ (20,225) $ (8,980)
</TABLE>
- ----------
(1) References to the "Predecessor Company" refer to ROSS prior to its
acquisition by Fujitsu.
12
<PAGE> 17
(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,"
"Fiscal 1997" and "Fiscal 1998" refer to the Company's fiscal years ended
April 3, 1995, April 1, 1996, March 31, 1997, and March 30, 1998,
respectively. The Company's operating results for Fiscal 1998 are included
in Fujitsu's consolidated financial statements for Fujitsu's "Fiscal 1997."
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 1998" and Fujitsu's "Fiscal 1997" both refer to the year
ended on or about March 30, 1998.
(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
Fujitsu's acquisition of the Company is not comparable to subsequent periods
due to the different capitalization of the Predecessor Company and,
therefore, has not been presented.
13
<PAGE> 18
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 1, 1996
("Fiscal 1996"), the fiscal year ended March 31, 1997 ("Fiscal 1997"), and the
fiscal year ended March 30, 1998 ("Fiscal 1998").
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1997 1998
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................. $ 100,805 $ 83,104 $ 42,057
Cost of sales ............................. 53,921 107,951 43,238
---------- ---------- ----------
Gross profit (loss) ..................... 46,884 (24,847) (1,181)
========== ========== ==========
Operating expenses:
Research and development, net ........... 15,906 24,659 5,842
Selling, general and administrative ..... 10,495 31,137 16,889
Write-down of property and equipment..... -- -- 11,203
Write-down of investment in subsidiary... -- -- 1,080
Amortization of goodwill ................ 1,166 3,637 --
---------- ---------- ----------
Total operating expenses ............. 27,567 59,433 35,014
---------- ---------- ----------
Income (loss) from operations ............. 19,317 (84,280) (36,195)
Interest expense, net ..................... (1,474) (1,472) (2,076)
---------- ---------- ----------
Income (loss) before income taxes ......... 17,843 (85,752) (38,271)
Income tax provision (benefit) ............ (317) 953 --
---------- ---------- ----------
Net income (loss) ......................... $ 18,160 $ (86,705) $ (38,271)
========== ========== ==========
(As a percentage of net sales)
Net sales ................................. 100.0 100.0 100.0
Cost of sales ............................. 53.5 129.9 102.8
---------- ---------- ----------
Gross profit (loss) ..................... 46.5 (29.9) (2.8)
---------- ---------- ----------
Operating expenses:
Research and development, net ........... 15.8 29.7 13.9
Selling, general and administrative ..... 10.4 37.5 40.2
Write-down of property and equipment..... -- -- 26.6
Write-down of investment in subsidiary... -- -- 2.6
Amortization of goodwill ................ 1.2 4.3 --
---------- ---------- ----------
Total operating expenses ............. 27.4 71.5 83.3
---------- ---------- ----------
Income (loss) from operations ............. 19.1 (101.4) (86.1)
Interest expense, net ..................... (1.5) (1.8) (4.9)
---------- ---------- ----------
Income (loss) before income taxes ......... 17.6 (103.2) (91.0)
Income tax expense (benefit) .............. (0.3) 1.1
---------- ---------- ----------
Net income (loss) ......................... 17.9 (104.3) (91.0)
========== ========== ==========
</TABLE>
General Overview -- 1998. In Fiscal 1998, the Company recorded $42.1 million
in revenues versus $83.1 million and $100.8 million in Fiscal 1997 and Fiscal
1996, respectively. The reduction in sales reflected the migration of the
Company's primary customers away from the Company's 32-bit products to 64-bit
products sold by the Company's competitors, primarily Sun. As a result, despite
the Company's cost reduction efforts and its successful negotiation of a $34.5
million development agreement with Fujitsu, the Company incurred a net loss of
$38.3 million. The continued reduction in the level of sales resulted in a
continued percentage increase in the manufacturing overhead associated with
parts assembled by the Company, keeping the Company's gross profit below
expectations. The aggregate losses incurred by the Company were primarily funded
by bank loans guaranteed by Fujitsu. On September 30, 1997, the Company and
Fujitsu concluded a recapitalization transaction, whereby the Company issued
500,000 shares of a new Series B Convertible Preferred Stock to Fujitsu and
Fujitsu paid $50 million on behalf of the Company to The Dai-Ichi Kangyo Bank
("DKB") in partial payment of the Company's outstanding indebtedness to DKB in
satisfaction of Fujitsu's obligation pursuant to certain loan guaranties
provided by Fujitsu to DKB.
As a result of the Company's continuing and substantial deterioration of
its financial position, on June 1, 1998, the Company announced that it would
commence an orderly shutdown of the its operations. As part of the preparation
for the shutdown of the Company's business, the Company issued notices to its
employees under the
14
<PAGE> 19
Federal Workers Adjustment and Retraining Notification Act. Approximately 46% of
the Company's domestic work force will be laid off as of July 31, 1998. In
addition, in the absence of an agreement to sell the Company's Viper design
operations on or before July 31, 1998, the Company intends to terminate such
employees on July 31, 1998, as well. Due to the Company's continued financial
deterioration and its inability to provide positive cash flow from operations,
the Company recorded an $11.2 million charge for the write-down of certain
property and equipment as circumstances indicate that the carrying amount of
such assets may not be recoverable.
Net Sales. Net sales decreased to $42.1 million in Fiscal 1998 from $83.1
million in Fiscal 1997, which decreased from $100.8 million in Fiscal 1996. The
successive decrease in net sales in Fiscal 1998 and Fiscal 1997 from the level
of sales achieved in Fiscal 1996 is primarily attributable to a continued
decrease in sales to OEM microprocessor chip customers reflecting the lack of a
major design win for the Company's Colorado 4 microprocessor products and to a
lack of new products to match Sun's introduction of 64-bit products. Sales
levels were also negatively impacted in Fiscal 1997 by turnover in sales and
executive management. 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 for 1997. The Company has ceased to offer system products for sale.
During Fiscal 1998, 69% of the Company's net sales were derived from OEM
customers (with Sun, Fujitsu and other OEMs accounting for 15%, 36%, and 18%,
respectively, of total net sales). 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). The change in OEM sales mix for both Fiscal 1998 and 1997
reflect the continued reduced demand from Sun first experienced in Fiscal 1997
and the Company's diversification into other markets, including the systems
market which the Company recently exited. Sales to Fujitsu decreased by 75%
during the fourth quarter of Fiscal 1998 versus the quarterly average for the
first three quarters of Fiscal 1998. As Sun and Fujitsu have historically
accounted for a significant percentage of the Company's sales, the loss of such
sales had a material adverse effect on the Company's business, financial
condition and operating results.
Gross Profit (Loss). The Company's gross profit as percentage of sales
increased to a loss of 2.8% in Fiscal 1998 from a loss of 29.9% in Fiscal 1997.
This increase primarily reflects the absence of a large charge for the
write-down of inventory like that which was recorded in Fiscal 1997 and efforts
to improve yields. During Fiscal 1998, the Company continued to incur, on a
percentage basis, a high level of manufacturing overhead associated with parts
assembly by the Company as a result of the continued reduction in the level of
sales. Also, as a result of the Company's deteriorating financial position, in
Fiscal 1998, the Company recorded a $7.3 million charge to write-off excess
levels of inventory. The Company's gross profit as a percentage of net sales
decreased to a loss of 29.9% in Fiscal 1997 from a profit of 46.5% in Fiscal
1996. This decrease is primarily the result of a $38.9 million 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 materially 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 Fiscal 1997 in a
larger manufacturing space occupied during the fourth quarter of Fiscal 1996.
Research and Development. Research and development ("R&D") expense includes
costs associated with the definition, design and development of new products.
Net R&D expenses decreased to $5.8 million (13.9% of sales) in Fiscal 1998 from
$24.7 million (29.7% of sales) in Fiscal 1997. This decrease was primarily
attributable to a net reimbursement of $15.3 million in expenses relating to the
Company's 64-bit Viper microprocessor development project, pursuant to a
Development Agreement between the Company and Fujitsu (the "Viper Development
Agreement"), as well as application of $2.0 million of payments from Fujitsu
against R&D expenses pursuant to an additional development agreement between the
Company and Fujitsu to produce a 32-bit processor "core." The
15
<PAGE> 20
Company actually received $17.0 million from Fujitsu during Fiscal 1998 for its
design efforts, but due to delays in its design schedule may be subject to a
$1.2 million penalty and such penalty is reflected in the Company's financial
statements (see discussion of Viper Development Agreement under "Future
Operating Results"). To a lesser degree, this decrease also reflects the
decrease in expenses in Fiscal 1998 related to the Company's 1997 entrance into
the systems business. This decrease was partially offset by increases due to the
addition of new personnel and related overhead and outside contractor expenses
in the areas of new product design and new product development related to the
Company's 32-bit "Colorado 4" and "Colorado 5" hyperSPARC(TM) and 64-bit "Viper"
microprocessor designs. 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. 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 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(TM) and next generation Viper
microprocessor designs. In Fiscal 1997, $2 million of payments from Fujitsu
pursuant to a development agreement were applied against R&D expenses.
Selling, General and Administrative. Selling, general and administrative
("SG&A") expenses decreased to $16.9 million (40.2% of sales) in Fiscal 1998
from $31.1 million (37.5 % of sales) in Fiscal 1997, which was an increase from
$10.5 million (10.4% of sales) in Fiscal 1996. The increase in SG&A expenses
during Fiscal 1997 and the subsequent decrease in Fiscal 1998 was primarily
attributable to approximately $16.5 million in write-offs and increase in
reserves associated with uncollectable accounts recorded in Fiscal 1997. In both
Fiscal 1998 and 1997, the Company also experienced increases in legal and
consulting expenses related to the negotiation of significant contracts and the
hiring of new executive management.
Write-down of Property and Equipment. As a result of the Company's continued
financial deterioration, in accordance with Generally Accepted Accounting
Principles, the Company recorded an $11.2 million write-down for long-lived
assets since events and circumstances indicated that the assets were impaired.
The impairment charge was the difference between the Company's carrying value
and the estimated fair value of the assets. The Company estimated fair value
through the use of a third party appraisal of the assets.
Write-down of Investment in Subsidiary. As a result of the Company's
continued financial deterioration and the Company's intention to close its
Israeli operations, the Company recorded a $1.1 million charge for the
write-down of its investment in its Israeli subsidiary.
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. 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 $2.1 million in Fiscal 1998
was higher than that which was incurred in both Fiscal 1997 and 1996, $1.5
million and $1.5 million, respectively, reflecting the higher debt levels
incurred by the Company during the first six months of Fiscal 1998. See
"Liquidity and Capital Resources."
Income Tax Expense. Consistent with Fiscal 1997, in Fiscal 1998 the Company
has established a 100% reserve against its deferred income tax asset in the
amount of $41.2 million and will not record income tax expense or benefit until
such time as the Company achieves sustained profitability (which is not
expected). In Fiscal 1997 the Company incurred a significant loss. Based on the
Company's losses in Fiscal 1997, 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,
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<PAGE> 21
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.
Future Operating Results. As a result of the continuing and substantial
deterioration of the Company's financial position, on June 1, 1998, the Company
announced that it would commence an orderly shutdown of its operations. The
decision was precipitated by a continuing decrease in revenues from the
Company's sales of the its 32-bit products. The Company is exploring certain
strategic alternatives, including an acquisition of the entire Company by a
third party and the sale of various assets, including the Viper development team
and associated intellectual property, Austin manufacturing operations and the
Company's Design Center in Israel. To date, the Company has been unable to
locate a buyer for the entire Company and believes it is highly unlikely that it
will be able to do so. A letter of intent with respect to the sale of the
manufacturing operations was entered into on June 25, 1998. In addition, the
Company and Fujitsu are negotiating an asset purchase agreement pursuant to
which Fujitsu will purchase certain intellectual property rights from the
Company (with a royalty-free license back to the Company for some of those
rights). Also, Fujitsu and the Company have reached an agreement in principle on
the sale of the Company's Design Center in Israel to Fujitsu. There is no
assurance that any further agreements will be reached or that agreements reached
will close in accordance with their terms. In the absence of a sale of the
entire Company, the Company intends to cease all of its operations by the end of
calendar 1998.
Under the plan approved by the Company's Board of Directors, it is
anticipated that the Company will continue its operations, at a scaled back
level, through the end of calendar year 1998. Under this plan, the Company hopes
to avoid undue disruption to its customers, which will have an opportunity to
place orders for their forecasted needs, which the Company will strive to meet.
The Company believed that by endeavoring to keep its design and product
engineers in place as well as a scaled-back test site, it would have a better
chance of finding a buyer for the Company of all or part of its assets,
including its intellectual property. The Company has formed a business unit,
named BridgePoint, that contains its significantly scaled back sales, service
and manufacturing operations employees, as well as the inventory related to its
32-bit products. It is currently anticipated that BridgePoint will serve the
ROSS customers until year end and may be sold separately or as a part of the
entire Company (a letter of intent with respect to the sale of the Bridgepoint
operations was entered into on June 25, 1998).
The Company at this time will seek to maximize its asset value for its
creditors. While the Company hopes to pay all of its creditors in full, its
ability to do so is dependent upon its ability to generate sufficient cash from
the sale of products and assets. The Company believes that it is highly unlikely
that there will be any funds or assets available for distribution to any
stockholders.
As part of the preparation for the shutdown of the Company's business, the
Company has issued notices to its employees under the Federal Workers Adjustment
and Retraining Notification Act. These notices provided advance notice to all
employees of the scheduled termination of their employment in connection with
the shutdown. Approximately 93 employees, or 46% of the Company's work force
will be laid off as of July 31, 1998, excluding the approximately 30 full and
part time employees at the ROSS Design Center in Israel. The Company's 64-bit
"Viper" Development Team (including the Vice President of Engineering and the
Chief Architect), the BridgePoint operations, sales and service personnel
(including the Vice President of Manufacturing) and an administrative team
(including the Chief Executive Officer, Chief Financial Officer and Corporate
Controller), will continue to operate the smaller ROSS Company and pursue
alternatives, although the Company intends to lay-off the Viper development team
on July 31, 1998 if an agreement to sell those operations has not been reached
by that time.
Historically, the Company depended solely upon its majority stockholder,
Fujitsu, for additions to capital necessary to continue its operations. On
September 30, 1997, the Company concluded a recapitalization transaction with
Fujitsu whereby the Company issued 500,000 shares of a new Series B Convertible
Preferred Stock to Fujitsu and Fujitsu paid $50 million on behalf of the Company
to DKB in partial payment of the Company's outstanding indebtedness to DKB and
in satisfaction of Fujitsu's obligation pursuant to certain loan guaranties
provided by Fujitsu to DKB. In connection
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<PAGE> 22
with the recapitalization transaction, Fujitsu provided a guaranty for a $20
million line of credit from DKB, which expired on March 31, 1998. Both the
credit facility and the guaranty have been extended to December 31, 1998. All of
such line of credit had been borrowed by the Company as of June 15, 1998. There
is no assurance that Fujitsu will agree to extend or renew the guaranty on its
existing terms or otherwise. In the absence of a renewal or extension of the
guaranty, the Company will default on the repayment of the line of credit as the
Company does not have the capability to pay off the line of credit in the
foreseeable future, if at all. See "Liquidity and Capital Resources."
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.
During Fiscal 1998, the Company failed to timely meet certain of the
milestones set forth in the Viper Development Agreement. Fujitsu and the Company
amended such Agreement to provide for a redefinition of the deliverables
associated with such milestones. The Company does not anticipate attaining
future milestones and is in potential default of the Agreement.
The Company believes that the development of the Viper product is over 120
days behind the schedule provided in the Viper Development Agreement. If Fujitsu
accepts any milestone set forth in the Viper Development Agreement more than
thirty days later than the due date set forth in that Agreement, the Company
must accrue a penalty of 10% of the payment from Fujitsu to the Company for
milestone achievement, subject to modification under certain circumstances.
Should the Company achieve First Customer Ship ("FCS") on or before the date set
forth in the Agreement, all penalties are waived. Since the Company will not
achieve FCS on or before the agreed date, it has accrued penalties aggregating
$1.2 million for late deliveries in Fiscal 1998, which are reflected in the
accompanying financial statements. Penalties for later milestones may also be
accrued if the Company cannot accelerate its development activities. Pursuant to
the Viper Development Agreement, Fujitsu may also terminate the Agreement if its
acceptance of a milestone, as defined in the Agreement, is more than 120 days
later than specified in the Agreement. The Company and Fujitsu are in
negotiations to terminate the Viper Development Agreement and the Company
believes it is likely that such penalties will be waived.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced significant negative cash flows during Fiscal 1998.
Historically, the Company has been dependent on Fujitsu for its capital
requirements. In November 1996 the Company established a "New Credit Facility"
with DKB for a maximum principal amount of $25 million; in February 1997 such
New Credit Facility was increased to a maximum of $50 million. The New Credit
Facility was scheduled to expire on March 31, 1998, and was guaranteed by
Fujitsu until that date. In September 1997, a separate $10 million "Additional
Credit Facility" was established with DKB. This Additional Credit Facility
expired on September 30, 1997. On September 29, 1997, the principal amount
outstanding under both credit facilities was $56.0 million, with $50 million due
on December 31, 1997, and $6 million due on September 30, 1997. On September 30,
1997, the Company concluded a recapitalization transaction with Fujitsu, whereby
the Company issued 500,000 shares of a new Series B Convertible Preferred Stock
to Fujitsu and Fujitsu paid $50 million on behalf of the Company to DKB in
partial payment of the Company's outstanding indebtedness to DKB in satisfaction
of Fujitsu's obligation pursuant to certain loan guarantees provided by Fujitsu
to DKB. In connection with the recapitalization, Fujitsu provided a guarantee
for a replacement credit facility with DKB for a maximum principal amount of $20
million (which replaces the previous "New Credit Facility"). As noted above
under "Future Operating Results", the line of credit and guaranty was scheduled
to expire on March 31, 1998, but have been extended to December 31, 1998. As of
June 15, 1998, the Company has borrowed the maximum $20 million of available
credit provided by the existing credit facility. There is no assurance that DKB
will renew the line of credit or that Fujitsu will agree to extend or renew the
guaranty, on their existing terms or otherwise. In addition, there can be no
assurance that the Company will not experience negative cash
18
<PAGE> 23
flow from operations and the Company may in the future be required to seek
additional external sources of financing to fund the shutdown of its operations,
which it does not believe it will be able to obtain from Fujitsu or any other
third party. Although the Company hopes it will have sufficient funds from sales
of its inventory and assets to fund an orderly shutdown of its operations, the
Company may be forced to seek protection under Federal bankruptcy laws.
On May 18, 1998, the Company was informed by the Nasdaq National Market of
the Company's failure to maintain certain listing requirements - failure to
maintain a closing bid price of greater than or equal to $1.00 per share and
failure to maintain a market value of public float greater than or equal to $5
million. If the Company is unable to demonstrate compliance with these two rules
before August 13, 1998, the Company's securities will be delisted at the opening
of business on August 17, 1998. The Company does not believe that it will be
able to demonstrate compliance with such rules by the August 13, 1998 deadline.
The Company's Common Stock would continue to trade on the over-the-counter
bulletin board market maintained by the Nasdaq National Market.
The Company's principal source of liquidity as of March 30, 1998, consisted
of $.8 million of cash and $5.0 million of unused credit availability pursuant
to its loan with DKB (the Company currently has no availability under this
credit facility). As of March 30, 1998, the Company had negative working capital
of $12.3 million, an accumulated deficit of $139.8 million and stockholders'
deficit of $9.0 million.
During both Fiscal 1998 and 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. Although relations with
some suppliers have improved given the more standard payment terms adhered to by
the Company during the last six months of Fiscal 1998, there can be no assurance
that the Company's various suppliers will continue to ship supplies to the
Company or that if they will ship supplies to the Company, that the associated
purchase terms will be favorable to the Company
During Fiscal 1998, operating activities used cash of $16.9 million,
compared with $52.5 million of cash in Fiscal 1997, due primarily to a net loss
of $86.7 million in Fiscal 1997 compared with a net loss of $38.3 million in
Fiscal 1998. In Fiscal 1998, net inventory decreased $8.5 million primarily as a
result of a write-down for excess inventory. Accounts payable decreased $13.1
million due to the Company's substantial borrowing during Fiscal 1998. The
Company's payable to Fujitsu decreased similarly.
The Company's investing activities in Fiscal 1998 used $6.2 million of cash,
a decrease from approximately $6.3 million for Fiscal 1997.
Cash generated by financing activities decreased by $22.7 million in Fiscal
1998 from $43.7 million in Fiscal 1997. In Fiscal 1997 the Company borrowed
$43.5 million under the New Credit Facility from DKB.
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 to extend such favorable
terms to the Company. Shorter payment terms would increase the Company's cash
requirements.
The Company projects that total payments under all operating leases
currently in place will be approximately $1.9 million and $1.1 million for each
of Fiscal 1999 and 2000, respectively. These leases primarily cover the
Company's existing administrative and test facilities. The Company anticipates
canceling or subleasing all of its leases on or before the end of calendar 1998.
The Company does not intend to incur any significant additional capital
expenditures during the next 12 months.
The Company's consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. However, the Company has
experienced recurring losses from operations and is experiencing difficulty in
generating sufficient cash flow to meet its obligations and sustain its
operations, which raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
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<PAGE> 24
As previously stated, the Company has begun an orderly shutdown of its
operations. As part of the shut down process, the Company intends to generate
cash from EOL sales of inventory and assets and does not believe that it will be
able to obtain any other type of financing for the shutdown of its operations.
The Company's failure to obtain sufficient additional cash could make it
impossible to conduct an orderly shutdown of its operations, forcing the Company
to seek protection under the Federal bankruptcy laws.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue results from the fact that many computer programs were
previously written using two digits rather than four to define the applicable
year. Programs written in this manner may recognize a date ending in "00" as the
year 1900 rather than the year 2000. As the Company intends to complete an
orderly shutdown of its operations by the end of calendar 1998, this issue is
not expected to impact upon its internal operations. As a manufacturer of
microprocessors, the Company does not sell any software and accordingly, does
not provide any warranty for the Year 2000. The Company formerly sold system
products and as part of such sales acted as a reseller of certain third party
software. The Company provided no warranties regarding Year 2000 compliance on
any products it resold.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following is a list of certain biographical information for the persons
currently serving as Board of Directors and or Executive Officers of the
Company. All ages are as of June 26, 1998.
FRED T. MAY, 61, has served as Chairman of the Board of the Company since
March 1997, and served as Acting President and Chief Executive Officer from
March 1997 until May 1997. Mr. May has served as a Director of the Company since
1991 (except for the period from July 1993, when Fujitsu acquired the Company,
to December 1993), and served as Secretary of the Board from February 1994 until
October 1995. He retired from IBM in 1987 after serving 26 years in various
positions including Vice President of Engineering and Vice President of Product
Development for the Office Products Division, Development Laboratory Director in
Austin, Texas, and Development Engineering Manager for Advanced IBM
Workstations. Mr. May was on the staff of the Electrical and Computer
Engineering Department of the University of Texas at Austin from 1987 to 1993.
Mr. May holds as B.S. in Electrical Engineering from the University of Kentucky
and a M.S. in Electrical Engineering from the University of Tennessee, and has
over 30 years of experience in the computer industry. He has also been
self-employed as a management consultant since 1987.
RYUSUKE HOSHIKAWA, 55, has served as Director of the Company since 1993. He
joined Fujitsu in 1968 and is presently a Director of Fujitsu and the Group
President of Fujitsu's LSI Products Group. Prior to holding that position, Mr.
Hoshikawa held various engineering and management positions with Fujitsu
including that of Group Senior Vice President of its Logic LSI Group, General
Manager of its Logic LSI Design Division and Manager of the IC Design Group. Mr.
Hoshikawa graduated from Hokkaido University with a Masters degree in
Electronics.
MASAHIRO SAIDA, 53, has served as a Director of the Company since 1993. He
joined Fujitsu in 1967 and is presently the Senior Vice President, Computer
Systems Group and General Manager, File Systems Division. Prior to holding that
position, Mr. Saida held various engineering and management positions with
Fujitsu including that
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of Deputy Group Manager of Fujitsu's Computer Systems Group, Manager of
Workstation Development and General Manager of its Open Systems Division. Mr.
Saida graduated from Kyoto University with a degree in Electronics.
JACK W. SIMPSON, Sr., 56, has served as President and Chief Executive
Officer and a Director of the Company since May 1997. Mr. Simpson was the
President of the Network Systems Group of Scientific-Atlanta, Inc., an
electronics company, from October 1993 until May 1997. He was President of
Infobyte, Inc., a consulting firm, from December 1992 until October 1993. He
served as President of Mead Data Central (now Lexis-Nexis, Inc.), a wholly owned
subsidiary of the Mead Corporation from 1982 to 1992. Mr. Simpson graduated from
the University of Kentucky with an B.S. and a M.S. in Electrical Engineering.
YASUSHI TAJIRI, 52, has served as a Director of the Company since 1993. He
joined Fujitsu in 1970 and is presently Senior Vice President of Amdahl
Corporation, a wholly owned subsidiary of Fujitsu. Prior to holding that
position, Mr. Tajiri held various management positions with Fujitsu including
that of General Manager of Fujitsu's Strategy and Planning Division Marketing
group and General Manager of its Business Development Division, International
Computer Business Group, Manager of its Information Systems Division,
International Operations Group, and Manager of its Business Development
Department II, International Operations Group. Mr. Tajiri graduated from Otaru
Business College with a degree in Commerce.
EDWARD F. THOMPSON, 60, has served as a Director of the Company since 1995.
He also serves as a Senior Advisor to Fujitsu and acts as an independent board
member for or advisor to various other Fujitsu subsidiaries. From 1976 to 1994,
Mr. Thompson was employed by Amdahl Corporation (a manufacturer of mainframe
computers which is wholly owned by Fujitsu) in Sunnyvale, California, where he
held various management positions including Chief Financial Officer and
Corporate Secretary, as well as Chairman of the Board of its subsidiary, Amdahl
Capital Corporation. Mr. Thompson presently serves on the Boards of Directors of
HaL Computer Systems, Inc. and Fujitsu Computer Products of America, Inc., each
of which is a subsidiary of Fujitsu. He also serves as Chairman of the Board of
Directors of Systems Integrators Incorporated, which is not affiliated with
Fujitsu. Mr. Thompson has over 30 years experience in the computer and high
technology fields. Mr. Thompson holds a B.S. in Aeronautical and Astronautical
Engineering from the University of Illinois and an M.B.A. from Santa Clara
University.
SEIICHI YOSHIKAWA, 52, has served as a Director of the Company since 1996.
He joined Fujitsu in 1969 and is presently the Group Senior Vice President of
Legal and Industry Relations. Prior to holding that position, Mr. Yoshikawa
served in a number of positions with Fujitsu, including Group Senior Vice
President of Fujitsu's Legal and Industry Relations Group. Mr. Yoshikawa
graduated from Tokyo University with a degree in law.
FRANCIS S. (KIT) WEBSTER III, 52, joined the Company in April 1997 as the
Chief Financial Officer and Secretary of the Company. Mr. Webster was President
of Nirvana Systems, Inc., a PC-based securities analysis software developer in
Austin, from 1995 to 1997. Prior to joining Nirvana Systems, Mr. Webster served
as President and Chief Operating Officer of U.S. Medical Products, Inc., an
Austin-based manufacturer and distributor of orthopedic implants from 1992 to
1994, and from 1984 to 1994 as Senior Vice President and Chief Financial Officer
of the Continuum Company, Inc., an Austin-based provider of software and
services to the insurance industry. Mr. Webster is a Certified Public Accountant
and graduated from Rice University with a M.E.E. in Electrical Engineering in
1968.
MICHELL K. ALSUP, 45, the Company's Chief Architect, joined the Company in
1991 and since that time has been responsible for architectural development of
the latest generation of hyperSPARC(TM) microprocessors and the Company's next
generation "Viper" microprocessor. Prior to joining the Company, Mr. Alsup spent
10 years at Motorola, Inc., where he acted as, among other things, the principal
designer of Motorola's 88000 line of microprocessors. Mr. Alsup spent three
years at NCR where he served as a project leader. Mr. Alsup graduated from
Carnegie-Mellon University in 1975 with a B.S. in Electrical Engineering.
FRANK A. BAFFI, 47, joined the Company as the Vice President of Sales in
April 1997. Mr. Baffi was the Vice President, Worldwide Sales, of Crystal
Semiconductor, a manufacturer of semiconductor chips based in Austin,
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Texas, from 1994 to 1997. From 1993 to 1994, Mr. Baffi was Western Regional
Sales Manager of Quality Semiconductor of San Jose, California, a manufacturer
of semiconductor chips, and from 1991 to 1993 Mr. Baffi was Southwest Regional
Vice President for Bell Microproducts of Milpitas, California, an electronics
distributor. Mr. Baffi graduated from Long Island University with an M.S. in
Electrical Engineering. Mr. Baffi has been laid off effective July 31, 1998.
JOE D. JONES, 40, joined the Company in 1991 as the Director of Quality
Assurance, in 1993 assumed the position of Vice President of hyperSPARC(TM)
Operations and in 1995 became Vice President of Operations. Mr. Jones performs
production control, outside manufacturing management and customer quality
engineering functions for the Company. Prior to joining the Company, Mr. Jones
served as Qualilty Assurance Manager with Cypress Semiconductor, a producer of
semiconductor electronic devices, for five years, and in addition spent four
years with Advanced Micro Devices in various engineering and management
positions. Mr. Jones holds a B.S. in Chemical Engineering from the University of
Texas at Austin and has approximately 15 years of experience in the
semiconductor industry.
TREVOR S. SMITH, 45, is one of the founders of the Company and served as its
Vice President of Design from its inception in 1988 until 1996 and Vice
President of Development from 1996 until June 1997, when be became Vice
President of Engineering. Prior to founding the Company, he spent three years
with Motorola, serving as, among other things, manager of MPU standard cell
cores and cell library development, and three years at ICL Limited, a European
computer design and manufacturing company, where he served as manager of CPU
development for Emitter Coupled Logic and CMOS mainframe CPUs. Mr. Smith holds a
B.Sc. in Physics and Electronic Engineering from the University of Manchester,
England, and has over 19 years of experience in the computer and microprocessor
industry.
CARTER L. GODWIN, 32, joined the Company is 1992 as a financial analyst and
has since held various other positions with the Company including Accounting
Manager and his current position of Chief Accounting Officer and Corporate
Controller. From 1988 to 1991, Mr. Godwin worked as a staff accountant for Price
Waterhouse LLP. Mr. Godwin is a Certified Public Accountant and graduated from
the University of Texas at Austin with a B.B.A. in Accounting.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Directors and officers of the Company and persons who
beneficially own more that 10% of the Company's Common Stock are required to
file with the Securities and Exchange Commission and the Company reports of
ownership, and changes of ownership, of the Company's Common Stock. Based solely
on a review of the reports received by it, the Company believes that, during
Fiscal 1998, all Directors, officers and greater than 10% beneficial owners
complied with all applicable filing requirements under Section 16(a), except
that (i) Fujitsu Limited did not file an Annual Statement of Changes in
Beneficial Ownership of Securities for Fiscal 1998 and (ii) the Annual Statement
of Changes in Beneficial Ownership of Securities for each of the Company's
directors and executive officers was filed one day late. For the Company's
directors and executive officers, the number of transactions which were reported
late was (i) one, in the case of Messrs. Hoshikawa, Saida, Simpson, Tajiri,
Thompson and Yoshikawa (relating, in Mr. Simpson's case to an option grant, and,
in the case of the others, to the yearly automatic director option grant); (ii)
two, in the case of Messrs. Alsup, Godwin, Jones and Smith (relating to option
repricing and a single new option grant); (iii) three, in the case of Messrs.
Baffi and May (relating, in Mr. Baffi's case, to one stock purchase, one option
grant and option repricing,and, in Mr. May's case, to the yearly automatic
director option grant, one option grant and option repricing; and (iv) four, in
the case of Mr. Webster (relating to three option grants and option repricing).
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned
by each person who served as the Company's President and the four other most
highly compensated executive officers of the Company whose annual salaries and
bonus exceeded $100,000 in total during Fiscal 1998 (collectively, the "Named
Officers") for services rendered in all capacities to the Company and its
subsidiaries for that and the previous year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION ($) (*) COMPENSATION
---------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPLE POSITION FISCAL YEAR SALARY BONUS (1) OPTIONS (2) COMPENSATION
--------------------------- ----------- ------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Fred May (3)....................... 1998 -- -- 182,000 150,667 (8)
Chairman of the Board ......... 1997 -- -- 2,000 70,083 (9)
Jack W. Simpson, Sr................ 1998 266,189 200,000 (4) 1,000,000 479,564 (5)
President and CEO.............. 1997 -- -- -- --
Frank A. Baffi.................... 1998 156,923 110,458 250,000 --
Vice President of Sales........ 1997 -- -- -- --
Trevor S. Smith (10).............. 1998 220,100 30,000 144,445 38,729 (6)
Vice President of Engineering.. 1997 208,426 208,426 (7) 44,444 --
Mitchell K. Alsup (10)............ 1998 217,508 30,000 135,556 --
Chief Architect................ 1997 217,508 217,508 (7) 35,556 --
Francis S. (Kit) Webster III....... 1998 158,154 75,000 250,000 --
Chief Financial Officer and ... 1997 -- -- -- --
Secretary
</TABLE>
- -------------
(*) Certain of the Named Officers received personal benefits in addition to
salary and cash bonuses, including car allowances. However, the
aggregate amount of such personal benefits for any Named Officer did
not exceed the lesser of $50,000 and 10% of the total of the annual
salary and bonus reported for such Named Officer.
(1) Except as otherwise noted, reflects bonuses earned based upon
attainment of goals established by the Company's Board of Directors.
23
<PAGE> 28
(2) Messrs. Alsup and Smith option grants include replacement options to
purchase 35,556 shares and 44,444 shares of Common Stock, respectively,
which were originally issued in February 1997. This action was part of
the implementation process to reprice the Company's outstanding stock
options as authorized by the Company's Board of Directors. All other
grants in Fiscal 1998, represent options authorized by the Company's
Board of Directors in accordance with the Company's Stock Option Plan.
For Messrs. Webster and Baffi a portion of their Fiscal 1998 grants
were both issued and repriced during Fiscal 1998.
(3) Compensation information is included regarding Mr. May because he
served as the Company's Acting President and Chief Executive Officer
from March 3, 1997 to May 21, 1997. Includes compensation earned by Mr.
May in his capacity as a Director.
(4) Includes $130,000 designed to replace the bonus Mr. Simpson would have
received from his former employer.
(5) Consists of (i) $374,071 for the funding of a deferred annuity designed
to replace the SERP plan of his former employer; (ii) $79,662 for life
insurance premiums for the purpose of replacing Mr. Simpson's prior
policy with his former employer and (iii) $25,831 for temporary living
expenses.
(6) Consists of payment of accrued vacation balance.
(7) Reflects bonuses earned pursuant to then-existing employment
agreements.
(8) Consists of (i) $50,000 paid to Mr. May as a consulting fee for his
services during Fiscal 1998 as Acting President and Chief Executive
Officer of the Company and (ii) $100,667 of Directors and Chairman
fees. Mr. May's compensation for his services as Acting President and
Chief Executive Officer was in lieu of any Directors' fees he would
have been otherwise entitled to during the period of such services.
(9) Consists of (a) $25,000 paid to Mr. May as a consulting fee for his
services during Fiscal 1997 as Acting President and Chief Executive
Officer of the Company and (b) $45,083 of Directors' fees. Mr. May's
compensation for his services as Acting President and Chief Executive
Officer was in lieu of any Directors' and Chairman fees he would have
been otherwise entitled to during the period of such services.
(10) Messrs. Alsup and Smith received the above-described compensation for
Fiscal 1996 and a portion of Fiscal 1997 pursuant to employment
agreements with the Company, which expired in accordance with their
terms on June 30, 1996. Messrs. Alsup and Smith continue to be employed
by the Company without employment agreements.
EMPLOYEE RETENTION AND SEVERANCE PLAN
As previously discussed, the Company has commenced an orderly shutdown of
its operations. In conjunction with this process and in order to provide certain
employees with an incentive to continue his or her employment with the Company,
the Company adopted an Employee Retention and Severance Plan (the "Retention
Plan"). Also as part of the orderly shutdown, the Company provided severance
packages to all eligible terminated employees as required by its general
severance policy. All of the executive officers, excluding Frank Baffi, have
been retained pursuant to individual retention agreements. Given the Company's
uncertain financial position, retention agreements were provided by the Company
to such executive officers to provide incentive so that the key personnel
necessary to effect the sale of the Company's assets remained with the Company
until such time that their services are no longer required. The total cost of
the Retention Plan and severance packages totals $5.2 million, of which $3.2
million related to prior contractual obligations of the Company and obligations
of the Company under its general severance policy. The retention amounts
applicable to the Named Officers are set forth in the following table, excluding
any amounts otherwise due under employment agreements (see "Employment
Agreements and Change-in-Control Arrangements"):
EXECUTIVE RETENTION AND SEVERANCE
Jack W. Simpson ............... $ 576,854
Francis S. (Kit) Webster III .. $ 185,000
Mitchell K. Alsup ............. $ 250,000
Trevor S. Smith ............... $ 250,000
In general, the individual retention letters issued to the Company's
executive officers and other eligible employees (namely, the members of the
Company's "Viper" development design team, the BridgePoint manufacturing,
operations and customer service personnel and certain administrative personnel)
entitle such officer or employee to receive certain retention and severance
payments so long as, among other things, such officer or employee maintains his
or her employment with the Company through a specified date. Certain of the
individual retention letters also require the affected officer or employee to
continue his or her employment with the Company or a successor to certain of its
operations in order to be eligible to receive a retention and/or severance
payment. Fujitsu has provided assurances to the Company regarding payment of
such individual retention amounts predicated each such employee's entitlement to
such retention amount.
24
<PAGE> 29
OPTION GRANTS DURING FISCAL 1998
The following table lists the stock options granted to the Named Officers during
Fiscal 1998:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (a)
------------------------------------------------- POTENTIAL REALIZABE
VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (b) ($)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ---------------------------------
GRANTED (#) IN FISCAL YEAR SHARE ($) DATE 0% 5% 10%
------------ -------------- ---------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack Simpson.......... 1,000,000 20.72 (1) 12/10/07 202,000 871,115 1,896,749
Kit Webster (2)....... 250,000 5.18 1.063 12/10/07 -- 167,129 423,537
Mitchell K. Alsup (2). 135,556 2.81 1.063 12/10/07 -- 90,621 229,652
Trevor S. Smith (2). 144,445 2.90 1.063 12/10/07 -- 96,564 224,711
Frank Baffi (2)....... 250,000 5.18 1.063 12/10/07 -- 167,129 423,537
</TABLE>
(a) These options were granted under the Stock Option Plan with an exercise
price equal to the closing price of the Company's Common Stock on the Nasdaq
National Market System on the date of grant (except for options to purchase
200,000 shares granted to Mr. Simpson with an exercise price equal to
$0.05). The table does not include a grant to Fred T. May on February 17,
1998 of options to purchase 180,000 shares of the Company's Common stock
with an exercise price of $1.0625 per share and vesting one-third on the
date of the grant with the remainder vesting ratably over the next 24
months. Mr. May received such grant in his capacity as the Company's
Chairman of the Board.
(b) The amounts shown are not the values of the options on the date they were
granted. Instead, these are hypothetical future values based on the
difference between the option exercise price and the assumed future Common
Stock price at the end of the 10-year term of the options using hypothetical
rates of annual stock price appreciation of 0%, 5% and 10%, respectively. It
is highly unlikely that the appreciation rates specified in the table will
occur.
(1) Exercise price per share for Mr. Simpson' options are as follows: 200,000 as
$.05 per share and 800,000 shares at $1.063 per share.
(2) Messrs. Alsup and Smith's option grants include replacement options to
purchase 35,556 shares and 44,444 shares of Common Stock, respectively,
which were originally issued in February 1997. All Named Officers, excluding
Mr. Simpson, received option grants during Fiscal 1998 which were
subsequently relinquished in order to effect the repricing of such options
and such option grants were replaced with an equivalent number of new option
grants priced at $1.063
Options granted to the Named Officers in Fiscal 1998 (other than the options
issued to Mr. Simpson pursuant to his employment agreement) vest one-fourth, one
year from the grant date, with the remaining three-fourths to vest in thirty-six
equal monthly installments, and may be exercised as to the vested portion
beginning one year after the grant date (for vesting information relating to Mr.
Simpson's options, see "Employment Agreements and Change-in-Control
Arrangements"). In addition, all of the options will vest in connection with a
"Major Event" (as defined in the Stock Option Plan) relating to the Company,
which will be deemed to have occurred if (a) any person or group other than
Fujitsu or its affiliates becomes the beneficial owner of securities of the
Company, or of any entity resulting from a merger or consolidation of the
Company, representing more than 50 percent of the combined voting power of the
Company or such entity, (b) Fujitsu or its affiliates directly or indirectly
acquire all of the outstanding Common Stock of the Company, or (c) a merger,
consolidation, or reorganization to which the Company is a party, or a sale of
substantially all of the assets of the Company, is consummated, if persons who
are not stockholders of the Company immediately before the consummation of such
transaction or Fujitsu or its affiliates are the beneficial owners, immediately
following the consummation of such transaction, of more than 50% of the combined
voting power of the outstanding securities of the Company or the entity
resulting from such transaction. The options expire 10 years from the date of
grant, six months after termination of employment, or eighteen months after
termination of employment due to the death or permanent disability of the
optionee (subject, in the case of Mr. Simpson, to certain additional conditions
and exceptions as required by his employment agreement).
25
<PAGE> 30
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
Effective May 21, 1997, Mr. Simpson was hired as the Company's President and
Chief Executive Officer. In conjunction with his employment, the Company entered
into a four-year employment agreement with Mr. Simpson (which replaced the
letter agreement previously entered into by the Company and Mr. Simpson and
which, among other things, provided that the Company and Mr. Simpson would enter
into a four-year employment agreement). The Company offered Mr. Simpson an
attractive compensation package in order to convince him to leave Scientific
Atlanta, Inc. ("SFA") after three and a half years as President of Network
Systems at that company. Pursuant to this arrangement, Mr. Simpson's base salary
for Fiscal 1998 was computed based upon an annual rate of $349,960, with an
annual review for merit purposes. Mr. Simpson is also eligible to receive
bonuses based on the Company's meeting certain predetermined goals and
objectives set by the Board, up to a maximum of 100% of his base salary based on
the Company's exceeding goals by 50% and/or tied directly to the Company's stock
price. Pursuant to the employment arrangement, Mr. Simpson received a
replacement bonus of $130,000, life insurance with a face value equal to three
times his annual salary and bonus, and a deferred annuity targeted to yield
approximately $150,000 per year at age 60, to replace salary, insurance
policies, and SERP plans he had while an officer at SFA. Mr. Simpson is also
eligible for the Company's standard holiday and benefits programs.
Among other things, the employment agreement obligated the Company to grant
Mr. Simpson 100,000 stock options at an exercise 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 of the Company's Common Stock on
the Nasdaq National Market System 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 (these options were not formally granted by
the Company until December 10, 1997, at which time such options were issued with
an exercise price equal to the closing price of the Company's Common Stock on
that date); and 100,000 performance-related stock options at an exercise price
of $.05 per share, vesting 50% when the average closing price of the Company's
Common Stock exceeds $4.00 per share, and 50% when such average closing price
exceeds the price on Mr. Simpson's date of hire by $7.00 per share. The grants
of options to Mr. Simpson were conditioned upon stockholder approval of the
amendment and restatement of the Company's Stock Option and Restated Stock
Purchase Plan 2.0 as the Stock Option Plan which, among other things, increased
the number of shares of Common Stock which may be issued pursuant to such plan.
Except for his performance-related options, all of Mr. Simpson's options
will vest in the event of a Major Event. The options will expire 10 years from
the date of grant, six months after termination of employment, or eighteen
months after termination of employment due to the death or permanent disability
of Mr. Simpson (subject to certain exceptions). In the event Mr. Simpson's
employment is terminated without cause (or if Mr. Simpson terminates his
employment voluntarily following the occurrence of a Major Event following which
the Company ceases to be a public company (a "Going Private Event")), the
Company will continue to pay his direct compensation and to fund insurance and
medical benefits for a period of 24 months. Mr. Simpson's stock options,
excluding performance-related stock options, will continue to vest for the
twenty-four month period. In addition, if Mr. Simpson is terminated without
cause (or if Mr. Simpson terminates his employment voluntarily following the
occurrence of a Going Private Event), the Company will fund Mr. Simpson's
annuity for a minimum of 24 months from Mr. Simpson's hire date (with a
day-for-day extension for each day that Mr. Simpson continues his employment
with the Company after the consummation of a Going Private Event). Mr. Simpson
may also be terminated for cause without any severance benefits, provided that
he is properly alerted and given fair opportunity to explain or correct the
stated cause. "Cause" is restricted to actions or events where Mr. Simpson has
responsibility and accountability.
Pursuant to a letter agreement dated April 1, 1997 (as subsequently
amended), Mr. Webster was hired as the Company's Chief Financial Officer (and
was subsequently appointed Secretary) at a base salary of approximately $150,000
(later increased to $185,000). Mr. Webster may also earn an incentive bonus of
up to $100,000, with the qualifying standards to be determined by mutual
agreement of Mr. Webster, the Company's Chief Executive Officer and the Human
Resources Committee of the Board of Directors. Mr. Webster is also eligible to
participate in the Stock Option Plan. Pursuant to his letter agreement, Mr.
Webster received an initial grant of 100,000 options under the Stock Option Plan
at an exercise price of $1.625 per share, the closing price of the Company's
Common Stock on the NASDAQ National Market System on April 16, 1997, the first
date of Mr. Webster's employment. Mr. Webster also received an additional grant
of 150,000 options under the Stock Option Plan in Fiscal 1998 (excluding grants
of 100,000 replacement options to effect a repricing of outstanding stock
options). All of Mr. Webster's options will vest upon the occurrence of a Major
Event. If Mr. Webster's employment is terminated without cause (or if
26
<PAGE> 31
Mr. Webster voluntarily terminates his employment following the occurrence of a
Going Private Event), the Company will continue to pay his base salary for a
period of twelve months following the date of termination.
Pursuant to a letter agreement dated April 12, 1997 (as subsequently
amended), Mr. Baffi was hired as the Company's Vice President of Sales at a base
salary of approximately $170,000, subject to merit review during the Company's
merit review cycle. Mr. Baffi is also eligible for a sales commission plan of up
to 100% of his base salary, with the qualifying standards to be determined by
mutual agreement of Mr. Baffi, the Company's Chief Executive Officer and the
Human Resources Committee of the Board of Directors. Mr. Baffi is also eligible
to participate in the Stock Option Plan. Pursuant to his letter agreement, Mr.
Baffi received an initial grant of 150,000 options under the Stock Option Plan
at an exercise price of $1.812 per share, the closing price of the Company's
Common Stock on the NASDAQ National Market System on April 28, 1997, the first
date of Mr. Baffi's employment, such options to vest 25% after one year of
employment, with the remainder vesting ratably over the next three year period.
All of Mr. Baffi's options will vest upon the occurrence of a Major Event. In
Fiscal 1998, Mr. Baffi also received an additional grant of 100,000 options
under the Stock Option Plan (excluding grants of replacement options to effect a
repricing of outstanding stock options). If Mr. Baffi's employment is terminated
without cause, the vesting of Mr. Baffi's stock options will be accelerated by
twelve months. In addition, if Mr. Baffi's employment is terminated without
cause, or if Mr. Baffi voluntarily terminates his employment following the
occurrence of a Going Private Event, the Company will continue to pay his base
salary for a period of twelve months following the date of termination. In
addition, pursuant to his letter agreement, a twelve month acceleration of Mr.
Baffi's stock options will occur if, without Mr. Baffi's agreement, (a) Mr.
Baffi's job is located outside the general area of Austin, Texas, requiring Mr.
Baffi to relocate, (b) Mr. Baffi ceases to report directly to the Company's
Chief Executive Officer or President, or (c) Mr. Baffi is no longer the senior
corporate executive whose principal responsibility is the management and
direction of the Company's sales function.
The Company entered into employment agreements, effective June 1993, with
Messrs. Alsup and Smith, which agreements expired in accordance with their
respective terms on June 30, 1996. During the term of their respective
agreements, Mr. Alsup served as the Company's Chief Architect and Mr. Smith
served as the Company's Vice President of Design and later as Vice President of
Development. Under their respective employment agreements, as of the end of
Fiscal 1996, Messrs. Alsup and Smith were entitled to receive base salaries of
$205,196 and $196,630 per year, respectively, each payable in bi-weekly
installments. In addition, the agreements entitled Messrs. Alsup and Smith to
certain life, health, dental insurance and other benefits, and to receive each
year a minimum annual incentive bonus, which for the twelve months ending June
30, 1996 was equal to 100% of their then respective base salaries.
Following the expiration of each of the above-listed employment agreements
with Messrs. Alsup and Smith, each of such officers has continued to be employed
by the Company in his current position without an employment contract (although
commencing June 1997, Messrs. Alsup and Smith have each received letters from
the Company which, among other things, confirm their salaries and provide for
vesting of their options upon the occurrence of a Major Event).
In addition, Messrs. Simpson, Webster, Alsup and Smith have received
individual retention letters under the Retention Plan. See "Employee Retention
and Severance Plan."
1995 QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
To provide employees with an opportunity to purchase Common Stock through
payroll deductions, the Company established the 1995 Qualified Employee Stock
Purchase Plan (the "ESPP"). The ESPP is intended to qualify for preferential tax
treatment under Section 423 of the Code. Under the ESPP, the Company's
employees, subject to certain restrictions described below, may purchase in the
aggregate up to 40,000 shares of Common Stock at less than the fair market value
of such shares.
The ESPP is administered by the Stock Option Committee, and provides for
consecutive 24-month offering periods, beginning every six months, with exercise
dates at the end of each six-month period. The first 24-month offering period
commenced August 1, 1996. Each eligible employee who enrolls at the commencement
of any such offering period will be given an option to purchase shares during
such period at the lesser of 85% of (a) the fair market value on the
commencement date of the offering period or (b) the fair market value on the day
prior to the last day of the six-
27
<PAGE> 32
month exercise period. In addition, if the fair market value of a share of
Common Stock is lower at the end of any six-month exercise period than it was at
the beginning of the 24-month offering period, a new 24-month offering period
will automatically commence on the day after that exercise date and all
participants will be automatically enrolled in a new 24-month offering period
(unless the participant objects in writing prior to such re-enrollment).
Purchases under the ESPP will be funded with deductions from a participating
employee's compensation, which may not exceed 10% nor be less than 2% of such
employee's compensation during any offering period. Further, no employee may be
granted options to purchase more than $25,000 of fair market value of Common
Stock during any calendar year.
A total of 40,000 shares of Common Stock have been reserved for issuance
under the ESPP, and, as of June 30, 1998, 33,175 shares of Common Stock have
been issued under the ESPP.
401(k) PLAN
Effective January 1, 1989, the Company implemented its 401(k) Plan and Trust
(the "401(k) Plan"), pursuant to which each employee of the Company may elect to
defer into the 401(k) Plan a percentage of his or her salary, not to exceed
certain statutory limits. Each employee is eligible to begin participation in
the 401(k) Plan on the first day of the first month coinciding with or following
his or her date of hire by the Company. The Company may make discretionary
contributions to the 401(k) Plan on behalf of any participating employee in an
amount to be determined by the Board. Such discretionary Company contributions
are 20% vested after two years of service and continue to vest at a rate of 20%
per additional year of service thereafter. Salary deferral contributions are
100% vested when made. As of June 30, 1998, the Company had not made a
contribution to the 401(k) Plan for Fiscal 1998 and does not expect to make such
a contribution.
INDEMNIFICATION AGREEMENTS
The Company has entered or will enter into separate indemnification
agreements with each of its current Directors and officers that require the
Company, among other things, to indemnify them against certain liabilities which
may arise by reason of their status or service as Directors or officers. The
Company believes that these agreements and its Certificate of Incorporation and
Bylaw provisions regarding indemnification of Directors and officers are
necessary to attract and retain qualified persons as Directors and officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Human Resources Committee consists of Messrs. Yoshikawa (Chairman), May,
Tajiri and Thompson. None of Messrs. Yoshikawa, Tajiri and Thompson are or were
officers or employees of the Company or any of its subsidiaries, while Mr. May
is currently the Chairman of the Board of the Company and served as Acting
President and Chief Executive Officer from March 1997 until May 1997 and
received compensation therefor. None of the members of the Human Resources
Committee had any other relationships which would require disclosure by the
Company pursuant to Item 404 of Regulation S-K ("Certain Relationships and
Related Transactions").
DIRECTOR COMPENSATION
The members of the Board of Directors who are employed by Fujitsu or by the
Company receive no separate remuneration for acting as Directors of the Company.
The Board has implemented a policy pursuant to which Messrs. May and Thompson
and all other Directors who are not employees of the Company or of any five
percent stockholder of the Company are paid an annual fee of $10,000 per year
for service on the Board of Directors, plus $10,000 per year for each committee
on which such Director also serves ($25,000 in the case of the Ad Hoc Committee
established by the Board of Directors to make recommendations to the full Board
of Directors in connection with asset sales and similar transactions relating to
the Company's shutdown plan). Each such Director is also paid $1,500 per day for
in-person attendance at Board and committee meetings and $500 per day for
telephonic attendance at such meetings (no meeting fees are paid for meetings of
the Ad Hoc Committee). Mr. May did not receive any separate compensation for his
services as a Director during the period he served as the Company's Acting
President and Chief Executive Officer. Under the current policy, a Director's
aggregate compensation (excluding reimbursement of expenses) for service as a
Director for any calendar year may not exceed $100,000 (exclusive of amounts
received for service on the Ad Hoc
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<PAGE> 33
Committee). Effective June 1997, Mr. May receives an additional $3,500 per month
for his services as Chairman of the Board of the Company (which is not included
in the $100,000 limit). The Board has the authority to revise this fee structure
at its discretion.
All Directors are entitled to receive reimbursement for expenses incurred in
connection with service on the Board or Board committees. In addition, all
Directors are eligible to participate in, and have received option grants under,
the Stock Plan. The Stock Plan provides for the automatic grant of non-qualified
stock options ("NSOs") to Directors who are not substantially full-time
employees of the Company, including any Director who is an employee or designee
of any stockholder if such stockholder permits the Director to hold the options
as his or her personal property (a "Qualifying Director"). Each person who
becomes a Qualifying Director after September 1995 will initially be granted an
NSO to purchase 10,000 shares of Common Stock on the date he or she first
becomes a Qualifying Director, which NSO shall vest ratably each month over four
years and have a term of ten years from the grant date, unless he or she
otherwise received Company options within one year prior to such date. In
addition, on each August 31 thereafter, each Qualifying Director will receive
another NSO to purchase an additional 2,000 shares of Common Stock (an "Annual
Director Grant"), which will vest ratably each month during the 37th through
48th months following the grant date and have a term of ten years from the grant
date. All such NSOs must have an exercise price not less than the per share fair
market value on the date of grant. Qualifying Directors are also eligible to
receive discretionary grants (from September 1995 to July 1997, Qualifying
Directors were not eligible to receive discretionary grants). On February 17,
1998, the Company issued Mr. May options to purchase 180,000 shares of the
Company's Common Stock at an exercise price equal to $1.0625 per share and
vesting immediately as to one-third of the shares, with the remainder vesting
ratably over the next twenty four months.
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<PAGE> 34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 30, 1998 information as to the
beneficial ownership of the Company's Common Stock by (i) each person who is
known by the Company to own beneficially more than 5% of its outstanding shares
of Common Stock (for whom addresses are also provided), (ii) each of the
Company's Directors, (iii) each Named Officer, and (iv) all Directors and
executive officers of the Company as a group. In each instance, information as
to the number of shares beneficially owned and the nature of ownership has been
provided by the individual or entity identified or described and is not within
the direct knowledge of the Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER (1) OWNERSHIP CLASS (2)
------------------------------------ ---------------------------------
<S> <C> <C>
Fujitsu Limited(3).................. 14,078,571 59.97%
1-1, kamikodanaka 4-Chome
Nakahara-Ku
Kawasaki 211-88 Japan
Roger D. Ross(3)(4)................. 1,209,260 5.15%
One Highland Center
Marble Falls, Texas 78645
Mitchell K. Alsup................... 320,001 1.36%
Trevor S. Smith .................. 400,001 1.70%
Fred T. May(5) ..................... 97,501 *
Jack W. Simpson, Sr.(6) ............ 218,500 *
Francis S. (Kit) Webster III ....... -- *
Frank A. Baffi ..................... 5,000 *
Edward F. Thompson(7) ............. 45,000 *
Ryusuke Hoshikawa(8)(9) ............ 7,500 *
Masahiro Saida(9)(10) .............. 7,500 *
Yasushi Tajiri(9) .................. -- *
Seiichi Yoshikawa(9)(11) ........... 6,458 *
All Directors and Executive ........ 1,197,566 5.10%
Officers as a group (13 persons)
</TABLE>
- ------------
* Represents beneficial ownership of less than 1% of the Common Stock.
(1) Addresses provided for beneficial owners of more than 5% of the Common
Stock.
(2) Applicable percentages of beneficial ownership are based on 23,476,965
shares of Common Stock outstanding as of June 30, 1998. Additionally, where
applicable, shares of Common Stock underlying options exercisable by any
listed stockholder within 60 days of June 30, 1998 have been deemed to be
outstanding and beneficially owned by such stockholder, but only for
purposes of determining such stockholder's (and not any other stockholder's)
percentage holdings.
(3) The Company, Fujitsu, Sun and Mr. Ross have entered into a Shareholders
Agreement pursuant to which Sun has agreed to vote its shares of Common
Stock in favor of the slate of nominees to the Company's Board of Directors
approved by the Board, which slate will include, under certain
circumstances, an individual designated by Sun. Pursuant to this agreement,
Fujitsu and Mr. Ross (so long as he owns at least 5% of the outstanding
shares of the Company's Common Stock) have agreed to vote under certain
circumstances for a designee of Sun. Sun currently does not have a designee
on the Company's Board of Directors. Fujitsu also owns all of the Company's
outstanding Series B Convertible Preferred Stock.
(4) Includes options exercisable for 59,259 shares of Common Stock which have
vested or will vest within 60 days of June 30, 1998. Also includes 10,000
shares beneficially held by Mr. Ross' spouse, although Mr. Ross disclaims
beneficial ownership of such shares.
(5) Includes options exercisable for 97,500 shares of Common Stock which have
vested or will vest within 60 days of June 30, 1998. During Fiscal 1998, the
Company determined that Mr. May had been ineligible to receive grants of
incentive stock options to purchase 96,000 shares of the Company's common
stock previously granted by the Company and those option grants were void.
Accordingly, Mr. May's previous exercises of those options were also void.
(6) Includes options exercisable for 187,500 shares of Common Stock which have
vested or will vest within 60 days of June 30, 1998.
(7) Includes options exercisable for 40,000 shares of Common Stock which have
vested or will vest within 60 days of June 30, 1998.
(8) Includes options exercisable for 7,500 shares of Common Stock which have
vested or will vest within 60 days of June 30, 1998.
30
<PAGE> 35
(9) Beneficial ownership of shares held by Fujitsu is not attributed to
Directors who are employees of Fujitsu.
(10) Includes options exercisable for 7,500 shares of Common Stock which have
vested or will vest within 60 days of June 30, 1998.
(12) Includes options exercisable for 6,458 shares of Common Stock which have
vested or will vest within 60 days of June 30, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From April 1, 1997 to March 30, 1998, the Company purchased a significant
portion of its wafer fabrication needs, in addition to other computer related
products, from Fujitsu and its affiliates. Such purchases totaled approximately
$9.4 million in the aggregate over such period. During the same period, the
Company sold microprocessor products to Fujitsu and its affiliates for an
aggregate amount of approximately $15.3 million. The Company believes that the
above-described purchases from and sales to Fujitsu and its affiliates were on
terms comparable to those available from unaffiliated suppliers or purchasers,
as the case may be, except that Fujitsu generally provides more favorable
payment terms to the Company than are otherwise commercially available.
During Fiscal 1997 the Company entered into a Development Agreement with
Fujitsu whereby Fujitsu would fund $4.5 towards the development of a derivative
of the Company's Colorado 4 microprocessor for use in embedded control
applications. During fiscal 1997, Fujitsu paid the Company $3.5 million pursuant
to this agreement. The remaining $1.0 was received by the Company as of the end
of April 1998.
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 development project and for a license for 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 in
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. During Fiscal
1998, the Development Agreement was amended on September 29, 1997, December 26,
1997 and March 19, 1998 providing the Company relief from certain milestone
attainment criteria. As of June 1998, the Company has received $16.5 million and
recorded $1.2 million of penalties pursuant to this agreement. Such penalties
are payable only if the Company fails to deliver the final milestone as defined
by the Development Agreement. The Company will not deliver the final milestone.
In November 1996 the Company established a "New Credit Facility" with DKB
for a maximum principal amount of $25 million; in February 1997 such New Credit
Facility was increased to a maximum of $50 million. The New Credit Facility was
scheduled to expire on March 31, 1998, and was guaranteed by Fujitsu until that
date. In September 1997, a separate $10 million "Additional Credit Facility" was
established with DKB. This Additional Credit Facility expired on September 30,
1997. At September 29, 1997, the principal amount outstanding under both credit
facilities was $56.0 million, with $50 million due on December 31, 1997, and $6
million due on September 30, 1997. On September 30, 1997, the Company concluded
a recapitalization transaction with Fujitsu, whereby the Company issued 500,000
shares of a new Series B Convertible Preferred Stock to Fujitsu and Fujitsu paid
$50 million on behalf of the Company to DKB in partial payment of the Company's
outstanding indebtedness to DKB in satisfaction of Fujitsu's obligation pursuant
to certain loan guarantees provided by Fujitsu to DKB. In connection with the
recapitalization, Fujitsu provided a guarantee for a replacement credit facility
with DKB for a maximum principal amount of $20 million (which replaces the
previous "New Credit Facility"). As noted above under "Future Operating
Results", the line of credit and guaranty was scheduled to expire on March 31,
1998, but have been extended to December 31, 1998. As of June 15, 1998, the
Company has borrowed the maximum $20 million of available credit provided by the
existing credit facility.
The Company and Fujitsu are negotiating an asset purchase agreement pursuant
to which Fujitsu will purchase certain intellectual property rights from the
Company (with a royalty-free license back to the Company for some of those
rights). The Company and Fujitsu have also reached an agreement in principle
pursuant to which Fujitsu would acquire ROSS Israel from the Company.
31
<PAGE> 36
In connection with the orderly shutdown of the Company's operations, the
Company and Fujitsu are also in the process of negotiating the termination of
all of the existing development and license agreements between the two
Companies, including the Viper Development Agreement. The Company believes that
it is likely that the termination of the Viper Development Agreement will
include a waiver of the penalties accrued by the Company under that agreement.
32
<PAGE> 37
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
Exhibit
No. Description
--- -----------
3.1 ---- Restated Certificate of Incorporation of Registrant*
3.2 ---- Restated by-laws of the Registrant, as amended
3.3 ---- Certificate of Designation for Series B Convertible Preferred
Stock 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 3.0, as
amended
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**
10.7 ---- Employment Agreement of Trevor Smith**
10.8 ---- Intentionally Omitted
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.**+
33
<PAGE> 38
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**
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**
34
<PAGE> 39
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 from and after September 1995 through June
24, 1997**
10.26 ---- Form of Nonqualified Stock Option Agreement for options
granted from and after September 1995 through June 24,
1997**
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. ***
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***
35
<PAGE> 40
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 Registrant and The Chase Manhattan Bank******
10.47 ---- Letter of Guarantee dated February 20, 1997 from Fujitsu
Limited to The Dai-Ichi Kangyo Bank, Limited******
10.48 ---- Stock Purchase Agreement between Fujitsu Limited and the
Registrant dated as of September 30, 1997*******
10.49 ---- Agreement for Reimbursement of Wafer Payments between the
Registrant and Fujitsu Limited dated as of September 30,
1997*******
10.50 ---- Agreement between Fujitsu Limited and the Registrant dated as
of September 29, 1997 relating to the Viper Development
Agreement dated June 25, 1997*******
10.51 ---- Letter of Guaranty dated October 29, 1997 from Fujitsu
Limited to The Dai-Ichi Kangyo Bank, Ltd., New York
Branch*******
10.52 ---- Agreement between Fujitsu Limited and the Registrant dated as
of December 26, 1997 relating to the Viper Development
Agreement dated June 25, 1997#
10.53 ---- Separation Agreement between Roger D. Ross and the Registrant
dated as of December 5, 1997#
10.54 ---- Master Promissory Note, dated October 29, 1997, by and
between Registrant and The Dai-Ichi Kangyo Bank, Limited, New
York Branch #
10.55 ---- Stock Purchase Agreement between the Registrant and Fujitsu
Limited dated September 30, 1997##
10.56 ---- Employment Agreement, dated May 21, 1997, between the
Registrant and Jack W. Simpson, Sr.
10.57 ---- Amendment to Letter of Agreement between the Registrant and
Francis S. (Kit) Webster III
36
<PAGE> 41
10.58 ---- Amendment to Letter of Agreement between the Registrant and
Frank A. Baffi
10.59 ---- Employee Retention and Severance Plan
10.60 ---- Retention Letter dated June 4, 1998 for Jack W. Simpson, Sr.
10.61 ---- Retention Letter dated June 3, 1998 for Francis S. (Kit)
Webster
10.62 ---- Retention Letter dated May 28, 1998 for Mitchell K. Alsup
10.63 ---- Retention Letter dated May 28, 1998 for Trevor S. Smith
10.64 ---- Retention Letter dated June 1, 1998 for Joe D. Jones
10.65 ---- Retention Letter dated June 1, 1998 for Carter L. Godwin
10.66 ---- Agreement between Fujitsu Limited and the Registrant dated as
of March 30, 1998 relating to the Viper Development Agreement
dated June 25, 1997++
10.67 ---- Form of Incentive Stock Option Agreement for options granted
from and after June 24, 1997###
10.68 ---- Form of Nonqualified Stock Option Agreement for options
granted from and after June 24, 1997###
37
<PAGE> 42
11 ---- Earnings per share computations
21 ---- Subsidiaries of the Registrant
23 ---- Consent of KPMG Peat Marwick LLP
27 ---- Financial Data Schedule
* Incorporated by reference to identically numbered exhibits to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 29, 1997.
** 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
March 31, 1997.
**** 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.
******* Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 29, 1997.
# Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended December 29, 1997.
## Incorporated by reference to the Registrant's Current Report on Form
8-K dated September, 30 1997.
### Incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form S-8 File No. 333-00920
38
<PAGE> 43
+ 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
None
39
<PAGE> 44
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.
ROSS TECHNOLOGY, INC.
a Delaware corporation
By: /s/ JACK W. SIMPSON, SR.
--------------------------------------
Jack W. Simpson, Sr.
Director, Chief Executive Officer and
President
July 13, 1998
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>
/s/ FRED T. MAY Chairman of the Board July 13, 1998
--------------------------
Fred T. May
/s/ FRANCIS S. WEBSTER III Chief Financial July 13, 1998
-------------------------- Officer
Francis S. Webster III
/s/ CARTER L. GODWIN Chief Accounting Officer July 13, 1998
-------------------------- and Corporate
Carter L. Godwin Controller
/s/ RYUSUKE HOSHIKAWA Director July 13, 1998
--------------------------
Ryusuke Hoshikawa
/s/ MASAHIRO SAIDA Director July 13, 1998
--------------------------
Masahiro Saida
/s/ YASUSHI TAJIRI Director July 13, 1998
--------------------------
Yasushi Tajiri
/s/ EDWARD F. THOMPSON Director July 13, 1998
--------------------------
Edward F. Thompson
/s/ SEIICHI YOSHIKAWA Director July 13, 1998
--------------------------
Seiichi Yoshikawa
</TABLE>
40
<PAGE> 45
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 30, 1998 and March 31, 1997................ F-3
Consolidated Statements of Operations for the years ended March 30, 1998, March 31,
1997 and April 1, 1996.......................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
March 30, 1998, March 31, 1997 and April 1, 1996................................ F-5
Consolidated Statements of Cash Flows for the years ended March 30, 1998, March 31,
1997 and April 1, 1996.......................................................... F-6
Notes to Consolidated Financial Statements......................................... F-7
2. Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts................................... F-19
</TABLE>
F-1
<PAGE> 46
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 30, 1998 and March 31, 1997, 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 30,
1998. 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.
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 30, 1998 and March 31, 1997 and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 30, 1998, 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.
The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that the Company will continue as a going
concern. As discussed in note 1 to the consolidated financial statements, the
Company has experienced recurring losses from operations, is experiencing
difficulty in generating sufficient cash flow to meet its obligations and
sustain its operations, and has announced its intention to begin an orderly
shutdown of its operations, which raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in notes 1 and 15. The consolidated financial
statements and financial statement schedule do not include any adjustments that
might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
/s/ KPMG PEAT MARWICK LLP
-------------------------
Austin, Texas
July 7, 1998
F-2
<PAGE> 47
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
MARCH 30, MARCH 31,
1998 1997
---------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 787 $ 2,811
Trade accounts receivable, net (note 2).............................. 2,712 11,297
Receivable from Fujitsu (note 10).................................... 3,343 3,320
Inventory (note 3)................................................... 7,808 16,308
Other current assets................................................. 512 3,331
---------- ---------
Total current assets......................................... 15,162 37,067
Property and equipment, net (note 4)................................... 3,325 17,752
---------- ---------
Total assets................................................. $ 18,487 $ 54,819
========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable............................................... $ 6,091 $ 19,194
Accrued liabilities.................................................. 5,083 8,307
Payable to Fujitsu (note 10)......................................... 1,293 4,043
Notes payable (note 6)............................................... 15,000 43,500
---------- ---------
Total current liabilities.................................... 27,467 75,044
---------- ---------
Commitments and contingencies (notes 1, 9 and 15)
Stockholders' deficit:
Series B preferred stock, $.001 par value aggregate (liquidation
preference $50,000), 75,000 shares authorized, 500 issued and
outstanding at March 30,1998........................................ 1 --
Common stock, $.001 par value, 100,000 shares authorized, 23,798
shares issued and 23,477 outstanding at March 30, 1998, and
23,747 shares issued and 23,426 outstanding at March 31, 1997..... 23 23
Additional paid-in capital........................................... 132,079 82,564
Accumulated deficit.................................................. (139,832) (101,561)
---------- ---------
(7,729) (18,974)
Less treasury stock, 321 shares, at cost............................. (1,251) (1,251)
---------- ---------
Total stockholders' deficit.................................. (8,980) (20,225)
---------- ---------
Total liabilities and stockholders' deficit.................. $ 18,487 $ 54,819
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 48
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 30, MARCH 31, APRIL 1,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net sales (note 10) ................................ $ 42,057 $ 83,104 $ 100,805
Cost of sales (note 10) ............................ 43,238 107,951 53,921
------------- ------------- -------------
Gross profit (loss) ...................... (1,181) (24,847) 46,884
------------- ------------- -------------
Operating expenses:
Research and development, net (note 10) .......... 5,842 24,659 15,906
Selling, general and administrative .............. 16,889 31,137 10,495
Write-down of property and equipment ............. 11,203 -- --
Write-down of investment in subsidiary ........... 1,080 -- --
Amortization of intangibles ...................... -- 3,637 1,166
------------- ------------- -------------
Total operating expenses ................. 35,014 59,433 27,567
------------- ------------- -------------
Income (loss) from operations ............ (36,195) (84,280) 19,317
Other income (expense):
Interest income .................................. -- -- 527
Interest expense ................................. (2,076) (1,472) (2,001)
------------- ------------- -------------
Income (loss) before income taxes ........ (38,271) (85,752) 17,843
Income tax expense (benefit) ....................... -- 953 (317)
------------- ------------- -------------
Net income (loss) ........................ $ (38,271) $ (86,705) $ 18,160
============= ============= =============
Net income (loss) .................................. $ (38,271) $ (86,705) $ 18,160
Dividends related to preferred stock ............... -- -- (832)
------------- ------------- -------------
Net income (loss) applicable to common
stockholders ................................... $ (38,271) $ (86,705) $ 17,328
============= ============= =============
Net income (loss) per share:
Basic.................................... $ (1.63) $ (3.71) $ 1.23
============= ============= =============
Diluted.................................. $ (1.63) $ (3.71) $ .82
============= ============= =============
Weighted average common shares outstanding:
Basic.................................... 23,450 23,396 14,067
============= ============= =============
Diluted.................................. 23,450 23,396 21,033
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 49
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
SERIES A SERIES B COMMON STOCK ADDITIONAL STOCKHOLDERS'
PREFERRED PREFERRED --------------------- PAID-IN ACCUMULATED TREASURY EQUITY
STOCK STOCK
AMOUNT AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK (DEFICIT)
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at April 3,
1995 ......................... $ 18 $ -- 7,200 $ 7 $ 17,875 $ (32,184) $ -- $ (14,284)
Conversion of preferred
stock ........................ (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 ...................... -- -- 3,843 4 131 -- -- 135
Net income .................... -- -- -- -- -- 18,160 -- 18,160
--------- --------- --------- --------- --------- --------- --------- ---------
Balances at April 1,
1996 ......................... -- -- 23,325 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 ......................... -- -- 23,747 23 82,564 (101,561) (1,251) (20,225)
========= ========= ========= ========= ========= ========= ========= =========
Issuance of Series B
Preferred stock, net of
offering expenses of $492.... -- 1 -- 49,507 49,508
Stock issuances under
employee plans ............... -- -- 51 -- 8 -- -- 8
Net loss ...................... -- -- -- -- -- (38,271) -- (38,271)
--------- --------- --------- --------- --------- --------- --------- ---------
Balances at March 30,
1998 ......................... $ -- $ 1 23,798 $ 23 $ 132,079 $(139,832) $ (1,251) $ (8,980)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 50
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 30, MARCH 31, APRIL 1,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................ $(38,271) $(86,705) $ 18,160
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Deferred income taxes ............................ -- 2,182 (2,182)
Depreciation and amortization .................... 8,327 5,077 3,525
Amortization of goodwill ......................... -- 3,637 1,166
Write-down of investment in subsidiary ... 1,080 -- --
Write-down of property and equipment ..... 11,203 -- --
Gain on disposal of assets ....................... -- (392) --
Change in assets and liabilities:
Trade accounts receivable ........................ 8,585 4,910 (6,587)
Receivable from Fujitsu .......................... (23) 3,460 (4,658)
Inventory ........................................ 8,500 16,013 (18,559)
Other current assets ............................. 2,819 (625) (2,305)
Trade accounts payable ........................... (13,103) 9,607 2,358
Payable to Fujitsu ............................... (2,750) (14,886) 10,919
Accrued liabilities .............................. (3,224) 5,204 809
-------- -------- --------
Net cash provided by (used in) operating
activities ....................................... (16,857) (52,518) 2,646
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ............................. (6,183) (6,968) (13,267)
Proceeds from disposal of assets ................. -- 650 --
-------- -------- --------
Net cash used in investing activities ............ (6,183) (6,318) (13,267)
-------- -------- --------
Cash flows from financing activities:
Stock issuances under employee plans ............. 8 206 135
Payments on notes payable ........................ (50,000) -- (37,023)
Proceeds from borrowings on notes payable ........ 21,500 43,500 --
Proceeds from issuance of common stock ........... -- -- 64,346
Proceeds from issuance of preferred stock ........ 49,508 -- --
Payment of preferred stock dividends ............. -- -- (832)
-------- -------- --------
Net cash provided by financing activities ........ 21,016 43,706 26,626
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents ...................................... (2,024) (15,130) 16,005
Cash and cash equivalents at beginning of year .... 2,811 17,941 1,936
-------- -------- --------
Cash and cash equivalents at end of year .......... $ 787 $ 2,811 $ 17,941
======== ======== ========
Supplemental Disclosure of Cash Flow
Information:
Taxes paid ....................................... $ 245 $ 1,225 $ 997
Interest paid .................................... $ 2,393 $ 458 $ 2,001
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 51
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 30, 1998.
In Fiscal 1998, the Company incurred a net loss of approximately $38.3
million and used approximately $16.9 million of cash in operating activities. As
of March 30, 1998, the Company had negative working capital of approximately
$12.3 million and a stockholders' deficit of approximately $9.0 million. In June
1998, the Company announced its intentions to begin an orderly shut-down of its
operations. The Company currently plans to maintain operations to the end of
calendar year 1998. The Company has provided end-of-life notices to all of its
current customers providing them the opportunity to place orders for their
forecasted needs. The Company is also seeking various strategic alternatives for
its business, including an acquisition of the entire company by a third party,
although the Company believes that such an acquisition is unlikely.
The matters discussed above raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result should the Company be unable to
continue as a going concern.
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
subsidiary ROSS Semiconductors (Israel), Ltd. 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 amounts 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, Inventory Purchase Orders and
Property and Equipment -- The Company's estimate for lower of cost or market for
inventory is 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
F-7
<PAGE> 52
the Company's results of operations and financial condition in the near term.
The Company has also relied upon a qualified third party appraisal to estimate
the fair value of its property and equipment.
Cash Equivalents -- The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
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.
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 customers. The company reduces recognition of net sales to the extent of
estimated rights of return and price protection.
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 Statement of Financial
Accounting Standards ("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.
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. The
Company recorded an adjustment in Fiscal 1998 to record property and equipment
at estimated fair value (see Note 4).
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.
F-8
<PAGE> 53
Earnings (Loss) Per Share -- In February 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS 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.
The Company adopted SFAS No. 128, "Earnings Per Share," in the quarterly
period ended December 29, 1997. Basic earnings per share is based on the
weighted average of all common shares issued and outstanding, and is calculated
by dividing net income available to common stockholders by the weighted average
shares outstanding during the period. Diluted earnings per share is calculated
by dividing net income available to common stockholders by the weighted average
number of common shares used in the basic earnings per share calculation plus
the number of common shares that would be issued assuming conversion of all
potentially dilutive common shares outstanding. All historical earnings per
share data have been restated to conform to this presentation. Below is the
calculation of basic and diluted earnings per share for each of the past three
fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
March 30, March 31, April 1,
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss) .................................... $ (38,271) $ (86,705) $ 18,160
Net income (loss) applicable to common stockholders .. $ (38,271) $ (86,705) $ 17,328
========== ========== ==========
Weighted average shares outstanding - Basic .......... 23,450 23,396 14,067
Dilutive effect of preferred shares .................. -- -- 4,312
Employee stock options and other ..................... -- -- 2,654
---------- ---------- ----------
Weighted average shares outstanding - Diluted ........ 23,450 23,396 21,033
========== ========== ==========
Earnings per common share:
Basic ................................................ $ (1.63) $ (3.71) $ 1.23
========== ========== ==========
Diluted* ............................................. $ (1.63) $ (3.71) $ 0.82
========== ========== ==========
</TABLE>
* For the fiscal year ended March 30, 1998, options totaling 405,982 and the
conversion of Series B Preferred Stock to 20,000,000 shares of common stock
were excluded from the computation of diluted earnings per share because
they would have been antidilutive for this period. For Fiscal years ended
March 31, 1997 and April 1, 1996, options totaling 967,179 and 288,676,
respectively, were excluded from the computation of diluted earnings per
common share because they would have been antidilutive for those periods.
Reclassification -- Certain reclassifications have been made to conform
prior years data to the current presentation. In accordance with SFAS No. 128,
the Company restated earnings (loss) per share for all prior periods presented.
F-9
<PAGE> 54
(2) TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consists of the following:
<TABLE>
<CAPTION>
MARCH 30, MARCH 31,
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Trade accounts receivable ........ $ 3,170 $ 12,852
Less allowance for doubtful
accounts ......................... (458) (1,555)
---------- ----------
$ 2,712 $ 11,297
========== ==========
</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. The amount
charged to bad debt expense in Fiscal 1998 was approximately $1.8 million.
(3) INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
MARCH 30, MARCH 31,
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Die bank ........................................... $ 694 $ 4,496
Work in progress ................................... 5,297 6,236
Finished goods ..................................... 1,817 5,576
------- -------
$ 7,808 $16,308
======= =======
</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 $7.3 million charge in Fiscal 1998 and a $38.9
million charge in Fiscal 1997 for its write-down of inventory. This amount is
recorded in cost of sales in the accompanying financial statements. In addition,
the Company recorded a $5.2 million accrual for the costs to cancel excess
inventory purchase orders in Fiscal 1997. This amount is recorded in accrued
liabilities and cost of sales in Fiscal 1997 in the accompanying financial
statements.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 30, MARCH 31,
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Buildings and leasehold
improvements ............................................ $ -- $ 2,699
Equipment and tooling ................................... 2,561 19,706
Software ................................................ -- 5,634
Furniture and fixtures .................................. 764 685
-------- --------
28,724
Less accumulated depreciation ........................... -- (10,972)
-------- --------
$ 3,325 $ 17,752
======== ========
</TABLE>
As required by SFAS No. 121, the Company recorded an $11.2 million
write-down for long-lived assets since events and circumstances indicated that
the assets were impaired. The impairment charge was the difference between the
Company's carrying value and the estimated fair value of the assets. The Company
estimated fair value through the use of a third party appraisal of the assets.
F-10
<PAGE> 55
(5) INTANGIBLE ASSETS
Intangible assets consists of the following:
<TABLE>
<CAPTION>
MARCH 30, MARCH 31,
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Goodwill .............................................. $ -- $ 6,530
Less accumulated amortization ......................... -- (6,530)
--------- ---------
$ -- $ --
========= =========
</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.
(6) NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
MARCH 30, MARCH 31,
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to bank ................................ $ 15,000 $ 43,500
========== ==========
</TABLE>
The notes payable to a bank at March 30, 1998, were outstanding under a
$20,000,000 revolving credit facility with a bank, due December 31, 1998.
Interest accrues at the bank's quoted rate (6.3% at March 30, 1998). The notes
payable are guaranteed by Fujitsu.
(7) 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, Trade Accounts Payable, Accrued Liabilities, Payable to Fujitsu
and Notes Payable -- The carrying amount approximates fair value because of the
short maturity of these instruments.
(8) INCOME TAXES
No income tax provision was recorded for the year ended March 30, 1998, as a
result of the Company's net operating loss.
A net income tax provision of $953,000 was recorded for the fiscal year
ended March 31, 1997. The tax provision consisted of a current income tax
benefit of $1,229,000 and deferred tax expense of $2,182,000. The current income
tax benefit was the net of $1,300,000 attributable to a carryback of a 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.
F-11
<PAGE> 56
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.
The components of the net deferred tax asset as of March 30, 1998 and March
31, 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards ........................ $ 30,315 $ 5,710
Property and equipment, principally due to
difference in depreciation and write-offs for book
purposes............................................... 2,872 280
Inventory write-downs ................................... 2,473 14,791
Other accruals .......................................... 2,950 3,033
Accounts receivable, principally due to allowance
for doubtful accounts ................................. 527 3,651
Tax credit carryforwards ................................ 2,086 500
-------- --------
Subtotal ........................................ 41,223 27,965
Valuation allowance ..................................... (41,223) (27,965)
-------- --------
Net deferred tax asset .......................... $ -- $ --
======== ========
</TABLE>
The net change in the total valuation allowance for the years ended March
30, 1998, and March 31, 1997, was an increase of $13,258,000 and $27,965,000,
respectively. The Company has a Federal income tax net operating loss
carryforward of approximately $89,161,000 at March 30, 1998, expiring in 2013.
Additionally, the Company has an alternative minimum tax credit carryforward of
approximately $500,000. At March 30, 1998, the Company has provided a 100%
valuation allowance of $41,223,000 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 30, 1998, March 31, 1997, and April 1, 1996, 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,
and the inability to recognize the net operating loss carryforward.
(9) 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 30, 1998, are:
<TABLE>
<CAPTION>
YEAR ENDING (IN THOUSANDS)
-------------- --------------
<S> <C> <C>
1999................. $1,908
2000................. 1,100
2001................. 1,027
2002................. 783
2003................. --
------
$4,818
======
</TABLE>
Rent expense for the Company was as follows (in thousands):
<TABLE>
<S> <C>
Year ended March 30, 1998 ........................................... $3,387
Year ended March 31, 1997 ........................................... 1,191
Year ended April 1, 1996 ............................................ 719
</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.
(10) TRANSACTIONS WITH AFFILIATES
The Company has transactions with Fujitsu arising in the normal course of
business. Included in the
F-12
<PAGE> 57
revenue and purchases for the year ended March 30, 1998, is approximately $15.3
million and $ 9.4 million, respectively, relating to sales to and purchases from
Fujitsu for the year ended March 30, 1998. Also for the year ended March
30, 1998, the Company received $17.0 million from payments pursuant to two
separate Development Agreements between the Company and Fujitsu. In Fiscal 1998,
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 March 31, 1997, is approximately $17.9 million and
$27.6 million relating, respectively, to sales to and purchases from Fujitsu.
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.
In Fiscal 1998, the Company entered into a Development Agreement with
Fujitsu whereby Fujitsu would partially fund the development of the Company's
64-bit Viper development project. During Fiscal 1998, the Company received $16.5
million pursuant to this agreement, which was recorded as a reduction to
research and development expense and accrued a penalty for schedule delays in
the amount of $1.2 million, which was recorded as an increase to research and
development expense. The Development Agreement provides for future payments to
the Company upon completion of certain milestones and acceptance by Fujitsu.
During Fiscal 1998, the Company failed to timely meet the milestones set forth
in the Viper Development Agreement. Fujitsu and the Company amended such
agreement to provide for a redefinition of the deliverables associated with such
milestones. The Company does not anticipate attaining future milestones and is
in potential default of the Agreement. The Company and Fujitsu are in
negotiations to terminate the Viper Development Agreement and the Company
believes that it is likely that such termination will include a waiver of the
penalties accrued by the Company under the Agreement.
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 Fiscal 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. This development project was completed in April 1998.
In November 1996 the Company established a "New Credit Facility" with DKB
for a maximum principal amount of $25 million; in February 1997 such New Credit
Facility was increased to a maximum of $50 million. The New Credit Facility was
scheduled to expire on March 31, 1998, and was guaranteed by Fujitsu until that
date. In September 1997, a separate $10 million "Additional Credit Facility"
was established with DKB. This Additional Credit Facility expired on September
30, 1997. On September 29, 1997, the principal amount outstanding under both
credit facilities was $56.0 million, with $50 million due on December 31, 1997,
and $6 million due on September 30, 1997. On September 30, 1997, the Company
concluded a recapitalization transaction with Fujitsu, whereby the Company
issued 500,000 shares of a new Series B Convertible Preferred Stock to Fujitsu
and Fujitsu paid $50 million on behalf of the Company to DKB in partial payment
of the Company's outstanding indebtedness to DKB in satisfaction of Fujitsu's
obligation pursuant to certain loan guarantees provided by Fujitsu to DKB. In
connection with the recapitalization, Fujitsu provided a guarantee for a
replacement credit facility with DKB for a maximum principal amount of $20
million (which replaces the previous "New Credit Facility"). The line of credit
and guaranty was scheduled to expire on March 31, 1998, but have been extended
to December 31, 1998. As of June 15, 1998, the Company has borrowed the maximum
$20 million of available credit provided by the existing credit facility.
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.
(11) 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, $0 and $215,000 for
F-13
<PAGE> 58
the years ended March 30, 1998, March 31, 1997, and April 1, 1996, respectively.
(12) STOCKHOLDERS' EQUITY
Series A Preferred Stock
On September 29, 1997, the Company amended its Certificate of Incorporation
to delete its previously authorized Series A Convertible Preferred Stock. As
such this series is no longer authorized and none are outstanding.
Series B Preferred Stock
Series B preferred shares are subject to the rights, preferences,
restrictions and other matters set forth in its certificate of designation. The
holder of these preferred shares is entitled to, among other things, cumulative
dividends, liquidation preferences, conversion rights, and certain voting
rights.
The holders of Series B Convertible Preferred Stock are entitled to receive
dividends, when declared by the Board of Directors. The holders have the right
to convert each share of the Series B Convertible preferred stock into such
number of fully-paid and nonassessable shares of Common Stock as is determined
by dividing the Liquidation Preference per share of Series B Preferred Stock by
the Conversion Price. "Conversion Price" means the Market Price of the Common
Stock; except that (i) during the two year period following the initial issuance
of shares of Series B Convertible Preferred Stock, the Conversion Price shall be
equal to $2.50; and (ii) on the occurrence of a Special Conversion Event, the
Conversion Price shall be equal to the lower of Market Price and $2.00; provided
that the Conversion Price shall in no event be less than $1.00. "Special
Conversion Event" means and is deemed to occur in the event the Company
commences any case, proceeding or other action under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors.
In the event of any involuntary liquidation, dissolution or winding up of
the Company, the holders of shares of Series B Convertible Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Company
available for distribution to its stockholders at an amount equal to $100 per
share.
Holders of Series B Convertible Preferred Stock are not entitled to vote in
elections of directors. Holders of Series B Convertible Preferred Stock are
entitled to vote on such other matters as to which such stock is, as a matter of
law, entitled to vote. With respect to any matter as to which Series B
Convertible Preferred Stock is entitled to vote, each issued and outstanding
share of Series B Convertible Preferred Stock shall be entitled to a number of
votes equal to the number of shares of Common Stock into which each such share
of Series Convertible B Preferred Stock is convertible. In general, holders of
Series B Convertible Preferred Stock, when entitled to vote, shall vote together
with the holders of any other Preferred Stock and Common Stock as a single
class.
Stock Option Plans
On January 30, 1998, Fujitsu, in its capacity as majority stockholder,
executed a written consent to approve an amendment to the Company's Stock Option
and Restricted Stock Purchase Plan 3.0 ("the Plan") to (i) increase the number
of shares subject to the Stock Option Plan from 7,200,000 to 9,695,000 and (ii)
increase the maximum number of options or shares of restricted stock that an
individual could receive under the Stock Option Plan in any fiscal year from
600,000 to 1,000,000. An information statement regarding the action taken was
circulated to the Company's stockholders. Consents from other stockholders,
other than Fujitsu, were not solicited.
The Plan provides for grants to employees, members of the Board of
Directors, consultants and advisors 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.
F-14
<PAGE> 59
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 25% one
year from December 10, 1997 with the remaining 75% vesting ratably over the
following three years
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 loss and loss per
share would have been increased to pro forma amounts indicated below for the
fiscal years ended March 30, 1998 and March 31, 1997 (in thousands, except net
loss per share amounts):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net loss
As reported .................................. $ (38,271) $ (86,705)
Pro forma .................................... $ (38,619) $ (88,276)
Net loss per share
As reported .................................. $ (1.63) $ (3.71)
Pro forma .................................... $ (1.65) $ (3.77)
</TABLE>
During Fiscal 1998, 380,000 stock options were granted at an exercise price
below fair market value. These options had a per share weighted average fair
value of $0.92 and a weighted average exercise price of $0.53. All other options
granted during Fiscal 1998 had an exercise price equal to the market value and
had a per share weighted average fair value of $0.74. The per share weighted
average fair value of stock options issued by the Company during Fiscal 1997 and
1996 were $1.61 and $5.77, respectively.
The weighted average fair value was determined based on the Black-Scholes
option-pricing model, utilizing the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Dividend yield ................................ -- -- --
Expected volatility ........................... 50.0% 50.0% 50.0%
Risk-free rate of return ...................... 6.5% 6.4% 6.2%
Average expected option life .................. 5 years 5 years 5 years
</TABLE>
A summary of option activity under the Plan for the fiscal years ended March
30, 1998, March 31, 1997 and April 1, 1996, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
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 ..................... 902 $ 4.69 1,249 $ 6.33 4,466 $ 0.035
Granted ....................... 4,826 1.15 665 4.09 753 10.88
Exercised ..................... (51) .075 (422) 0.035 (3,939) 0.035
Cancelled ..................... (1,768) 2.00 (590) 10.25 (31) 9.68
----------- ----------- ----------- ----------- ----------- -----------
Outstanding at year-end ....... 3,909 $ 1.22 902 $ 4.69 1,249 $ 6.33
=========== =========== ===========
Options exercisable at year
end ......................... 426 $ 2.05 289 $ 2.40 497 $ 0.035
Shares available for future
grant ....................... 1,513 345 387
</TABLE>
F-15
<PAGE> 60
The following summarizes information regarding the Company's stock options
outstanding at March 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF NUMBER REMAINING EXERCISE EXERCISABLE AT EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE MARCH 30, 1998 PRICE
--------------- ----------- ---------------- ----- -------------- -----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
$ .035 - $ 1.0625 399 9.6 $ .51 134 $ 0.54
$ 1.063 - $ 2.0000 3,263 9.7 1.08 129 1.07
$ 2.125 - $ 4.8000 204 8.4 3.17 139 3.11
$ 6.250 - $10.7500 30 7.5 7.75 16 7.73
$12.000 - $13.1250 13 7.4 12.88 8 12.92
------------------ ----- --- ------- --- -------
$. 035 - $13.1250 3,909 9.6 $ 1.22 426 $ 2.05
================== ===== ===
</TABLE>
On December 10, 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, 1997 and December 10, 1997, at an exercise price greater than $1.063
per share were eligible to receive an equivalent number of options at an
exercise price of $1.063 per share in replacement of their current 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). During Fiscal 1998 and Fiscal 1996, no such
shares were issued. In Fiscal 1997, 33,175 such shares were issued.
(13) 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 fiscal years ended March 30, 1998, March 31,1997 and April
1, 1996:
<TABLE>
<CAPTION>
CUSTOMER 1998 1997 1996
-------- ---- ---- ----
<S> <C> <C> <C>
A........ 15% 28% 45%
B........ 36 22 19
</TABLE>
During the years ended March 30, 1998, March 31, 1997 and April 1, 1996
export sales were approximately $20,318,000, $27,840,000 and $36,230,000,
respectively.
(14) FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of Fiscal 1998, the Company revised several of its
estimates related to its investment in its subsidiary, inventory and property
and equipment as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Inventory, lower of cost or market.................. 7,271
Write-down of property and equipment................ 11,203
Write-down of investment in subsidiary.............. 1,080
--------
Total..................................... $ 19,554
========
</TABLE>
These adjustments increased the net loss by approximately $19.5 million
($.83 per share) for the year ended March 30, 1998.
F-16
<PAGE> 61
(15) SUBSEQUENT EVENTS
As a result of the continuing and substantial deterioration of the
Company's financial position, on June 1, 1998, the Company announced that it
would commence an orderly shutdown of its operations. The decision was
precipitated by a continuing decrease in revenues from the Company's sales of
32-bit products. The Company is exploring certain strategic alternatives,
including an acquisition of the entire Company by a third party and the sale of
various assets, including the Viper development and associated intellectual
property, Austin manufacturing operation and the Company's Design Center in
Israel. To date, the Company has been unable to locate a buyer for the entire
Company and believe it is highly unlikely that it will be able to do so. A
letter of intent with respect to the sale of the manufacturing operations was
entered into on June 25, 1998. In addition, the Company and Fujitsu are
negotiating an asset purchase agreement pursuant to which Fujitsu will purchase
certain intellectual property rights from the Company (with a royalty-free
license back to the Company for some of those rights). The Company is also
actively involved in discussions with potentially interested parties, including
Fujitsu, with regard to other of its assets. There is no assurance that any
further agreements will be reached or that agreements reached will close in
accordance with their terms. In the absence of a sale of the entire Company, the
Company intends to cease all of its operations by the end of calendar 1998.
Under the plan approved by the Company's Board of Directors, it is
anticipated that the Company will continue its operations, at a scaled back
level, through the end of calendar year 1998. Under this plan, the Company hopes
to avoid undue disruption to its customers, which will have an opportunity to
place orders for their forecasted needs, which the Company will strive to meet.
The Company believes that by endeavoring to keep its design and product
engineers in place as well as a scaled-back test site, it would have a better
chance of finding a buyer for the Company of all or part of its assets,
including its intellectual property. The Company has formed a business unit,
named BridgePoint, that contains its significantly scaled back sales, service
and manufacturing operations employees, as well as the inventory related to its
32-bit products. It is currently anticipated that BridgePoint will serve the
ROSS customers until year end and may be sold separately or as a part of the
entire Company (a letter of intent with respect to the sale of the Bridgepoint
operations was entered into on June 25, 1998). The Company at this time will
seek to maximize its asset value for its creditors. While the Company hopes to
pay all of its creditors in full, its ability to do so is dependent upon its
ability to generate sufficient cash from the sale of products and assets. The
Company believes that it is highly unlikely that there will be any funds or
assets available for distribution to any stockholders.
As part of the preparation for the shutdown of the Company's business, the
Company has issued notices to its employees under the Federal Workers Adjustment
and Retraining Notification Act. These notices provided advance notice to all
employees of the scheduled termination of their employment in connection with
the shutdown. Approximately 93 employees, or 46% of the Company's work force
will be laid off as of July 31, 1998, excluding the approximately 30 full and
part time employees at the ROSS Design Center in Israel. The Company's 64-bit
"Viper" Development Team (including the Vice President of Engineering and the
Chief Architect), the BridgePoint operations, sales and service personnel
(including the Vice President of Manufacturing) and an administrative team
(including the Chief Executive Officer, Chief Financial Officer and Corporate
Controller), will continue to operate the smaller ROSS Company and pursue
alternatives, although the Company intends to lay-off the Viper development team
on July 31, 1998 if an agreement to sell those operations has not been reached
by that time.
F-17
<PAGE> 62
\ In conjunction with the Company's orderly shutdown of its operations and
in order to provide certain employees with an incentive to continue his or her
employment with the Company, the Company adopted an Employee Retention and
Severance Plan (the "Retention Plan"). Also as part of the orderly shutdown, the
Company provided severance packages to all eligible terminated employees as
required by its general severance policy, substantially all of the executive
officers, have been retained pursuant to individual retention agreements. Given
the Company's uncertain financial position, retention agreements were provided
by the Company to such executive officers to provide incentive so that the key
personnel necessary to effect the sale of the Company's assets remained with the
Company until such time that their services are no longer required. The total
cost of the Retention Plan and severance packages totals $5.2 million, of which
$3.2 million relates to prior contractual obligations of the Company and
obligations of the Company under its general severance policy. At March 30,
1998, these severance costs did not meet the criteria as stated in Emerging
Issues Task Force issue No. 94-3 and, therefore; these severance costs will not
be accrued until the first quarter of fiscal 1999.
In general, the individual retention letters issued to the Company's
executive officers and other eligible employees (namely, the members of the
Company's "Viper" development design team, the BridgePoint manufacturing,
operations and customer service personnel and certain administrative personnel)
entitle such officer or employee to receive certain retention and severance
payments so long as, among other things, such officer or employee maintains his
or her employment with the Company through a specified date. Certain of the
individual retention letters also require the affected officer or employee to
continue his or her employment with the Company or a successor to certain of its
operations in order to be eligible to receive a retention and/or severance
payment. Fujitsu has provided assurances to the Company regarding payment of
such individual retention amounts predicated upon each employee's entitlement to
such retention amount.
On May 18, 1998, the Company was informed by the Nasdaq National Market of
the Company's failure to maintain certain listing requirements - failure to
maintain a closing bid price of greater than or equal to $1.00 per share and
failure to maintain a market value of public float greater than or equal to $5
million. If the Company is unable to demonstrate compliance with these two rules
before August 13, 1998, the Company's securities will be delisted at the opening
of business on August 17, 1998. The Company does not believe that it will be
able to demonstrate compliance with such rules by the August 13, 1998 deadline.
The Company's Common stock would continue to trade on the over-the-counter
bulletin board market maintained by the Nasdaq National Market.
F-18
<PAGE> 63
SCHEDULE II
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DESCRIPTION BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
----------- BEGINNING CHARGED TO FROM END OF
OF PERIOD EXPENSE ACCOUNTS PERIOD
Allowance for doubtful accounts: ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended April 1, 1996... $ 495 $ 1,576 $ 14 $ 2,057
Year ended March 31, 1997.. 2,057 10,613 11,115 1,555
Year ended March 30, 1998.. 1,555 1,819 2,916 458
</TABLE>
F-19
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
3.2 ---- Restated by-laws of the Registrant, as amended
10.1 ---- Stock Option Plan and Restricted Stock Purchase Plan 3.0, as
amended
10.56 ---- Employment Agreement, dated May 21, 1997, between the
Registrant and Jack W. Simpson, Sr.
10.57 ---- Amendment to Letter of Agreement between the Registrant and
Francis S. (Kit) Webster III
10.58 ---- Amendment to Letter of Agreement between Company and Frank A.
Baffi
10.59 ---- Employee Retention and Severance Plan
10.60 ---- Retention Letter dated June 4, 1998 for Jack W. Simpson, Sr.
10.61 ---- Retention Letter dated June 3, 1998 for Francis S. (Kit)
Webster
10.62 ---- Retention Letter dated May 28, 1998 for Mitchell K. Alsup
10.63 ---- Retention Letter dated May 28, 1998 for Trevor S. Smith
10.64 ---- Retention Letter dated June 1, 1998 for Joe D. Jones
10.65 ---- Retention Letter dated June 1, 1998 for Carter L. Godwin
10.66 ---- Agreement between Fujitsu Limited and the Company dated as of
March 30, 1998 relating to the Viper Development Agreement
dated June 25, 1997++
11 ---- Earnings per share computations
21 ---- Subsidiaries of the Registrant
23 ---- Consent of KPMG Peat Marwick LLP
27 ---- Financial Data Schedule
</TABLE>
++ Certain portions of this Exhibit have been omitted and filed
separately under an application for confidential treatment.
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
ROSS TECHNOLOGY, INC.
AMENDED AS OF
MAY 14, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I CORPORATE OFFICES................................................................................ 1
1.1 REGISTERED OFFICE..................................................................... 1
1.2 OTHER OFFICES......................................................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS........................................................................ 1
2.1 PLACE OF MEETINGS..................................................................... 1
2.2 ANNUAL MEETING........................................................................ 1
2.3 SPECIAL MEETING....................................................................... 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS...................................................... 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.......................................... 2
2.6 QUORUM................................................................................ 2
2.7 ADJOURNED MEETING; NOTICE............................................................. 3
2.8 VOTING................................................................................ 3
2.9 WAIVER OF NOTICE...................................................................... 3
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT
A MEETING............................................................................. 4
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING;
GIVING CONSENTS....................................................................... 4
2.12 PROXIES............................................................................... 5
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE................................................. 5
2.14 BUSINESS CONDUCTED AT, AND STOCKHOLDER
PROPOSALS FOR, MEETINGS OF THE STOCKHOLDERS........................................... 6
ARTICLE III DIRECTORS...................................................................................... 7
3.1 POWERS................................................................................ 7
3.2 NUMBER OF DIRECTORS................................................................... 7
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF
DIRECTORS............................................................................. 7
3.4 RESIGNATION AND VACANCIES............................................................. 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.............................................. 8
3.6 FIRST MEETINGS........................................................................ 8
3.7 REGULAR MEETINGS...................................................................... 9
3.8 SPECIAL MEETINGS; NOTICE.............................................................. 9
3.9 QUORUM................................................................................ 9
3.10 WAIVER OF NOTICE...................................................................... 9
3.11 ADJOURNED MEETING; NOTICE............................................................. 10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A
MEETING............................................................................... 10
3.13 FEES AND COMPENSATION OF DIRECTORS.................................................... 10
3.14 APPROVAL OF LOANS TO OFFICERS......................................................... 10
3.15 REMOVAL OF DIRECTORS.................................................................. 11
ARTICLE IV COMMITTEES...................................................................................... 11
4.1 COMMITTEES OF DIRECTORS............................................................... 11
4.2 COMMITTEE MINUTES..................................................................... 11
4.3 MEETINGS AND ACTION OF COMMITTEES..................................................... 12
ARTICLE V OFFICERS......................................................................................... 12
5.1 OFFICERS.............................................................................. 12
5.2 ELECTION OF OFFICERS.................................................................. 12
5.3 SUBORDINATE OFFICERS.................................................................. 12
5.4 REMOVAL AND RESIGNATION OF OFFICERS................................................... 13
</TABLE>
-2-
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
5.5 VACANCIES IN OFFICES.................................................................. 13
5.6 CHAIRMAN OF THE BOARD................................................................. 13
5.7 PRESIDENT............................................................................. 13
5.8 VICE PRESIDENT........................................................................ 13
5.9 SECRETARY............................................................................. 14
5.10 CONTROLLER............................................................................ 14
5.11 ASSISTANT SECRETARY................................................................... 15
5.12 ASSISTANT CONTROLLER.................................................................. 15
5.13 AUTHORITY AND DUTIES OF OFFICERS...................................................... 15
ARTICLE VI INDEMNITY AND DIRECTORS' LIABILITY.............................................................. 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS............................................. 15
6.2 RIGHT OF CLAIMANT TO BRING SUIT....................................................... 16
6.3 NON-EXCLUSIVITY OF RIGHTS............................................................. 16
6.4 DIRECTORS' LIABILITY.................................................................. 16
6.5 INDEMNIFICATION OF OTHERS............................................................. 17
6.6 INSURANCE AND TRUST FUND.................................................................. 17
ARTICLE VII RECORDS AND REPORTS................................................................... 18
7.1 MAINTENANCE AND INSPECTION OF RECORDS................................................. 18
7.2 INSPECTION BY DIRECTORS............................................................... 18
7.3 ANNUAL STATEMENT TO STOCKHOLDERS...................................................... 19
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS........................................ 19
</TABLE>
-3-
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
ARTICLE VIII GENERAL MATTERS............................................................................... 19
8.1 CHECKS................................................................................ 19
8.2 EXECUTION OF CORPORATE CONTRACTS AND
INSTRUMENTS........................................................................... 19
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES................................................ 19
8.4 SPECIAL DESIGNATION ON CERTIFICATES................................................... 20
8.5 LOST CERTIFICATES..................................................................... 20
8.6 CONSTRUCTION; DEFINITIONS............................................................. 21
8.7 DIVIDENDS............................................................................. 21
8.8 FISCAL YEAR........................................................................... 21
8.9 SEAL.................................................................................. 21
8.10 TRANSFER OF STOCK..................................................................... 21
8.11 STOCK TRANSFER AGREEMENTS............................................................. 22
8.12 REGISTERED STOCKHOLDERS............................................................... 22
ARTICLE IX AMENDMENTS...................................................................................... 22
ARTICLE X DISSOLUTION...................................................................................... 22
ARTICLE XI CUSTODIAN....................................................................................... 23
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES........................................... 23
11.2 DUTIES OF CUSTODIAN................................................................... 23
</TABLE>
-4-
<PAGE> 6
Amended as of
August 11, 1997
BYLAWS
OF
ROSS TECHNOLOGY, INC.
-1-
<PAGE> 7
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is the Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the second
Tuesday of August in each year at 10:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At the meeting, directors shall be elected
and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more stockholders holding shares in the aggregate entitled to cast not
less than a majority of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Sections 0 and 0 of these bylaws, that a meeting will be
held at the time requested by the person or persons calling the meeting, so long
as that time is not less than thirty-five (35) nor more than sixty (60) days
after the receipt of the request. If the notice is not given within twenty (20)
days after receipt of the request, then the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph of this Section
0 shall be construed as limiting, fixing or affecting the time when a meeting of
stockholders called by action of the board of directors may be held.
-1-
<PAGE> 8
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 0 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting at
which a quorum is present or represented, any business may be transacted that
might have been transacted at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 0 of these bylaws,
subject to the provisions of Sections 217 and 218 of the Delaware General
Corporation Law ("DGCL") (relating to voting rights of fiduciaries, pledgors and
joint owners of stock and to voting trusts and other voting agreements).
Except as provided in the following paragraph or as may be otherwise
provided in the certificate of incorporation, each stockholder shall have one
vote for every share of stock entitled to vote which is registered in his name
on the record date for the meeting. Except as provided below, all elections
shall be determined by a plurality of the votes cast, and except as otherwise
required by law or the certificate of incorporation, all other matters shall be
determined by a majority of the votes cast.
All voting, including on the election of directors but excepting where
otherwise provided herein or required by law or the certificate of
incorporation, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or such stockholder's proxy,
-2-
<PAGE> 9
a stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the DGCL
or of the certificate of incorporation or these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice unless so required by the certificate
of incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the DGCL if
such action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
notice and written consent have been given as provided in Section 228 of the
DGCL.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
-3-
<PAGE> 10
(iii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the DGCL.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
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2.14 BUSINESS CONDUCTED AT, AND STOCKHOLDER PROPOSALS FOR,
MEETINGS OF THE STOCKHOLDERS
(a) At any annual or special meeting of the stockholders,
only such business shall be conducted as shall have been properly brought before
the meeting. To be properly brought before a stockholders' annual or special
meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board of directors; (ii)
otherwise properly brought before the meeting by or at the direction of the
board of directors; or (iii) otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, and subject to
any limitations on business which may be proposed or transacted at such meeting,
for business to be properly brought before an annual or special meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the secretary of the corporation. To be timely with respect to an annual
meeting, a stockholder's notice must be received at the principal executive
office of the corporation not less than sixty (60) days nor more than one
hundred twenty (120) days prior to the date of such annual meeting; provided,
however, that in event that the first public disclosure (whether by mailing of a
notice to stockholders or to an exchange on which the stock of the corporation
is listed, by press release or otherwise) of the date of the annual meeting is
made less than seventy (70) days prior to the date of the meeting, notice by the
stockholder will be timely received not later than the close of business on the
tenth (10th) day following the day on which such public disclosure was first
made. To be timely with respect to a special meeting, a stockholder's notice
must be received at the principal executive office of the corporation not later
than the close of business on the tenth (10th) day following the day on which
the first public disclosure (whether by mailing of a notice to stockholders or
to an exchange on which the stock of the corporation is listed, by press release
or otherwise) of the date of the special meeting is made.
(b) A stockholder's notice to the Secretary shall set forth,
as to each matter the stockholder proposes to bring before the annual or special
meeting: (i) a reasonably detailed description of any proposal to be made at
such meeting; (ii) the name and address, as they appear on the corporation's
stock register, of the stockholder proposing such business; (iii) the class and
number of shares of capital stock of the corporation which are beneficially
owned by the stockholder; (iv) any material interest of the stockholder in such
business; and (v) such other information relating to the stockholder or the
proposal as is required to be disclosed under the rules of the Securities and
Exchange Commission governing the solicitation of proxies whether or not such
proxies are in fact solicited by the stockholder. Notwithstanding anything in
these Bylaws to the contrary, no business shall be conducted at an annual or
special stockholders' meeting except in accordance with the procedures set forth
in this Section 0; provided, however, that nothing in this Section 0 shall be
deemed to preclude discussion by any stockholder of any business properly
brought before the annual or special meeting in accordance with said procedures.
The chairman of an annual or special meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 0, and if
he should so determine, any such business not properly brought before the
meeting shall not be transacted.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the DGCL and any limitations in the
certificate of incorporation or these bylaws relating to action required to be
approved by the stockholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the board of directors.
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3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be not less than three
(3) nor more than nine (9). The exact number of directors within the limits
specified above shall be fixed and may be changed by resolution duly adopted by
the board of directors or by a bylaw amending this Section 3.2 duly adopted by
the board of directors or by the stockholders. The indefinite number of
directors may be changed, or a definite number may be fixed without provision
for an indefinite number, by a duly adopted amendment to the certificate of
incorporation or by an amendment to this bylaw duly adopted by the vote or
written consent of the holders of a majority of the stock issued and outstanding
and entitled to vote.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 0 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
corporation. When one or more directors so resigns and the resignation is
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective, and each director so chosen shall hold office as
provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws, vacancies and newly created directorships resulting from any increase in
the authorized number of directors elected by all of the stockholders having the
right to vote as a single class may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director. If
at any time, by reason of death or resignation or other cause, the corporation
should have no directors in office, then any officer or any stockholder or an
executor, administrator, trustee or guardian of a stockholder, or other
fiduciary entrusted with like responsibility for the person or estate of a
stockholder, may call a special meeting of stockholders in accordance with the
provisions of the certificate of incorporation or these bylaws, or may apply to
the Court of Chancery for a decree summarily ordering an election as provided in
Section 211 of the DGCL.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the DGCL as
far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
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Unless otherwise restricted by the certificate of incorporation or
these bylaws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly-elected board of directors shall be
held immediately following the annual meeting of stockholders and no notice of
such meeting need be given to the newly-elected directors in order legally to
constitute the meeting, provided a quorum shall be present.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally (by hand, messenger, courier or otherwise) or by telephone, telegram,
cable, facsimile, electronic mail or other reliable form of electronic delivery
or sent by first-class mail, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States Mail at least ten
(10) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telegram, cable, facsimile, electronic
mail or other form of electronic delivery, it shall be so delivered at least
twenty-four (24) hours before the time of the holding of the meeting and shall
be deemed delivered and received on the date on which it is officially recorded
as delivered by return receipt or equivalent or otherwise on the date of
delivery or transmission if delivered personally or by telephone, telegram,
cable, facsimile, electronic mail or other form of electronic delivery. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or, if the meeting is to be held at the
principal executive office of the corporation, the place, of the meeting. Unless
otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
3.9 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
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3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the DGCL
or of the certificate of incorporation or these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the directors, or members
of a committee of directors, need be specified in any written waiver of notice
unless so required by the certificate of incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of the
board of directors, or of any committee thereof, may be taken without a meeting
if all members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these bylaws, the board of directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or any committee
thereof and a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for serving on any such committee and for attending committee
meetings.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.
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No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The Board of Directors may, by resolution passed by a majority of the
directors then in office, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
any such committee. In the absence or disqualification of a member of a
committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such members constitute a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in the place of any such absent
or disqualified member. Any committee, to the extent allowed by the DGCL and
provided in the Bylaw or resolution establishing such committee, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to the following
matters: (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the DGCL, the Certificate of
Incorporation or these Bylaws to be submitted to stockholders for approval or
(ii) adopting, amending or repealing any bylaw of the corporation. Each
committee shall keep regular minutes and report to the Board of Directors when
required.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
0 (place of meetings and meetings by telephone), Section 0 (regular meetings),
Section 0 (special meetings and notice), Section 0 (quorum), Section 0 (waiver
of notice), Section 0 (adjournment and notice of adjournment), and Section 0
(action without a meeting), with such changes in the context of those bylaws as
are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may also be called by resolution of the board of directors and
that notice of special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
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ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a controller. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant controllers, and any
such other officers as may be appointed in accordance with the provisions of
Section 0 of these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 0 or 0 of these bylaws,
shall be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to
appoint, such other officers and agents as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 0 of these bylaws.
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5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 CONTROLLER
The controller shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The controller shall deposit all money and other valuables in the name
and to the credit of the corporation with such depositaries as may be designated
by the board of directors. He shall disburse the funds of the corporation as may
be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
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5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 ASSISTANT CONTROLLER
The assistant controller, or, if there is more than one, the assistant
controllers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the controller or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the controller
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY AND DIRECTORS' LIABILITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
Provisions regarding the indemnification of the corporation's officers,
directors and employees also are contained in the corporation's certificate of
incorporation. The corporation shall, to the maximum extent and in the manner
permitted by the DGCL, indemnify each of its directors and officers against
expenses (including attorneys' fees), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Section 0, a "director" or "officer" of the
corporation includes any person (i) who is or was a director or officer of the
corporation, (ii) who is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) who was a director or officer of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation. Such director or officer shall have the
right to be paid by the corporation for expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
DGCL (or other applicable law) requires, the payment of such expenses in advance
of the final disposition of any such proceeding shall be made only upon receipt
by the corporation of an undertaking by or on behalf of such director or officer
to repay all amounts so advanced if it should be determined ultimately that he
or she is not entitled to be indemnified under this Section or otherwise.
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6.2 RIGHT OF CLAIMANT TO BRING SUIT
If a claim under Section 0 is not paid in full by the corporation
within ninety (90) days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim, together with interest
thereon, and, if successful in whole or in part, the claimant shall also be
entitled to be paid the expense of prosecuting such claim, including reasonable
attorneys' fees incurred in connection therewith. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the DGCL (or other applicable law) for the corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the corporation. Neither the failure of the corporation (or
of its full board of directors, its directors who are not parties to the
proceeding with respect to which indemnification is claimed, its stockholders,
or independent legal counsel) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the DGCL (or other applicable law), nor an actual determination by
any such person or persons that such claimant has not met such applicable
standard of conduct, shall be a defense to such action or create a presumption
that the claimant has not met the applicable standard of conduct.
6.3 NON-EXCLUSIVITY OF RIGHTS
The rights conferred by this Article shall not be exclusive of any
other right which any director, officer, representative, employee or other agent
may have or hereafter acquire under the DGCL or any other statute, or any
provision contained in the corporation's certificate of incorporation or in
these bylaws, or any agreement, or pursuant to a vote of stockholders or
disinterested directors, or otherwise.
6.4 DIRECTORS' LIABILITY
No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such a director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
DGCL or (iv) for any transaction from which such director derived an improper
personal benefit. No amendment to or repeal of this Article 0 shall apply to or
have any effect on the liability or alleged liability of any director of the
corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal. If the DGCL is amended hereafter to
further eliminate or limit the personal liability of directors, the liability of
a director of this corporation shall be limited or eliminated to the fullest
extent permitted by the DGCL, as amended.
6.5 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the DGCL, to indemnify each of its employees and agents (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 0, an
"employee" or "agent" of the corporation (other than a director or officer)
includes any person (i) who is or was an employee or agent of the corporation,
(ii) who is or was serving at the request of the corporation as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
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6.6 INSURANCE AND TRUST FUND
In furtherance and not in limitation of the powers conferred by
statute:
(a) the corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
corporation, or is serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of law; and
(b) the corporation may create a trust fund, grant a security interest
and/or use other means (including, without limitation, letters of credit, surety
bonds and/or other similar arrangements), as well as enter into contracts
providing indemnification to the fullest extent permitted by law and including
as part thereof provisions with respect to any or all of the foregoing, to
ensure the payment of such amount as may become necessary to effect
indemnification as provided therein, or elsewhere.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
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<PAGE> 21
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
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<PAGE> 22
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the DGCL, in lieu of the
foregoing requirements there may be set forth on the face or back of the
certificate that the corporation shall issue to represent such class or series
of stock a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, the designations, the preferences, and
the relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 0, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
-16-
<PAGE> 23
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the DGCL shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the DGCL. Dividends may be paid in cash,
in property, or in shares of the corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation shall have power to have a corporate seal, which may be
altered by the board of directors, and the corporation may use the same by
causing it or a facsimile thereof, to be impressed or affixed or in any other
manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the DGCL.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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<PAGE> 24
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the DGCL and setting forth the names and residences of the
directors and officers shall be executed, acknowledged, and filed and shall
become effective in accordance with Section 103 of the DGCL. Upon such
certificate's becoming effective in accordance with Section 103 of the DGCL, the
corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent
in writing, either in person or by duly authorized attorney, to a dissolution,
no meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the DGCL.
Upon such consent's becoming effective in accordance with Section 103 of the
DGCL, the corporation shall be dissolved. If the consent is signed by an
attorney, then the original power of attorney or a photocopy thereof will be
attached to and filed with the consent. The consent filed with the Secretary of
State shall have attached to it the affidavit of the secretary or some other
officer of the corporation stating that the consent has been signed by or on
behalf of all the stockholders entitled to vote on a dissolution; in addition,
there shall be attached to the consent a certification by the secretary or some
other officer of the corporation setting forth the names and residences of the
directors and officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the stockholders
are so divided that they have failed to elect successors to directors whose
terms have expired or would have expired upon qualification of their successors;
or
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<PAGE> 25
(ii) the business of the corporation is suffering or is threatened with
irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed within
a reasonable time to take steps to dissolve, liquidate or distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the DGCL, but the authority of the custodian
shall be to continue the business of the corporation and not to liquidate its
affairs and distribute its assets, except when the Court of Chancery otherwise
orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the
DGCL.
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<PAGE> 26
ATTACHMENT A
<TABLE>
<CAPTION>
PATENT NAME ISSUE DATE NUMBER
----------- ---------- ------
<S> <C> <C>
1. High Performance Register File with Overlapping 7/6/93 #5,226,142
Windows
2. Method and Apparatus for Optimizing Electronic 10/17/95 #5,459,673
Circuits
3. Central Processing Unit Architecture with Symmetric 1/30/96 #5,488,729
Instruction Scheduling to Achieve Multiple
Instruction Launch and Execution
4. CPU Architecture Performing Dynamic Instruction 6/17/97 #5,640,588
Scheduling at Time and Execution Within Single Clock
Cycle
</TABLE>
<PAGE> 27
EXHIBIT B
TRANSFERRED PATENTS
<TABLE>
<CAPTION>
PATENT NAME ISSUE DATE NUMBER PRICE
----------- ---------- ------ -----
<S> <C> <C> <C>
1. High Performance Register File with 7/6/93 #5,226,142 $0.5M
Overlapping Windows
2. Method and Apparatus for Optimizing 10/17/95 #5,459,673
Electronic Circuits
3. Central Processing Unit Architecture with 1/30/96 #5,488,729
Symmetric Instruction Scheduling to Achieve Multiple
Instruction Launch and Execution
4. CPU Architecture Performing Dynamic 6/17/97 #5,640,588
Instruction Scheduling at Time and Execution Within
Single Clock Cycle
</TABLE>
<PAGE> 1
EXHIBIT 10.1
ROSS TECHNOLOGY, INC.
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN 3.0
1. PURPOSE.
The purpose of this Stock Option and Restricted Stock Purchase Plan 3.0
(the "Plan") of ROSS TECHNOLOGY, INC., a Delaware corporation (the "Company"),
is to secure for the Company and its shareholders the benefits arising from
stock ownership by selected officers and other key employees, directors,
consultants and advisers of the Company or any of its subsidiaries. The Plan
will provide a means whereby such persons may purchase shares of the common
stock of the Company (the "Common Stock") pursuant to (i) options which will
satisfy the requirements of "incentive stock options" ("ISOs") under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii)
"nonqualified" stock options ("NSOs") and (iii) rights to purchase Common Stock
pursuant to a restricted stock purchase agreement entered into between the
Company and the purchaser ("Stock Purchase Rights").
2. ADMINISTRATION.
The Plan shall be administered by a committee of the Board of Directors
of the Company (the "Board") consisting of two or more directors of the Company
(the "Committee") or, if no committee has been appointed by the Board, then by
the Board. From such time, if ever, as the Company becomes obligated to file
reports under the Securities Exchange Act of 1934, as amended ("Exchange Act"),
the Plan shall be administered only by the Committee which shall then consist
solely of persons who are both "non-employee directors" within the meaning of
Rule 16b-3 ("Rule 16b-3") promulgated under the Exchange Act and "outside
directors" within the meaning of Section 162(m) of the Code. Any action of the
Committee with respect to administration of the Plan shall be taken by a
majority vote or unanimous written consent of its members.
Subject to the provisions of the Plan, the Committee shall have the
full, absolute and unconditional discretion and authority (i) to construe and
interpret the Plan, (ii) to define the terms used herein, (iii) to prescribe,
amend and rescind rules and regulations relating to the Plan, (iv) to determine
the individuals to whom and the time or times at which options and Stock
Purchase Rights shall be granted, whether any option will be an ISO or NSO, the
number of shares to be subject to each option or Stock Purchase Right, the
option price or restricted stock purchase price (as the case may be), the number
of installments, if any, in which each option or Stock Purchase Right may be
exercised, (v) to determine the circumstances under which exercisability of any
option or vesting of any restricted stock may be accelerated, (vi) to determine
the duration of each option, (vii) to approve and determine the duration of
leaves of absence which may be granted to participants without constituting a
termination of their employment for the purposes of the Plan, (viii) to amend
the
<PAGE> 2
terms of any outstanding option or restricted stock, with consent of the option
holder (or as otherwise provided in the individual option agreement), (ix) to
convert an ISO into an NSO with consent of the option holder, and (x) to make
all other determinations necessary or advisable for the administration of the
Plan. All determinations and interpretations made by the Committee shall be made
in good faith and shall be binding and conclusive on all participants in the
Plan and their legal representatives and beneficiaries.
3. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 17, the shares to be
offered under the Plan shall consist of the Company's authorized but unissued
Common Stock, and the aggregate amount of such stock which may be issued upon
exercise of all options and Stock Purchase Rights under the Plan shall not
exceed Nine Million Six Hundred Ninety-Five Thousand (9,695,000) shares. If any
option granted under the Plan shall expire or terminate for any reason without
having been exercised in full, or if the Company shall repurchase any Restricted
Stock (as defined in Section 12(a)) pursuant to the repurchase option described
in Section 12(b), the unpurchased shares subject to such expired or terminated
option or the shares of Restricted Stock so repurchased, as the case may be,
shall again be available for options to be granted or Restricted Stock to be
issued under the Plan.
4. ELIGIBILITY AND PARTICIPATION.
Subject to Section 5, all officers and other key employees of the
Company or of any subsidiary corporation (as defined in Section 424(f) of the
Code) shall be eligible for selection to participate in the Plan. Subject to
Section 5, Directors of the Company who are not regular employees of the Company
and other non-employees who provide services to the Company or any subsidiary
corporation may also participate in the Plan if the Board or the Committee so
determines. An individual who has been granted an option or Stock Purchase Right
may, if such individual is otherwise eligible, be granted one or more additional
options or Stock Purchase Rights if the Committee shall so determine, subject to
the other provisions of the Plan. No ISO may be granted to any person who, at
the time the ISO is granted, is not an employee of the Company. The aggregate
fair market value (determined at the time the option is granted) of the stock
with respect to which ISOs (whenever granted) are exercisable for the first time
by an option holder during any calendar year (under all incentive stock option
plans of the Company and its affiliates) shall not exceed one hundred thousand
dollars ($100,000). All ISOs granted under the Plan shall be granted within ten
(10) years from the date of adoption of this Plan. No participant may receive
grants during any fiscal year of the Company or portion thereof of ISOs and
NSOs, which, in the aggregate, cover more than One Million (1,000,000) shares or
of Stock Purchase Rights which, in the aggregate, cover more than One Million
(1,000,000) shares reduced by the number of shares covered by ISOs and NSOs
granted to such participant in such fiscal year or portion thereof, subject to
adjustment as provided in
<PAGE> 3
Section 17. If an option expires or terminates for any reason without having
been exercised in full, or if the Company repurchases any Restricted Stock
pursuant to the repurchase option described in Section 12(b), the unpurchased
shares subject to such expired or terminated option or the Restricted Stock so
repurchased will continue to count against the maximum numbers of shares for
which options or Stock Purchase Rights may be granted to a participant during
any fiscal year of the Company or portion thereof.
5. FORMULA AWARDS TO NON-EMPLOYEE DIRECTORS.
Any person who is or becomes a director and who is not a full-time or
substantially full-time employee of the Company, including without limitation
any representative or employee of any stockholder of the Company who is
permitted by such stockholder to hold Company stock options as his or her own
personal property, is referred to herein as a "Non-Employee Director." From and
after the date of approval and adoption of this Section 5, each person who
becomes a Non-Employee Director shall automatically be granted an NSO to
purchase Ten Thousand (10,000) shares of Common Stock, subject to adjustment
pursuant to Section 17, which grant shall be made effective on the date he or
she first becomes a Non-Employee Director; provided that he or she has not been
an employee of the Company, or otherwise received a grant of Company stock
options, within one year prior to such date.
During the term of the Plan, on August 31 of each year, each
Non-Employee Director shall also be granted an NSO to purchase an additional Two
Thousand (2,000) shares of Common Stock, all subject to adjustment pursuant to
Section 17; provided, however, that no such annual grant shall be made to any
person who has not completed at least six (6) months of service as a
Non-Employee Director as of such August 31.
The purchase price under each NSO granted to Non-Employee Directors
shall equal one hundred percent (100%) of the fair market value of the stock
subject to such NSO (as determined under Section 9) on the date the NSO is
granted. Each NSO initially granted to a Non-Employee Director pursuant to the
first paragraph of this Section 5 shall vest monthly over four years following
the grant date at a rate of two and one-twelfths percent (2.08333%) per month.
Each NSO granted to a Non-Employee Director on August 31 of any year pursuant to
the preceding paragraph shall vest at a rate of eight and one-third percent
(8.33333%) per month commencing with the thirty-seventh month following the
grant date, such that 100% of such option shall vest by the date four years
after the grant date. Once exercisable, each such NSO shall be fully exercisable
for a period of ten (10) years from the date of grant.
In addition to the grants described in this Section 5, the Committee
may make such other grants of options and/or Stock Purchase Rights under this
Plan to Non-Employee Directors as it may determine in its discretion.
<PAGE> 4
6. DURATION OF OPTIONS.
Each option and all rights associated therewith shall expire on such
date as the Committee may determine (as set forth in the particular option
agreement), and shall be subject to earlier termination as provided herein;
provided, however, that all stock options shall expire in any event within ten
(10) years from the date on which such options are granted, and provided,
further, that in the case of ISOs granted to any person possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company (a "10% Shareholder"), each ISO shall expire in any event within five
(5) years from the date on which such ISO is granted.
7. PURCHASE PRICE.
Subject to Section 5, the purchase price of the stock covered by each
option or Stock Purchase Right shall be determined by the Committee, but (a) in
the case of ISOs, shall not be less than one hundred percent (100%) of the fair
market value of such stock (as determined under Section 9) on the date the ISO
is granted, and (b) in the case of ISOs granted to 10% Shareholders, shall not
be less than one hundred and ten percent (110%) of the fair market value of such
stock (as determined under Section 9) on the date the ISO is granted. The
purchase price of the shares upon exercise of an option or Stock Purchase Right
shall be paid in full at the time of exercise in cash or by check payable to the
order of the Company, or, subject in each case to the approval of the Committee
in its sole discretion, (i) in the case of options, by delivery of shares of
Common Stock already owned by, and in the possession of the option holder, (ii)
by a five-year, full-recourse promissory note, bearing interest at a rate to be
determined by the Committee in its discretion, made by option holder in favor of
the Company, secured by the shares issuable upon exercise or other property, or
(iii) in the case of options, through a "cashless exercise," in any case
complying with applicable law (including, without limitation, state and federal
margin requirements), or any combination thereof. Shares of Common Stock used to
satisfy the exercise price of an option shall be valued at their fair market
value determined (in accordance with Section 9) on the date of exercise (or if
such date is not a business day, as of the close of the business day immediately
preceding such date).
8. EXERCISE OF OPTIONS.
Subject to Section 5, each option granted under this Plan shall be
exercisable (i) in such installments and at such times before its expiration
date as the Committee shall determine, and (ii) subject to such other
conditions, if any, as the Committee shall determine. Unless otherwise
determined by the Committee, if the option holder shall not in any given
installment period purchase all of the shares which the option holder is
entitled to purchase in such installment period, then the option holder's right
to purchase any shares not purchased in such installment period shall continue
until the expiration date or sooner termination of the option holder's option.
<PAGE> 5
9. FAIR MARKET VALUE OF COMMON STOCK.
So long as the Common Stock continues to be publicly traded, the fair
market value of the Common Stock, as of any given measurement date, shall be the
average of the highest and the lowest sale prices of the Common Stock on the
principal national securities exchange on which the Common Stock is traded or
the closing sales price or the average of the last bid and asked prices of the
Common Stock on the NASDAQ National Market System or "over the counter" market,
as applicable, in each case on such measurement date, or, if such measurement
date is not a trading day, on the last trading day preceding such measurement
date. If the Common Stock ceases to be publicly traded, the fair market value of
a share of Common Stock shall be determined for purposes of the Plan by the
Committee with reference to the most recent sale price of the Common Stock, the
earnings history, book value, prospects of the Company in light of market
conditions generally and such other factors as the Committee may deem
appropriate to reflect the fair market value thereof.
10. WITHHOLDING TAX.
The Company shall have the right to take whatever steps the Committee
deems necessary or appropriate to comply with all applicable federal, state,
local, and employment tax withholding requirements, and the Company's
obligations to deliver shares upon the exercise of options or Stock Purchase
Rights under this Plan shall be conditioned upon compliance with all such
withholding tax requirements. Without limiting the generality of the foregoing,
upon (i) the disposition by an employee or other person of shares of Common
Stock acquired pursuant to the exercise of an ISO granted pursuant to the Plan
within two years of the granting of the ISO or within one year after exercise of
the ISO, (ii) the exercise of NSOs, or (iii) the purchase by an employee of
Restricted Stock or the lapse or termination of the Company's repurchase option
on Restricted Stock, the Company shall have the right to withhold taxes from any
other compensation or other amounts which it may owe to the employee, or to
require such employee or such other person to pay to the Company the amount of
any taxes which the Company may be required to withhold with respect to such
shares. Without limiting the generality of the foregoing, the Committee in its
discretion may authorize a participant to satisfy all or part of any withholding
tax liability by (A) having the Company withhold from the shares which would
otherwise be issued on the exercise of an NSO that number of shares having a
fair market value as of the date the withholding tax liability arises equal to
or less than the amount of the withholding tax liability, or (B) by delivering
to the Company previously-owned and unencumbered shares of the Common Stock of
the Company (including unencumbered shares of Restricted Stock as to which the
Company's repurchase option has lapsed) having a fair market value as of the
date the withholding tax liability arises equal to or less than the amount of
the withholding tax liability.
<PAGE> 6
11. NONTRANSFERABILITY.
An ISO granted under the Plan shall, by its terms, be non-transferable
by the option holder, either voluntarily or by operation of law, other than by
will or the laws of descent and distribution, and shall be exercisable during
the option holder's lifetime only by the option holder, regardless of any
community property interest therein of the spouse of the option holder, or such
spouse's successors in interest. If the spouse of the option holder shall have
acquired a community property interest in such option, the option holder, or the
option holder's permitted successors in interest, may exercise the option on
behalf of the spouse of the option holder or such spouse's successors in
interest.
An NSO granted under the Plan shall, by its terms, be non-transferable
by the option holder, either voluntarily or by operation of law, other than by
will or the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code, and shall be exercisable during the
option holder's lifetime only by the option holder, or, to the extent permitted
by the Committee or by the terms of the option agreement, the spouse of the
option holder who obtained the option pursuant to such a qualified domestic
relations order described herein or pursuant to Section 15.
Each share of Restricted Stock issued under the Plan shall, by its
terms, be non-transferable by the holder thereof, either voluntarily or by
operation of law, other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code, until
the Company's repurchase rights with respect to such share lapse or are
cancelled in full.
At the discretion of the Committee, any option agreement may contain
restrictions on transfer of the shares issuable upon exercise of the option, and
any Restricted Stock purchase agreement may contain restrictions on transfer of
the shares purchased thereunder, in each case including a right of first refusal
and/or a right of repurchase by the Company.
Notwithstanding the foregoing, to the extent that the Committee so
authorizes at the time an option or Stock Purchase Right is granted or amended,
such option or Stock Purchase Right, or Restricted Stock purchased under such
Stock Purchase Right, may be assigned, in connection with the holder's estate
plan, in whole or in part, during the holder's lifetime to one or more members
of the holder's immediate family or to a trust established exclusively for one
or more of such immediate family members. Rights under the assigned portion may
be exercised by the person or persons who acquire a proprietary interest in such
option, Stock Purchase Right, or Restricted Stock pursuant to the assignment.
The terms applicable to the assigned portion shall be the same as those in
effect for the option, Stock Purchase Right, or Restricted Stock immediately
before such assignment and shall be set forth in such documents issued to the
assignee as the Committee deems appropriate. For purposes
<PAGE> 7
of this Section 11, the term "immediate family" means an individual's spouse,
children, stepchildren, grandchildren and parents.
12. STOCK PURCHASE RIGHTS.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with stock option awards granted under the
Plan and/or any other cash or non-cash awards made outside of the Plan. After
the Committee determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing of the terms, conditions and
restrictions related to the offer, including the number of shares of Common
Stock that such person shall be entitled to purchase, the price to be paid and
the time within which such person must accept such offer, which shall in no
event exceed 60 days from the date the Stock Purchase Right was granted. The
offer shall be accepted by execution of a Restricted Stock purchase agreement in
the form determined by the Committee. Shares purchased pursuant to the grant of
a Stock Purchase Right shall be referred to herein as "Restricted Stock."
(b) Repurchase Option. Unless the Committee determines otherwise, the
Restricted Stock purchase agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment with the Company for any reason (including death or disability). The
purchase price for shares repurchased pursuant to the Restricted Stock purchase
agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at such rate as the Committee may determine.
(c) Other Provisions. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Committee in its sole discretion. In addition,
the provisions of Restricted Stock purchase agreements need not be the same with
respect to each purchaser.
13. SHARES TO BE ISSUED IN COMPLIANCE WITH FEDERAL SECURITIES LAWS AND
EXCHANGE RULES.
At the discretion of the Committee, any option agreement may provide
that the option holder (and any transferee), by accepting such option,
represents and agrees that none of the shares purchased upon exercise of the
option will be acquired with a view to any sale, transfer or distribution of
said shares in violation of the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder, or any
applicable state "blue sky" laws, and the person entitled to exercise the same
shall furnish evidence satisfactory to the Company (including a written and
signed representation) to that effect in form and substance satisfactory to the
Company, including an indemnification of the Company in the
<PAGE> 8
event of any violation of the Securities Act or state blue sky laws by such
person. In addition, at the discretion of the Committee, any Restricted Stock
purchase agreement may provide that the purchaser (and any transferee), by
accepting such Restricted Stock, represents and agrees that none of the shares
so purchased are being acquired with a view to any sale, transfer or
distribution of said shares in violation of the Securities Act and the rules and
regulations promulgated thereunder, or any applicable state "blue sky" laws, and
such agreement may provide for indemnification of the Company in the event of
any violation of the Securities Act or state blue sky laws by such purchaser.
The Company shall use its reasonable efforts to take all necessary and
appropriate action to assure that the shares issuable upon the exercise of any
option or Stock Purchase Right shall be issued in full compliance with the
Securities Act, state blue sky laws and all applicable listing requirements of
any principal securities exchange on which shares of the same class are listed.
14. TERMINATION OF EMPLOYMENT.
If a holder of an ISO or NSO ceases to be employed by the Company or
any of its subsidiary corporations for any reason other than the option holder's
death or permanent disability (within the meaning of Section 22(e)(3) of the
Code), the option holder's ISO or NSO shall be exercisable for a period of three
(3) months (unless otherwise specified by the Committee in an individual stock
option agreement) after the date the option holder ceases to be an employee of
the Company or such subsidiary corporation (unless by its terms it sooner
expires) to the extent exercisable on the date of such cessation of employment
and shall thereafter expire and be void and of no further force or effect. A
leave of absence approved in writing by the Committee shall not be deemed a
termination of employment for the purposes of this Section 14, but no option may
be exercised during any such leave of absence, except during the first three (3)
months thereof. Termination of employment or other relationship with the Company
by the holder of a Stock Purchase Right shall cause such Stock Purchase Right to
lapse immediately, unless otherwise determined by the Committee in its
discretion. Any option or Stock Purchase Right transferred pursuant to a
qualified domestic relations order pursuant to Section 11 shall continue to be
subject to the provisions governing the grant to the original grantee, including
without limitation, the provisions governing exercisability, vesting and
termination (which shall be determined by reference to the employment status of
the original grantee), unless the option agreement or the Committee provides
otherwise.
15. DEATH OR PERMANENT DISABILITY OF OPTION HOLDER.
If the holder of an ISO or NSO dies or becomes permanently disabled
(within the meaning of Section 22(e)(3) of the Code) while the option holder is
employed by the Company or any of its subsidiaries, the option holder's ISO or
NSO shall be exercisable for a period of twelve (12) months (unless otherwise
specified by the Committee in an individual stock option agreement) after the
date of such death or permanent disability (unless by its terms it sooner
expires) to the extent exercisable on
<PAGE> 9
the date of death or permanent disability and shall thereafter expire and be
void and of no further force or effect. During such period after death, such ISO
or NSO may, to the extent that it remained unexercised (but exercisable by the
option holder according to such option's terms) on the date of such death, be
exercised by the person or persons to whom the option holder's rights under the
option shall pass by the option holder's will or by the laws of descent and
distribution. The death or disability of a holder of a Stock Purchase Right
shall cause such Stock Purchase Right to lapse immediately, unless otherwise
determined by the Committee in its discretion.
16. PRIVILEGES OF STOCK OWNERSHIP.
No person entitled to exercise any option granted under the Plan shall
have any of the rights or privileges of a stockholder of the Company in respect
of any shares of stock issuable upon exercise of such option until certificates
representing such shares shall have been issued and delivered. No shares shall
be issued and delivered upon the exercise of any option unless and until there
shall have been full compliance with all applicable requirements of the
Securities Act (whether by registration or satisfaction of exemption
conditions), all applicable listing requirements of any national securities
exchange or other market system on which shares of the same class are then
listed and any other requirements of law or of any regulatory bodies having
jurisdiction over such issuance and delivery.
17. ADJUSTMENTS.
If the outstanding shares of the Common Stock (or any other class of
shares or securities which shall have become eligible for grant under the Plan
pursuant to this sentence) are increased or decreased or changed into or
exchanged for a different number or kind of shares or securities of the Company
through reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split or other similar transaction, an appropriate
and proportionate adjustment shall be made in the maximum number and kind of
shares as to which options may be granted under this Plan. A corresponding
adjustment changing the number or kind of shares allocated to unexercised
options or portions thereof, which shall have been granted prior to any such
change, shall likewise be made. Any such adjustment in the outstanding options
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of the option but with a corresponding adjustment in the
price for each share or other unit of any security covered by the option. A
corresponding adjustment shall also be made as to the number of shares to be
granted to Non-Employee Directors pursuant to the formula provisions of Section
5.
Upon the happening of a "Major Event" (as defined below), the Plan
shall terminate, all options and Stock Purchase Rights theretofore granted
hereunder shall terminate, and the Company shall repurchase all Restricted Stock
remaining subject to repurchase options, unless the Committee provides, in its
discretion, in the
<PAGE> 10
individual option agreements, or otherwise in writing in connection with such
Major Event, for one or more of the following alternatives with respect to
options and one or more of the following alternatives with respect to Stock
Purchase Rights and Restricted Stock: (i) for the options theretofore granted to
become immediately exercisable notwithstanding the provisions of Section 8; (ii)
for the assumption by the successor corporation of the options and Stock
Purchase Rights theretofore granted or agreements regarding Restricted Stock
theretofore issued, or the substitution by such corporation for such options,
rights and Restricted Stock of new options and rights covering the stock of the
successor corporation and restricted stock of the successor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices; (iii) for the continuance of the Plan by such
successor corporation, in which event the Plan and the options, Stock Purchase
Rights and Restricted Stock theretofore granted shall continue in the manner and
under the terms so provided; (iv) for the payment in cash or stock in lieu of
and in complete satisfaction of such options, Stock Purchase Rights and
Restricted Stock; or (v) for the cancellation of the Company's repurchase
options on Restricted Stock. A "Major Event" shall mean the occurrence of any of
the following:
(A) Any "Person" or "Group" (as such terms are defined in
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) other than Fujitsu Limited, a Japanese
corporation, or a Person controlled thereby (collectively, "Fujitsu")
is or becomes the "Beneficial Owner" (within the meaning of Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company, or of any entity resulting from a merger or consolidation
involving the Company, representing more than fifty percent (50%) of
the combined voting power of the then outstanding securities of the
Company or such entity.
(B) The consummation of the acquisition by Fujitsu, directly
or indirectly, and regardless of the form or manner of the acquisition,
of all of the issued and outstanding shares of Common Stock of the
Company.
(C) The consummation of (x) a merger, consolidation or
reorganization to which the Company is a party, whether or not the
Company is the Person surviving or resulting therefrom, or (y) a sale,
assignment, lease, conveyance or other disposition of all or
substantially all of the assets of the Company, in one transaction or a
series of related transactions, to any Person other than the Company,
where any such transaction or series of related transactions as is
referred to in clause (x) or clause (y) above in this subparagraph (C)
(a "Transaction") does not otherwise result in a "Major Event" pursuant
to subparagraph (A) of this definition of "Major Event"; provided,
however, that no such Transaction shall constitute a "Major Event"
under this subparagraph (C) if the Persons who were the stockholders of
the Company immediately before the consummation of such Transaction and
Fujitsu are the Beneficial Owners, immediately following the
consummation of
<PAGE> 11
such Transaction, of fifty percent (50%) or more of the combined voting
power of the then outstanding voting securities of the Person surviving
or resulting from any merger, consolidation or reorganization referred
to in clause (x) above in this subparagraph (C) or the Person to whom
the assets of the Company are sold, assigned, leased, conveyed or
disposed of in any transaction or series of related transactions
referred in clause (y) above in this subparagraph (C).
Adjustments under this Section 17 shall be made by the Committee, whose
reasonable determination in good faith as to what adjustments shall be made, and
the extent thereof, shall be final, binding and conclusive. No fractional shares
of stock shall be issued under the Plan on any such adjustment.
18. AMENDMENT AND TERMINATION OF PLAN.
The Board may at any time suspend or terminate the Plan. Subject to
Section 5, the Board may also at any time amend or revise the terms of the Plan,
provided that no such amendment or revision shall, unless appropriate
stockholder approval of such amendment or revision is obtained, increase the
maximum number of shares in the aggregate which may be sold pursuant to options
granted under the Plan, except as permitted under the provisions of Section 17,
or change the minimum purchase price of ISOs set forth in Section 7, or increase
the maximum term of ISOs provided for in Section 6, or permit the granting of
options to anyone other than as provided in Section 4, or otherwise materially
increase the benefits accruing to participants under the Plan.
Notwithstanding any other provision of this Plan to the contrary, no
amendment, revision, suspension or termination of the Plan shall in any way
modify, amend, alter or impair any rights or obligations under any option or
Stock Purchase Right theretofore granted, or Restricted Stock purchase agreement
theretofore entered into, under the Plan, without (a) specific action of the
Board or the Committee, and (b) the written, signed consent of the holder of the
affected option, Stock Purchase Agreement, or Restricted Stock; provided,
however, that the Board or the Committee may unilaterally amend this Plan or any
option, Stock Purchase Right or Restricted Stock purchase agreement, without the
consent of the holder thereof, if such amendment is necessary or desirable to
comply with the Securities Act, state blue sky laws, or applicable listing
requirements of any principal securities exchange on which shares of the same
class of securities for which the options or Stock Purchase Rights are
exercisable are listed, to preserve the status of options as ISOs, or to
preserve the tax deductibility to the Company of any awards made under this
Plan.
19. EFFECTIVE DATE OF PLAN.
The Plan shall be submitted for approval by the holders of the
outstanding voting stock of the Company within twelve (12) months from the date
the Plan is
<PAGE> 12
adopted by the Board. The Plan shall be deemed approved by the holders of the
outstanding voting stock of the Company (a) by the affirmative vote of the
holders of a majority of the voting shares of the Company present, or
represented, and entitled to vote at a meeting duly held in accordance with the
Delaware General Corporation Law or (b) by the execution of a unanimous written
consent duly executed in accordance with the Delaware General of Corporation Law
by the holders of all the outstanding voting shares of the Company.
The Stock Option and Restricted Stock Purchase Plan 3.0 shall be
effective upon its adoption by the Company's Board of Directors, provided that,
within twelve (12) months of such adoption, such Plan is approved by the
affirmative vote of the holders of a majority of the voting shares of the
Company present, or represented, and entitled to vote at a meeting duly held in
accordance with the Delaware General Corporation Law.
20. GOVERNING LAW.
The Plan shall be governed for all purposes by the laws of the State of
Delaware, and any issue arising in connection with the interpretation or
enforcement of the Plan or of the terms or conditions of any option granted
under the Plan shall be resolved in accordance therewith.
<PAGE> 1
EXHIBIT 10.56
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and effective as of
May 21, 1997, by and between ROSS Technology, Inc., a Delaware corporation
("Company"), and Jack W. Simpson, Sr., an individual ("Executive"), with respect
to the following facts and circumstances:
RECITALS
Company desires to engage Executive as Company's President, Chief
Executive Officer, and as a member of Company's Board of Directors ("Board"),
subject to shareholder ratification of continuing Board membership. Executive
desires to be retained by Company in that capacity, on the terms and conditions
and for the consideration set forth below.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE 1
EMPLOYMENT AND TERM
1.1 EMPLOYMENT. Company hereby engages Executive in the capacity as
Company's President, Chief Executive Officer, and as a member of the Board,
subject to shareholder ratification of continuing Board membership, and
Executive hereby accepts such engagement by Company upon the terms and
conditions specified below.
1.2 TERM. The term of this Agreement (the "Term") shall commence on May
21, 1997 (the "Hire Date") and shall continue in force until May 31, 2001,
unless earlier terminated under Article 7 below. The period from the date hereof
through May 31, 1998 and each 12-month period thereafter is sometimes called a
"year of the Term."
ARTICLE 2
DUTIES OF EXECUTIVE
2.1 DUTIES. Executive shall perform all the duties and obligations of a
President and Chief Executive Officer, including without limitation such duties
as may be assigned to him from time to time by the Board, provided, however,
that the Board may, in its discretion, delegate certain responsibilities to
other executive officers and may also delegate such right to assign duties to
one or more of the committees of the Board. Executive shall report to the Board.
Executive shall perform the services contemplated herein faithfully, diligently,
to the best of his ability and in the best interests of Company and its
shareholders. Executive shall devote substantially all his business time and
efforts to the rendition of such services. Executive shall at all times perform
such services in compliance with and to the extent of his authority, shall use
his best efforts to ensure that Company is in compliance with, any and all
material laws, rules and regulations applicable to Company of which Executive is
aware.
2.2 COMPANY RULES. Executive shall, at all times during the Term, in
all material respects, adhere to and obey any and all written internal rules and
regulations governing the conduct of Company's executives and employees, as
established or modified from time to time; provided, however, in the event of
any conflict between the provisions of this Agreement and any such rules or
regulations, the provisions of this Agreement shall control.
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<PAGE> 2
2.3 LOCATION OF SERVICES. Executive shall not be required to relocate
from Austin, Texas, to perform the services hereunder, without his consent,
except for travel reasonably required in the performance of his duties
hereunder.
2.4 EXCLUSIVE SERVICES. Except as otherwise expressly provided herein,
Executive shall devote his business time, attention, energies, skills, learning
and best efforts to the business of Company. Executive may participate in
social, civic, charitable, religious, business, educational or professional
associations, so long as such participation does not interfere with the duties
and obligations of Executive hereunder. This Section 2.4, however, shall not be
construed to prevent Executive from making passive outside investments so long
as such investments do not require material time of Executive or otherwise
interfere with the performance of Executive's duties and obligations hereunder.
Executive shall not make any investment in an enterprise that competes with
Company or that is a material supplier of Company without the prior written
approval of the Board after full disclosure of the facts and circumstances;
provided, however, that so long as Executive does not utilize material,
non-public information this sentence shall not preclude Executive from owning up
to one percent (1%) of the securities of a publicly traded entity.
2.5 SERVICES ON OTHER BOARDS. Subject to prior approval of the ROSS
Board of Directors, Executive shall be allowed to participate as a member of the
Board of Directors of other companies or organizations.
ARTICLE 3
COMPENSATION
3.1 DIRECT COMPENSATION. In consideration for Executive's services
hereunder, Company shall pay Executive the amount of $13,460 in biweekly
payments, annualized to approximately $350,000.00 per year ("Direct
Compensation"), in accordance with Company's regular payroll schedule (less any
deductions required for state, federal and local withholding taxes, any
withholdings that are pursuant to Company's employee benefit plans or
governmentally mandated, and any other authorized withholdings).
3.2 DISCRETIONARY ANNUAL MERIT REVIEW. Company's Board, or the Human
Resources Committee of the Board (the "HRC") will in its discretion conduct an
annual merit review of Executive's Direct Compensation. This review will be
conducted in the first quarter following the end of Company's each fiscal year.
Any such review will not result in a decrease in Executive's then-effective
Direct Compensation.
3.3 BONUS.
3.3.1 GOALS AND BONUS AMENDMENT. For each fiscal year of
Company ("FY") during the Term of this Agreement, conditioned upon Executive's
accomplishment of certain pre-determined goals and objectives (the "Goals") to
be established by the parties consistent with the Company's approved operating
plan, Executive shall be eligible to receive a target bonus ("Bonus") as
follows: The Bonus shall amount to 50% of the annual Direct Compensation of
Executive during said fiscal year if 100% of the Goals are met. The Bonus shall
be computed on a continuous linear scale from 0% to 50% for attaining 75% to
100% of the Goals. (For example, 30% of the Direct Compensation would be the
Bonus amount for attaining 90% of the Goals.) No Bonus will be paid under this
plan if less than a threshold of 75% of the Goals is met. However, in the event
that 75% of the Goals is not achieved, the Board may, in its discretion, award
to Executive a bonus in an amount to be solely determined by the Board. If 100%
of the Goals are exceeded, the total bonus can be as high as 100% of the annual
Direct Compensation of Executive during said fiscal year. If 100% to 150% of the
Goals are attained, the bonus shall be 50% for the first 100% of the Goals
attained plus a maximum of an additional 50% computed on a continuous linear
scale up to 150% of the Goals attained. (For example, 80% of the Direct
Compensation would be the Bonus amount for attaining 130% of the Goals.)
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<PAGE> 3
3.3.2 BONUS PLAN. After consultation with Executive, the goals
for each fiscal year will be determined by the Board or the Human Resources
Committee of the Board (the "HRC") and will be presented in a formal document
("Bonus Plan") to Executive. In the first quarter of each subsequent fiscal year
from FY1999 through FY2001 a new Bonus Plan will be presented to Executive.
3.3.3 PERFORMANCE RATING. In June, following the end of each
fiscal year of the Term, the Board or the HRC will evaluate Executive's
performance against the Goals set forth in the Bonus Plan for that fiscal year,
determine the percentage attainment of those Goals ("Rating"), and inform
Executive of the Rating and corresponding bonus amount.
3.3.4 PRO-RATING OF BONUS. In the event the full fiscal year
specified in a Bonus Plan is not completed for any reason, except for
termination as specified in Sections 7.1.1, 7.1.2, 7.1.3 or 7.2 the HRC will, in
its sole judgment fairly determine a Rating and a pro-rated bonus amount for
Executive after said fiscal year has ended. Any bonus under this Section 3.3
will be paid by the Company to Executive within 60 days after the end of the
applicable fiscal year or the conclusion of a Major Event (as defined in Section
4.4), whichever is sooner.
3.4 REPLACEMENT BONUS. Within thirty (30) days of the Hire Date,
Company shall pay to Executive a one-time bonus in the amount of $130,000 (the
"Replacement Bonus") to compensate Executive for amounts which Executive would
otherwise have received had he remained employed by his previous employer.
ARTICLE 4
EQUITY PARTICIPATION
4.1 NON-QUALIFIED STOCK OPTIONS. Subject to the approval of the Stock
Option Committee of the Board and to the approval of the "Restated Plan" (as
defined below) by Company's shareholders, and pursuant to Company's Employee
Stock Option and Restricted Stock Purchase Plan 3.0 (the "Restated Plan"), which
is incorporated herein by this reference, Company will grant Executive
non-qualified stock options for 100,000 shares of Company common stock with an
exercise price of $0.05 per share to vest fifty percent (50%) on April 1, 1998,
and fifty percent (50%) on April 1, 1999. Such vesting shall be conditioned upon
Executive continuing to be an employee of the Company on the applicable vesting
date (except as provided in Sections 7.3, 7.5.3 and 7.5.4 hereof). Any stock
options received pursuant to this Section 4.1 shall be in addition to those
received under Sections 4.2 and 4.3. Executive must exercise options for the
100,000 shares of Company common stock, if at all, no later than May 21, 2007.
4.2 ADDITIONAL NON-QUALIFIED STOCK OPTIONS. Subject to the approval of
the Stock Option Committee of the Board and to the approval of the Restated Plan
by Company's shareholders, and pursuant to the Restated Plan, Company will also
grant Executive non-qualified stock options for 400,000 shares of Company common
stock, of which options to purchase 100,000 shares shall vest immediately. The
remaining 300,000 options shall vest monthly at the rate of 6,250 per month,
over the Term. Such vesting shall be conditioned upon Executive continuing to be
an employee of the Company on the applicable vesting date (except as provided in
Sections 7.3, 7.5.3 and 7.5.4 hereof). The exercise price for such options shall
be $2.437 per share (the closing price of Company common stock on The Nasdaq
Stock Market's National Market on the Hire Date). Executive must exercise
options for the 400,000 shares of Company common stock, if at all, no later than
May 21, 2007. In the event of a repricing of any of Executive's stock options,
the vesting period for the 300,000 options granted pursuant to this Section 4.2
which did not vest immediately shall be reset (but the option to purchase
100,000 shares granted pursuant to this Section 4.2 which vested immediately
shall remain fully vested).
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<PAGE> 4
4.3 PERFORMANCE STOCK OPTIONS. Subject to the approval of the Stock
Option Committee of the Board and to the approval of the Restated Plan by
Company's shareholders, and pursuant to the Restated Plan, Company will grant
Executive non-qualified stock options for 100,000 shares of Company common stock
with an exercise price of $0.05 per share, to vest fifty percent (50%) on the
day on which the average of the closing prices (computed for the preceding ten
consecutive trading days) on The Nasdaq Stock Market's National Market or other
national market system or other primary exchange on which Company common stock
trades (the "FMV") exceeds $4.00 per share, and to vest fifty percent (50%) on
the date on which the FMV exceeds $7.00 per share. If not previously vested, the
stock options granted pursuant to this Section 4.3 shall terminate immediately
upon termination of Executive's employment with the Company for any reason
(subject to Sections 7.3, 7.5.3 and 7.5.4). Executive must exercise options for
the 100,000 shares of Company common stock, if at all, no later than May 21,
2007.
4.4 CHANGE OF CONTROL/MAJOR EVENT. In the event of a Major Event, any
options granted pursuant to Sections 4.1 and 4.2, above, or subsequently granted
to Executive by Company shall vest in full immediately, notwithstanding the
foregoing provisions of this Article 4. A "Major Event" shall mean the
occurrence of any of the following:
(A) Any "Person" or "Group" (as such terms are defined in
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) other than Fujitsu Limited, a Japanese
corporation, or a Person controlled thereby (collectively, "Fujitsu")
becoming the "Beneficial Owner" (within the meaning of Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Company, or of any entity resulting from a merger or consolidation
involving the Company, representing more than fifty percent (50%) of
the combined voting power of the then outstanding securities of the
Company or such entity.
(B) The consummation of the acquisition by Fujitsu, directly
or indirectly, and regardless of the form or manner of the acquisition,
of all of the issue and outstanding shares of Common Stock of the
Company.
(C) The consummation of (x) a merger, consolidation or
reorganization to which the Company is a party, whether or not the
Company is the Person surviving or resulting therefrom, or (y) a sale,
assignment, lease, conveyance or other disposition of all or
substantially all of the assets of the Company, in one transaction or a
series of related transactions, to any Person other than the Company,
where any such transaction or series of related transactions as is
referred to in clause (x) or clause (y) above in this subparagraph (C)
(a "Transaction") does not otherwise result in a "Major Event" pursuant
to subparagraph (A) of this definition of "Major Event"; provided,
however, that no such Transaction shall constitute a "Major Event"
under this subparagraph (C) if the Persons who were the stockholders of
the Company immediately before the consummation of such Transaction and
Fujitsu are the Beneficial Owners, immediately following the
consummation of such Transaction, of fifty percent (50%) or more of the
combined voting power of the then outstanding voting securities of the
Person surviving or resulting from any merger, consolidation or
reorganization referred to in clause (x) above in this subparagraph (C)
or the Person to whom the assets of the Company are sold, assigned,
leased, conveyed or disposed of in any transaction or series of related
transactions referred in clause (y) above in this subparagraph (C).
4.5 STOCK OPTION AGREEMENTS. All grants of options pursuant to this
Article 4 shall be made pursuant to Company's standard stock option agreement,
with such changes as may be necessary to effectuate the provisions of this
Article 4, and shall otherwise be subject to the terms and conditions set forth
in the Restated Plan.
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<PAGE> 5
ARTICLE 5
EXECUTIVE BENEFITS
5.1 VACATION. Executive shall be eligible for five (5) weeks of paid
vacation each calendar year in accordance with the policies of Company generally
applicable to senior executives; provided, however, to accommodate previously
made commitments, Executive shall be eligible for four (4) weeks of paid
vacation in Calendar 1997.
5.2 LIFE INSURANCE BENEFITS. During the term of the Agreement, Company
will pay the premium for the life insurance policy (which has a current death
benefit of $1,448,500) which Executive purchased from his previous employer.
Company has previously reimbursed Executive for having purchased this policy
from his previous employer. The policy shall be owned solely by the Executive.
Premiums for the policy will be paid annually and will be pro-rated in the event
of termination or other interruption of Executive's employment (except as set
forth in Sections 7.5.3 and 7.5.4). Executive's compensation shall be adjusted
(i.e., grossed up) to compensate for any income tax Executive incurs as a result
of the payment of the life insurance policy premiums by Company.
5.3 RETIREMENT PLAN REPLACEMENT. During the term of the Agreement,
quarterly premiums will be paid by Company, with a double payment to be made in
the first quarter, to fund a deferred annuity owned by Executive to replace
Executive's former SERP plan at his previous employer, in an amount appropriate
to fully fund an annuity that will yield an annual benefit, upon Executive's
sixtieth (60th) birthday, in the pre-tax amount of $152,540, payable for
Executive's life. Company and Executive will cooperate in good faith with
William Mercer Co. to implement such a plan. Executive's compensation shall be
adjusted (i.e., grossed up) to compensate for any income tax Executive incurs as
a result of the funding of such an annuity. Company and Executive agree that the
quarterly payment necessary to fund the annuity (before "gross-up") is $68,056.
5.4 TRAVEL, MOVING AND LIVING EXPENSES. Company will reimburse
Executive for direct expenses, up to a maximum outlay of $100,000.00 (plus
"gross-up") in connection with Executive's relocation to Austin, Texas.
Executive's direct expenses shall include: expenses related to the sale and
purchase of Executive's primary residence; expenses for moving personal items
and household goods to Austin, Texas; and temporary living expenses (including
apartment rental) in connection with Executive's move to Austin, Texas . The
referenced "gross-up" shall compensate for income taxes incurred by Executive as
a result of the reimbursements for direct expenses.
5.5 AUTOMOBILE ALLOWANCE. Company shall, in its discretion, either
provide Executive with a leased car or pay Executive a $1,000.00 monthly
automobile allowance. Executive's compensation shall not be adjusted (i.e.,
grossed up) to compensate for any federal income tax Executive incurs as a
result of the automobile allowance.
5.6 BENEFITS. Executive shall receive all other such fringe benefits,
such as health and disability insurance coverage and paid sick leave, and
including Directors and Officers Liability coverage and indemnification for
conduct in the course and scope of Executive's employment hereunder, as Company
may offer generally to other senior executives under Company personnel policies
in effect from time to time.
5.7 DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. During the Term and
for a period of at least three years thereafter, Company shall use commercially
reasonable efforts to maintain in effect, if available, directors' and officers'
liability insurance (which may be a run-off policy) covering Executive on terms
and in an amount comparable to those applicable to Company's directors and
officers as of the date of this Agreement; provided, however, that in no event
shall Company be required to expend in excess of 150% of the current premium
being paid by Company for such coverage.
ARTICLE 6
REIMBURSEMENT FOR EXPENSES
Executive shall be reimbursed by Company for all ordinary and necessary
expenses incurred by Executive in the performance of his duties or otherwise in
furtherance of the business of Company in accordance with the policies of
Company in effect from time to time. Executive shall keep accurate and complete
records of all such expenses, including, but not limited to, proof of payment
and purpose. Executive shall account fully for all such expenses to Company.
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ARTICLE 7
TERMINATION
7.1 TERMINATION FOR CAUSE. Without limiting the generality of Section
7.2, Company shall have the right to terminate Executive's employment, without
further obligation or liability to Executive, upon the occurrence of any one or
more of the following events, which events shall be deemed termination for
cause:
7.1.1 FAILURE TO PERFORM DUTIES. If Executive neglects or
otherwise fails adequately to perform the duties of his employment under this
Agreement, after having received written notice and a copy of a resolution from
the Board specifying such failure to perform and a reasonable opportunity to
perform; provided, however, that Executive's inability or failure to perform his
duties due to sickness or disability shall not constitute grounds for
termination for cause.
7.1.2 WILLFUL BREACH. If Executive willfully commits a
material breach of this Agreement or a material breach of his fiduciary duty to
Company or its shareholders.
7.1.3 WRONGFUL ACTS. If Executive is convicted of a felony or
any other serious crime, commits a serious wrongful act or engages in other
misconduct that would make the continuance of his employment by Company
materially detrimental to Company, which determination shall be made as a
reasonable exercise of the Board's judgment.
7.2 TERMINATION BY EXECUTIVE. Executive may terminate his employment
upon thirty (30) day's written notice to Company without liability to Company
for damages incurred solely by reason of such termination.
7.3 TERMINATION WITHOUT CAUSE. Notwithstanding anything to the contrary
herein, Company shall have the right to terminate Executive's employment under
this Agreement at any time without cause by giving notice of such termination to
Executive; provided, however, that any termination without cause which occurs
while an identifiable Major Event is being planned or executed shall not
preclude the vesting (x) of all stock options (other than those granted to
Executive pursuant to Section 4.3 hereof), which options shall totally vest if
such Major Event occurs within nine months of the termination without cause, or
(y) of the stock options granted to Executive pursuant to Section 4.3 hereof,
which options shall vest if the performance targets set forth in Section 4.3 for
the vesting of such options are satisfied within three months of the termination
without cause. Executive may exercise any stock options which vest as a result
of this Section 7.3, if Executive desires to do so, no later than three months
after the occurrence of the Major Event (in the case of options covered by
clause (x)) or three months after the performance targets are satisfied (in the
case of the options covered by clause (y)).
7.4 EFFECTIVENESS ON NOTICE. Any termination under this Section 7 shall
be effective upon receipt of notice by Executive of such termination or upon
such other later date as may be specified by Company in the notice (the
"Termination Date"), or in the event of notice by the Executive under Section
7.2, on the date specified by Executive in conformity with said section (also
the "Termination Date").
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7.5 EFFECT OF TERMINATION.
7.5.1 PAYMENT OF SALARY AND EXPENSES UPON TERMINATION. If the
Term of this Agreement is terminated for any reason whatever, except as provided
below, all pay and benefits provided to Executive by Company hereunder shall
thereupon immediately cease and Company shall pay or cause to be paid to
Executive all accrued but unpaid salary, earned bonus, if any (as provided by
and subject to Sections 3.3.3 and 3.3.4), life insurance premiums, if
applicable, and vacation benefits. In addition, promptly upon submission by the
Executive of his unpaid expenses incurred prior to the Termination Date and
owing to Executive pursuant to Article 6, reimbursement for such expenses shall
be made. In the event of any termination pursuant to Sections 7.1 or 7.2, no
further vesting shall occur after the Termination Date with regard to any
unvested stock options and Executive may exercise any vested and unexercised
options, if Executive desires to do so, no later than three months after the
date of termination.
7.5.2 [INTENTIONALLY OMITTED].
7.5.3 BENEFITS IN CONNECTION WITH TERMINATION WITHOUT CAUSE.
If Company terminates Executive without cause (whether or not in connection with
or following the planning or occurrence of a Major Event), in addition to the
amounts payable to Executive under Section 7.5.1, in exchange for and subject to
Executive's execution of a release containing substantive provisions
substantially in the form attached hereto as Exhibit 1, and so long as Executive
is in compliance therewith and with the non-competition, non-solicitation and
confidentiality covenants set forth in Sections 8.1 and 8.2 hereof, Company
shall continue to pay to Executive the amounts specified in Sections 3.1 (as
such amount may be modified pursuant to Section 3.2) and 5.2 as well as its
share of Executive's health and life insurance premiums for a period of
twenty-four (24) months from the Termination Date (the "Termination Period"). In
addition, subject to Section 7.3, the stock options described in Sections 4.1
and 4.2 shall continue to vest during the Termination Period (if not already
vested) and Executive may exercise any vested and unexercised options, if
Executive desires to do so, no later than three months after the expiration of
the Termination Period; subject to Section 7.3, no further vesting shall occur
with respect to the stock options described in Section 4.3; and Company shall
continue to fund the annuity specified in Section 5.3 until May 21, 1999.
Executive shall not be obligated to seek alternative employment nor shall
payments hereunder be reduced as a result of any such employment. At any time
that Executive executes a release under this Agreement, Company will in good
faith and in its sole and absolute discretion consider a request by Executive
that Company provide a release to Executive comparable to the release executed
by Executive.
7.5.4 BENEFITS IN CONNECTION WITH VOLUNTARY TERMINATION
FOLLOWING CERTAIN MAJOR EVENTS. If Executive voluntarily terminates his
employment in accordance with Section 7.2 more than sixty (60) days but less
than one hundred twenty (120) days following the occurrence of a Major Event
which results in Company ceasing to be a public company (a "GOING PRIVATE
EVENT"), in addition to the amounts payable to Executive under Section 7.5.1, in
exchange for and subject to Executive's execution of a release containing
substantive provisions substantially in the form attached hereto as Exhibit 1,
and so long as Executive is in compliance therewith and with the
non-competition, non-solicitation and confidentiality covenants set forth in
Sections 8.1 and 8.2 hereof, Executive shall be entitled to receive the same
amounts and benefits as if he had been terminated without cause (i.e., the
amounts and benefits set forth in Section 7.5.3), except that the period of time
set forth in Section 7.5.3 during which Company is required to fund the annuity
specified in Section 5.3 shall be extended on a day-for-day basis for each day
that Executive continues his employment with Company after the consummation of
the Going Private Event.
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7.6 BENEFITS LIMITATION. Notwithstanding anything to the contrary
contained in this Agreement, any amounts which would otherwise be payable to
Executive under this Agreement shall be reduced to the extent (if any) necessary
to prevent (a) the sum of all amounts payable by the Company to Executive
(whether pursuant to this Agreement or otherwise) which constitute "parachute
payments" under Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") from exceeding (b) 2.99 times Executive's "base amount" as defined
in Section 280G of the Code. The Company's certified public accountants shall
determine Executive's "parachute payments," "base amount," and, consequently,
the amount of any reduction in the payments by the Company to Executive under
this Agreement, and such determinations shall be final and binding on Executive
and the Company. At Executive's request, Company shall provide Executive with
its determination of Executive's "base amount" for any particular calendar year.
As a result of the uncertainty in the application of Section 280G of the Code,
it is possible that the amounts paid by the Company to Executive may be made in
a manner inconsistent with the limitations provided in this Section 7.6 (an
"Excess Payment" or "Underpayment", respectively). If it is established that an
Excess Payment has been made, such Excess Payment shall be deemed for all
purposes to be a loan to Executive made on the date Executive received the
Excess Payment and Executive shall repay the Excess Payment to the Company on
demand, together with interest on the Excess Payment at one hundred twenty
percent (120%) of the applicable federal rate (as defined in Section 1274(d) of
the Code) compounded semi-annually from the date of your receipt of such Excess
Payment until the date of such repayment. If it is determined that an
Underpayment has occurred, the Company shall pay an amount equal to the
Underpayment to Executive within ten (10) calendar days of such determination,
together with interest on such amount at one hundred twenty percent (120%) of
the applicable federal rate compounded semi-annually from the date such amount
should have been paid to Executive pursuant to the terms of this Agreement or
otherwise, but for the operation of this Section 7.6, until the date of payment.
ARTICLE 8
CONFIDENTIALITY, NON-COMPETITION, AND
COMPANY IDEAS AND PROPERTY
8.1 CONFIDENTIAL INFORMATION. "Confidential Information" shall mean all
business information, technological information, intellectual property, trade
secrets, client lists and other information belonging to Company or relating to
Company's business, technology or clients which is not a public record. In
particular, such Confidential Information shall specifically include the
information described in attached Exhibit 2, which is incorporated herein by
this reference. Company agrees to provide access to such Confidential
Information to Executive immediately upon and during the course of his
employment. Executive agrees as follows:
a. While employed by Company, not to use or disclose any
Confidential Information except as required in the
performance of his duties with Company;
b. To turn over to Company all documents or other data
compilations of any nature containing Confidential
Information at the termination of his employment with
Company; and
c. Following termination of his employment for any
reason, not to use or disclose any Confidential
Information for any reason without the prior written
consent of Company.
8.2 NONCOMPETITION. If Executive's employment with Company is
terminated for any reason, Executive agrees not to engage directly or indirectly
in any of the conduct set forth in subsections (a) through (c) below for a
period of two years:
a. Hire, attempt to hire or assist any other person in
hiring or attempting to hire, or otherwise interfere
with the relationship of the Company with, any person
who is then employed by the Company or has been so
employed by the Company within the four month period
preceding any such solicitation, discussion, hire or
attempt to hire, or any contractor or other agent of
Company who is then performing services for Company
or who has so performed services for the Company
within the four month period preceding any such
solicitation, discussion, hire or attempt to hire
(unless, in the case of a contractor or agent who
does not have a confidential relationship with
Company, any such action by Executive would not
prevent Company from using the services of such
contractor or agent;
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<PAGE> 9
b. Solicit the business of either (i) any customer or
client of Company to whom Company rendered services
or sold products during the one-year period prior to
termination of Executive's employment, or (ii) any
person or entity whose business Company solicited
during the one-year period prior to termination of
Executive's employment, except for those introduced
by Executive to Company (who shall be identified from
time to time by letter from Executive to Company or
otherwise, subject to Company's approval thereof); or
c. Engage in any business in which the knowledge of
Executive of Confidential Information is or may be
used, directly or indirectly, in competition with
Company, whether as an employee, consultant, or
otherwise.
8.3 OWNERSHIP OF IDEAS.
a. Company will own, and Executive hereby agrees to
transfer and assign to it, all rights in and to any
material and/or ideas and all results and proceeds of
Executive's services hereunder, conceived of or
produced during the Term by Executive. Executive
agrees to execute and deliver to Company such
assignments, certificates of authorship, or other
instruments in accordance with standard industry
practice, and otherwise provide proper assistance, at
Company's request and expense and for its benefit or
that of its nominees, during and after Executive's
employment by Company to obtain patents, copyrights,
and legal protection for inventions or innovations in
any country;
b. Executive's agreement to assign to Company any of his
rights as set forth above does not apply to any
invention which Executive develops entirely upon his
own time without using Company's equipment, supplies,
facilities or trade secret information, the invention
does not relate at the time of conception or
reduction to practice to Company's business, or
actual or demonstrably anticipated research or
development of Company, and the invention does not
result from any work performed by Executive for
Company.
8.4 PROPERTY OF COMPANY.
a. All memoranda, notes, records, papers, data and
documents concerning the business of Company or any
of its subsidiaries, whether in tangible or
intangible form (including all information stored in
electronic form), all computer programs and software,
and all copies of any of the foregoing, made,
obtained, compiled by or made available to Executive
during the Term, and all equipment (including
personal computers and other computer equipment) made
available to or obtained by Executive from Company
(collectively referred to as "Company Property"),
will be and remain the exclusive property of Company
during and after the termination of Executive's
employment relationship with Company, and Executive
will leave all Company Property with Company at the
time his employment terminates. Executive will return
any and all Company Property that he may have taken,
and, if requested by Company to do so, will execute a
statement confirming compliance with this subsection
upon termination of his employment relationship with
Company.
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8.5 REMEDIES. Executive understands and agrees that Company will be
irreparably damaged in the event that the noncompetition provisions set forth
above are violated. Executive agrees that, in addition to any other remedy to
which it may be entitled, at law or in equity, Company shall be entitled to an
injunction to specifically enforce the terms and provisions hereof.
ARTICLE 9
ARBITRATION
9.1 EXCLUSIVE REMEDY. In the event there is any dispute between
Executive and Company which the parties are unable to resolve themselves,
including any dispute with regard to the application, interpretation or validity
of this Agreement or any dispute with regard to any aspect of Executive's
employment or the termination of Executive's employment, both Executive and
Company agree by entering into this Agreement that the exclusive remedy for
determining any such dispute, regardless of its nature, will be by arbitration
in accordance with the then most applicable rules of the American Arbitration
Association; provided, however, the breach of the obligation to provide services
under this Agreement or of the obligations of Article 8 may be enforced by an
action for injunctive relief and damages in a court of competent jurisdiction.
9.2 SELECTION OF ARBITRATOR. In the event the parties are unable to
agree upon an arbitrator, the parties shall select a single arbitrator from a
list designated by the Houston, Texas office of the American Arbitration
Association of seven arbitrators all of whom shall be retired judges who have
had experience in the employment law, who are actively involved in hearing
private cases and who are resident in the greater Austin area. If the parties
are unable to select an arbitrator from the list provided by the American
Arbitration Association, then the parties shall each strike names alternatively
from the list, with the first to strike being determined by lot. After each
party has used three strikes, the remaining name on the list shall be the
arbitrator. Any arbitration shall be administered by the American Arbitration
Association only if both parties so agree.
9.3 APPLICATION OF PROCEDURES. This agreement to resolve any disputes
by binding arbitration shall extend to claims against any shareholder or partner
of Company, any brother-sister company, parent, subsidiary or affiliate of
Company, any officer, director, employee, or agent of Company, or of any of the
above, and shall apply as well to claims arising out of state and federal
statutes and local ordinances as well as to claims arising under the common law.
The arbitrator shall apply the same substantive law as would be applied by a
court having jurisdiction over the parties and their dispute and the remedial
authority of the arbitrator shall be the same as, but no greater than, would be
the remedial power of a court having jurisdiction over the parties and their
dispute. The arbitrator shall, upon an appropriate motion, dismiss any claim
brought in arbitration if the arbitrator determines that the claim does not
state a claim or a cause of action which could have been properly pursued
through court litigation. In the event of a conflict between the then
most-applicable rules of the American Arbitration Association and these
procedures, the provisions of these procedures shall govern.
9.4 REPRESENTATION AND COSTS. Each party may be represented by counsel
or other representative of the party's choice and each party shall be
responsible for the costs and fees of its counsel or other representative. Any
filing or administrative fees shall be borne by the party incurring such fees.
The fees and costs of the arbitrator shall be borne equally between the parties.
The prevailing party in such arbitration proceeding, as determined by the
arbitrator, and in any enforcement or other court proceedings, shall be entitled
to the extent permitted by law, to reimbursement from the other party for all of
the prevailing party's costs (including but not limited to the arbitrator's
compensation), expenses and attorneys' fees.
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9.5 AWARD. The arbitrator shall render an award and opinion in the form
typical of that rendered in labor arbitrations and the award of the arbitrator
shall be final and binding upon the parties. If any of the provisions of this
Section are determined to be unlawful or otherwise unenforceable, in whole or in
part, such determination shall not affect the validity of the remainder of these
provisions and this Section shall be reformed to the extent necessary to insure
that the resolution of all conflicts between Executive and Company, including
those arising out of statutory claims, shall be resolved by neutral, binding
arbitration. In the event a court finds that the arbitration procedure set forth
herein is not absolutely binding, then it is the intent of the parties that any
arbitration decision should be fully admissible in evidence, given great weight
by any finder of fact and treated as determinative to the maximum extent
permitted by law.
9.6 LOCATION OF ARBITRATION. Unless mutually agreed by the parties
otherwise, any arbitration shall take place in Austin, Texas. In the event the
parties are unable to agree upon a location for the arbitration, the location
within Texas shall be determined by the arbitrator.
ARTICLE 10
MISCELLANEOUS
10.1 AMENDMENTS. The provisions of this Agreement may not be waived,
altered, amended or repealed in whole or in part except by the signed written
consent of the parties sought to be bound by such waiver, alteration, amendment
or repeal.
10.2 ENTIRE AGREEMENT. This Agreement, including the Restated Plan and
any stock option agreements, constitutes the total and complete agreement of the
parties and supersedes all prior and contemporaneous understandings and
agreements heretofore made, and there are no other representations,
understandings or agreements.
10.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
10.4 SEVERABILITY. Each term, covenant, condition or provision of this
Agreement shall be viewed as separate and distinct, and in the event that any
such term, covenant, condition or provision shall be deemed by an arbitrator or
a court of competent jurisdiction to be invalid or unenforceable, the court or
arbitrator finding such invalidity or unenforceability shall modify or reform
this Agreement to give as much effect as possible to the terms and provisions of
this Agreement. Any term or provision which cannot be so modified or reformed
shall be deleted and the remaining terms and provisions shall continue in full
force and effect.
10.5 WAIVER OR DELAY. The failure or delay on the part of Company or
Executive to exercise any right or remedy, power or privilege hereunder shall
not operate as a waiver thereof. A waiver, to be effective, must be in writing
and signed by the party making the waiver. A written waiver of a default shall
not operate as a waiver of any other default or of the same type of default on a
future occasion.
10.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding on and
shall inure to the benefit of the parties to it and their respective heirs,
legal representatives, successors and permitted assigns, except as otherwise
provided herein. Company may assign its rights under this Agreement to any
entity controlled (directly or indirectly) by Company, but no such assignment
shall relieve Company of its obligation to make the payments due to Executive
hereunder if the assignee does not make such payments.
10.7 NO ASSIGNMENT OR TRANSFER BY EXECUTIVE. Neither this Agreement nor
any of the rights, benefits, obligations or duties hereunder may be assigned or
transferred by Executive. Any purported assignment or transfer by Executive
shall be void.
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10.8 NECESSARY ACTS. Each party to this Agreement shall perform any
further acts and execute and deliver any additional agreements, assignments or
documents that may be reasonably necessary to carry out the provisions or to
effectuate the purpose of this Agreement.
10.9 GOVERNING LAW. This Agreement and all subsequent agreements
between the parties shall be governed by and interpreted, construed and enforced
in accordance with the laws of the State of Texas without regard to its or any
other jurisdiction's conflicts of laws principles.
10.10 LEGAL ENFORCEMENT. If either of the parties shall initiate legal
action or other proceeding under Article 8 for the enforcement of this
Agreement, or because of an alleged breach, default or misrepresentation in
connection with such Article, the parties consent to personal jurisdiction in
the appropriate state or federal court located in Austin, Texas.
10.11 NOTICES. All notices, requests, demands and other communications
to be given under this Agreement shall be in writing and shall be deemed to have
been duly given on the date of service, if personally served on the party to
whom notice is to be given, or three (3) business days after mailing, if mailed
to the party to whom notice is to be given by certified or registered mail,
return receipt requested, postage prepaid, and properly addressed to the party
at his or its address set forth as follows or any other address that any party
may designate by written notice to the other parties:
To Executive at: 6502 Corpus Christi Drive
Austin, Texas 78729
and : 741 Eagles Mere Court
Alpharetta, Georgia 30005
With a copy to: Chernesky, Heyman & Kress, LLP
1100 Courthouse Plaza, S.W.
P.O. Box 3808
Dayton, Ohio 45401-3808
Attention: Fred Caspar, Esq.
To Company at: ROSS Technology, Inc.
5316 Highway 290 West
Suite 500
Austin, Texas 78735
Attention: Chairman of the Board
and Chief Financial Officer
With a copy to: Irell & Manella LLP
1800 Avenue of the Stars
Suite 900
Los Angeles, CA 90067-4276
Attention: David A. Dull, Esq.
10.12 HEADINGS AND CAPTIONS. The headings and captions used herein are
solely for the purpose of reference only and are not to be considered as
construing or interpreting the provisions of this Agreement.
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10.13 CONSTRUCTION OF AGREEMENT. This Agreement has been negotiated by
sophisticated parties and each party has cooperated in the drafting and
preparation of this Agreement. In any construction or interpretation of this
Agreement, the same shall not be construed against any party by reason of the
source of drafting, but rather all terms and definitions contained herein shall
be construed to give effect to the fullest extent possible to the express or
implied intent of the parties.
10.14 COUNSEL. Executive has been advised by Company that he should
seek the advice of independent counsel in connection with the negotiation,
preparation and execution of this Agreement and Executive has had an opportunity
to do so. Executive has read and understands this Agreement, and has sought the
advice of counsel to the extent he has determined appropriate. THE PARTIES
ACKNOWLEDGE THAT IRELL & MANELLA LLP HAS ACTED SOLELY AS COUNSEL TO COMPANY IN
CONNECTION WITH THE NEGOTIATION, PREPARATION AND EXECUTION OF THIS AGREEMENT.
10.15 WITHHOLDING OF COMPENSATION. Executive hereby agrees that Company
may deduct and withhold from the compensation or other amounts payable to
Executive hereunder or otherwise in connection with Executive's employment any
amounts required to be deducted and withheld by Company under the provisions of
any applicable Federal, state and local statute, law, regulation, ordinance or
order.
10.16 SURVIVAL OF CERTAIN OBLIGATIONS. The obligations created under
the provisions of Sections 8 and 9, shall survive the expiration, suspension or
termination, for any reason, of this Agreement or the Executive's employment
hereunder until such obligations created thereunder are fully satisfied.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first written above.
ROSS TECHNOLOGY, INC.,
a Delaware Corporation
By:
-----------------------
Its:
----------------------
JACK W. SIMPSON, SR.
Social Security # ###-##-####
-------------
Date of Birth August 16, 1941
---------------
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EXHIBIT 1
FORM OF RELEASE
1. General Release by Simpson. Simpson does hereby and forever
release and discharge the Company and any subsidiary and affiliated corporations
of the Company as well as the successors, shareholders (including without
limitation Fujitsu Limited ("Fujitsu")), officers, directors, heirs,
predecessors, assigns, agents, employees, attorneys and representatives of each
of them, past or present (collectively, the "Company Parties"), from any and all
cause or causes of action, actions, judgments, liens, indebtedness, damages,
losses, claims, liabilities, and demands of whatsoever kind or character, known
or unknown, suspected to exist or not suspected to exist, anticipated or not
anticipated, whether or not heretofore brought before any state or federal court
or before any state or federal agency or other governmental entity, whether
statutory or common law, heretofore or hereafter arising out of, connected with
or incidental to any dealings between the parties prior to the date of execution
of this release, including without limitation on the generality of the
foregoing, any and all claims, demands or causes of action attributable to,
connected with, or incidental to the employment of Simpson by the Company, the
separation of that employment, and any dealings between Simpson and any of the
Company Parties concerning the Company, Simpson's employment or any other matter
existing prior to the date of execution of this release, excepting only (i) the
Company's obligations to make payments or provide benefits to Simpson in
connection with the termination of his employment as and to the extent required
by the Employment Agreement, (ii) Simpson's rights under outstanding stock
options and the related stock option agreements, as such rights may have been
affected by the termination of Simpson's employment, as explicitly set forth in
the Employment Agreement or the applicable stock option agreements, and (iii)
Simpson's right as a director and/or officer of the Company to indemnification
as set forth in the Company's Certificate of Incorporation or Bylaws or any
indemnification agreement between the Company and Simpson. This release is
intended to apply to any claims arising under federal, state or local laws,
including those which prohibit discrimination on the basis of race, national
origin, sex, religion, age, marital status, pregnancy, handicap, perceived
handicap, ancestry, sexual orientation, family or personal leave or any other
form of discrimination, any common law claims of any kind whatever, any claims
for salary, severance pay, sick leave, family leave, vacation pay, life
insurance, bonuses, stock, stock options, incentive compensation, health
insurance, disability or medical insurance or any other fringe benefit or
compensation, and all rights and claims arising under the Employee Retirement
Income Security Act of 1974 ("ERISA"), or pertaining to ERISA regulated
benefits. In the event any shareholder released by this release shall bring an
action against Simpson with regard to any matters occurring before the effective
date of this release, Simpson's release of such party pursuant to this paragraph
shall be null and void from the effective date of this release. This release is
not intended to affect any interest Simpson may have as the beneficiary of any
judgment or settlement secured by (or for the benefit of) the Company as a
result of any shareholder's derivative action; provided, however, that Simpson
agrees he will not instigate, initiate or assist any such action.
2. Age Discrimination in Employment Act Waiver and Release.
The waiver and release given below is given only in exchange for consideration
in addition to anything of value to which Simpson is already entitled. This
waiver and release set forth does not waive rights or claims which may arise
after the date of execution of this release. Simpson acknowledges that (i) this
paragraph is written in a manner calculated to be understood by Simpson, (ii) by
reviewing this paragraph or drafts thereof he has been advised in writing to
consult with an attorney before executing this release, (iii) he was given a
period of 21 days within which to consider this paragraph, and (iv) to the
extent he executes this release, including this paragraph, before the expiration
of the 21 day period, he does so knowingly and voluntarily and only after
consulting with an attorney. Two hundred fifty thousand dollars of the severance
consideration to be received by Simpson shall be allocated to this paragraph.
Simpson shall have the right to cancel and revoke this paragraph during a period
of seven days following his execution of the release and this paragraph shall
not become effective, and no money shall be paid hereunder, until the expiration
of such seven day period. All other provisions of this release shall become
effective upon execution and the Company shall pay to Simpson all of the
severance consideration he is to receive except for the two hundred fifty
thousand dollars allocated to the waiver and release under this paragraph.
Simpson shall
-15-
<PAGE> 16
Exhibit 1
(continued)
notify the Company in writing of the date of the execution of this
release by faxing to the Company a signed and dated copy of the signature page
signed by him. The seven day period of revocation shall commence upon the date
of Simpson's execution of this release. Within the seven day revocation period,
Simpson or his counsel shall forward to the Company a copy of this release fully
executed by Simpson. In order to revoke this paragraph, Simpson shall deliver to
the Company, prior to the expiration of said seven day period, a written notice
of revocation. In the event of such revocation, the Company's obligation to pay
to Simpson the fifty thousand dollars allocated to the waiver and release under
this paragraph shall be cancelled.
-16-
<PAGE> 17
EXHIBIT 2
CONFIDENTIAL INFORMATION
1. Confidential Information. For purposes of the Agreement to which
this is attached, the term "Confidential Information" includes all of the
following information and materials, whether in written, oral, magnetic,
photographic, optical or other form and whether now existing, or developed or
created during the period of Executive's employment with Company:
1.1 Software. Any and all ideas, concepts, know-how, methods,
techniques, structures, information and materials relating to existing software
products or firmware products and software or firmware in various states of
research and development including source code, object and load modules,
requirements specifications, design specifications, design notes, flow charts,
coding sheets, annotations, documentation, technical and engineering data,
laboratory studies, benchmark test results, and the structures, organization,
sequence, designs, formulas and algorithms which reside in such products and
which are not generally known to the public or within the industries or trades
in which Company competes.
1.2 Hardware. Any and all ideas, concepts, know-how, methods,
techniques, structures, information and materials relating to the design,
development, engineering, invention, patent, patent application, manufacture or
improvement of any and all computer, telecommunications, or electronic
equipment, components, devices, techniques, processes or formulas (including,
without limitation, mask works, semiconductor chips, processors, memories, disc
drives, tape heads, computer terminals, keyboards, storage devices, printers,
testers and optical character recognition devices) and any and all components,
devices, techniques or circuitry incorporated in any of the above which is or
are constructed, designed, improved, altered or used by Company and which is or
are not generally known to the public or within the industries or trades in
which Company competes.
1.3 Business Procedures. Internal business procedures and
business plans, including analytical methods and procedures, licensing
techniques, processes and equipment, technical and engineering data, vendor
names, other vendor information, purchasing information, financial information
(including Company fees and rates for services and other billing or collection
related information), service and operational manuals and documentation
therefor, ideas for new services and other such information which relates to the
way Company conducts its business and which is not generally known to the public
or within the industries or trades in which Company competes, except for those
management techniques and tools introduced by Executive to Company (which shall
be identified from time to time by letter from Executive to Company or
otherwise, subject to Company's approval thereof).
1.4 Marketing Plans and Clients Lists. Any and all client and
marketing information and materials, such as (a) strategic data, including
marketing and development plans, forecasts and forecast assumptions and volumes,
and future plans and potential strategies of Company which have been or are
being discussed; (b) financial data, including price and cost objectives, price
lists, pricing policies and procedures, and quoting policies and procedures; and
(c) client data, including client lists, names of existing, past or prospective
clients and their representatives, data provided by or about prospective,
existing or past clients, client service information and materials, data about
the terms, conditions and expiration dates of existing contracts with clients
and the type and quantity of services received by clients of Company.
1.5 Third Party Information. Any and all information and
materials in Company's possession or under its control from any other person or
entity which Company is obligated to treat as confidential or proprietary.
-17-
<PAGE> 18
Exhibit 2
(continued)
1.6 Not Generally Known. Any and all information not generally
known to the public or within the industries or trades in which Company
competes.
1.7 Exclusion. Excluded from Confidential Information are any
procedures introduced to the Company by Executive such as "Decision Mapping."
This exclusion shall not apply to procedures developed by Executive while an
employee of the Company.
2. General Skills and Knowledge. The general skills and experience
gained by Executive during Executive's employment with Company, and information
publicly available or generally known within the industries or trades in which
Company competes, are not Confidential Information.
-18-
<PAGE> 1
EXHIBIT 10.57
March 11, 1998
Mr. Francis S. (Kit) Webster III
ROSS Technology, Inc.
5316 Highway 290 West, Suite 500
Austin, Texas 78735
Re: Employment Letter Agreement
Dear Kit:
I am please to inform you that the Human Resources Committee of the
Board of Directors of the Company has approved the following amendment to your
employment letter agreement with the Company dated April 1, 1997:
1. In the event that you experience a termination without cause from
the Company, the Company agrees to pay your salary for a period of twelve months
(rather than six months as specified in the April 1, 1997 employment letter)
following the date of your termination. These amounts will not be subject to
offset or reduction for any amounts which you earn or could have earned during
the same period.
2. In the event of the occurrence of a Major Event (as defined in the
Company's Stock Option and Restricted Stock Purchase Plan 3.0, as amended) which
results in the Company ceasing to be a public company, then you may voluntarily
terminate your employment and receive the severance payments set forth in
paragraph 1. However, unless the Company otherwise agrees in writing, to be
eligible to voluntarily terminate your employment and receive severance
payments, you must wait at least thirty (30) days (but not more than ninety (90)
days) after the transaction is consummated before you voluntarily terminate your
employment.
3. In the event of the occurrence of a Major Event, any of the options
to purchase the Company's common stock which you have been granted under that
plan prior to the date of this letter shall immediately vest and become
exercisable in full.
I have enclosed two copies of this letter. If the foregoing amendment
to your April 1, 1997 employment letter agreement is acceptable to you, please
sign both copies of this letter and return one copy to me. Once you sign and
return this letter, your April 1, 1997 letter agreement, as amended by this
letter, will constitute the entire agreement between you and the Company
concerning the terms of your employment.
Very truly yours,
Jack W. Simpson
Chief Executive Officer and President
1
<PAGE> 2
I agree to the amendment to my April 1, 1997 letter agreement As set forth in
this letter.
- ----------------------------------
Francis S. (Kit) Webster III
- ----------------------------------
Date
2
<PAGE> 1
EXHIBIT 10.58
April 24, 1998
Mr. Frank A. Baffi
ROSS Technology, Inc.
5316 Highway 290 West, Suite 500
Austin, Texas 78735
Re: Employment Letter Agreement
Dear Frank:
I am please to inform you that the Human Resources Committee of the
Board of Directors of the Company has approved the following amendment to your
employment letter agreement with the Company dated April 12, 1997:
1. In the event of the occurrence of a Major Event (as defined in the
Company's Stock Option and Restricted Stock Purchase Plan 3.0, as amended) which
results in the Company ceasing to be a public company, then you may voluntarily
terminate your employment and receive the severance payments set forth in your
April 12, 1997 employment letter agreement, that you would receive if you had
been terminated by the Company without cause. However, unless the Company
otherwise agrees in writing, to be eligible to voluntarily terminate your
employment and receive severance payments and accelerated option vesting, you
must wait at least thirty (30) days (but not more than ninety (90) days) after
the transaction is consummated before you voluntarily terminate your employment.
2. For clarity, your severance payments will not be subject to offset
or reduction for any amounts which you earn or could have earned during the
severance payment period.
3. In the event of the occurrence of a Major Event, any of the options
to purchase the Company's common stock which you have been granted under that
plan prior to the date of this letter shall immediately vest and become
exercisable in full.
1
<PAGE> 2
I have enclosed two copies of this letter. If the foregoing amendment
to your April 12, 1997 employment letter agreement is acceptable to you, please
sign both copies of this letter and return one copy to me. Once you sign and
return this letter, your April 12, 1997 letter agreement, as amended by this
letter, will constitute the entire agreement between you and the Company
concerning the terms of your employment.
Very truly yours,
Jack W. Simpson
Chief Executive Officer and President
I agree to the amendment to my April 1, 1997 letter agreement As set forth in
this letter.
- ----------------------------------
Frank A. Baffi
- ----------------------------------
Date
2
<PAGE> 1
EXHIBIT 10.59
ROSS TECHNOLOGY, INC.
5316 HIGHWAY 290 WEST, SUITE 500
AUSTIN, TEXAS 78735
April 28, 1998
To: Eligible Employees of ROSS Technology, Inc., as described below
From: Jack W. Simpson, Sr.
Subject: ROSS Technology, Inc. Employee Retention and Severance Plan
ROSS Technology, Inc. has adopted the ROSS Technology, Inc. Employee
Retention and Severance Plan (the "Plan"). The provisions of the Plan, as they
apply to you if you are an Eligible Employee (as defined below), are as follows:
ARTICLE I
DEFINITIONS
I.1 DEFINITIONS
Whenever used in this Plan, the following capitalized terms shall have
the meanings set forth in this Section 1.1, certain other capitalized
terms being defined elsewhere in this Plan:
(a) "Board" means the Board of Directors of the Company.
(b) "Change of Control" shall mean the occurrence of any of the
following:
(i) Any "Person" or "Group" (as such terms are defined in
Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules and regulations promulgated thereunder), other than
Fujitsu Limited, is or becomes the "Beneficial Owner" (within the
meaning of Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company, or of any entity resulting from a merger
or consolidation involving the Company, representing substantially all
of the combined voting power of the then outstanding securities of the
Company or such entity.
(ii) The consummation of a sale, assignment, lease, conveyance
or other disposition of all or substantially all of the assets of the
Company, or, to the extent set forth in an Individual Letter, of all or
substantially all of the assets of the Viper design unit of the
Company, in one transaction or a series of related transactions, to any
Person other than the Company or a liquidating trust or similar entity,
or the consummation of a merger or consolidation having substantially
the same effect as such a sale, assignment, lease, conveyance or other
disposition.
(c) "Company" means ROSS Technology, Inc., a Delaware corporation,
and any successor or assignee as provided in Article V.
1
<PAGE> 2
(d) "Compensation" means and includes all of your base salary
attributable to your employment with the Company and/or any of
its Subsidiaries (including, but not limited to, any amounts
excludable from your gross income for federal income tax
purposes pursuant to Section 125 or Section 401(k) of the
Internal Revenue Code of 1986, as amended), in effect
immediately before the Change of Control, or, if there has
been no Change of Control, on the Effective Time.
"Compensation" shall not include your bonuses, commissions or
other cash or non-cash compensations or reimbursements, if any
(e.g., the grant or vesting of restricted stock, the grant,
vesting, or exercise of stock options, automobile allowance
and gasoline reimbursement).
(e) "Continuous Service" means your continuous employment with the
Company or any of its Subsidiaries. Periods during which you
are on paid or approved leave of absence or suffer from a
Disability shall be deemed to be periods of Continuous
Service.
(f) "Disability" means a physical or mental infirmity which
substantially impairs your ability to perform your material
duties for a period of at least one hundred eighty (180)
consecutive calendar days, and, as a result of such
Disability, you have not returned to your full-time regular
employment prior to termination.
(g) "Effective Time" means April 28, 1998.
(h) "Eligible Employee" means any employee of the Company or its
Subsidiaries designated as such by the Chief Executive Officer
or Human Resources Committee of the Company, and to whom the
Company sends an Individual Letter which has been accepted by
such employee.
(i) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(j) "Good Reason" means the occurrence, on or after the Effective
Time, of any of the following:
(i) The Company or any of its Subsidiaries
reduces your Compensation as in effect on
the Effective Time.
(ii) Without your express written consent, the
Company or any of its Subsidiaries requires
you to change the location of your job or
office, so that you will be based at a
location more than fifty (50) miles from the
location of your job or office on the
Effective Time.
(iii) A successor to the Company fails or refuses
to assume the obligations of the Company
under this Agreement.
(iv) The Company or any successor breaches any of
the material provisions of this Agreement
and fails to cure that breach within ten
days of written notice thereof.
(k) "Individual Letter" means a letter from the Company to an
Eligible Employee setting forth the amount of the Retention
Bonus (if any) and Severance Payment which may be payable to
such Eligible Employee under this Plan, and the terms and
conditions on which such Retention Bonus (if any) and
Severance Payment will be paid, subject to the terms and
conditions of this Plan.
(l) "Just Cause" means the termination of your employment as a
result of (i) fraud, misappropriation of or intentional and
material damage to the property or business of the Company
(including its Subsidiaries), (ii) conviction of a felony
involving moral turpitude, or (iii) material neglect, failure
or refusal to follow the reasonable directions of your
supervisors, to perform the duties reasonably assigned to you,
or to follow material Company policies, if you do not begin to
cure such neglect, failure or refusal within ten (10) days
after receiving written notice from the Company to do so.
2
<PAGE> 3
(m) "Person" shall have the meaning set forth in the definition of
"Change of Control."
(n) "Release Agreement" means the Separation and General Release
Agreement in the form attached hereto as Exhibit "A".
(o) "Retention Bonus" means a bonus payable under Article II.
(p) "Severance Payment" means the payment of severance
compensation as provided in Article III.
(q) "Subsidiary" means any corporation or other Person, a majority
of the voting power, equity securities or equity interest of
which is owned directly or indirectly by the Company.
(r) "WARN" means the Worker Adjustment and Retraining Notification
Act, 29 U.S.C.ss.2101 et seq.
-- ---
ARTICLE II
RETENTION BONUSES
The amount of any Retention Bonus you may be entitled to receive, and
the terms and conditions on which you may receive it, shall be set forth in your
Individual Letter. Such terms and conditions may include, among other things, a
requirement that you must be in Continuous Service from the Effective Time
through and including certain dates set forth in your Individual Letter to be
eligible to receive a Retention Bonus.
ARTICLE III
SEVERANCE PAYMENTS
3.1 RIGHT TO SEVERANCE PAYMENT; RELEASE
Conditioned on the execution and delivery by you (or your beneficiary
or personal representative, if applicable) of the Release Agreement, you shall
be entitled to receive a Severance Payment from the Company in the amount, and
on the terms and conditions, set forth in your Individual Letter. Such terms and
conditions may include, among other things, requirements that a Change of
Control must occur, and/or that your employment must be involuntarily terminated
by the Company or any of its Subsidiaries for any reason other than Just Cause
or your death or Disability, or by you voluntarily for Good Reason, for you to
be eligible to receive a Severance Payment. Notwithstanding the foregoing, and
except as set forth in your Individual Letter, you will not be entitled to
receive a Severance Payment to the extent you receive payments which the Company
or its Subsidiaries are required to make to you under WARN.
3.2 AMOUNT OF SEVERANCE PAYMENT
If you become entitled to a Severance Payment under this Plan, the
amount of your Severance Payment shall be as set forth in your Individual
Letter, and may be based upon your Compensation. Such Severance Payment may also
take into account, or make reference to, any payments which the Company or its
Subsidiaries are required to make to you under WARN.
3.3 NO MITIGATION
The Company acknowledges and agrees that you shall be entitled to
receive your entire Severance Payment regardless of any income which you may
receive from other sources following your termination on or after the Effective
Time.
3
<PAGE> 4
3.4 PAYMENT OF SEVERANCE PAYMENT
The Severance Payment to which you are entitled shall be paid to you,
in cash and in full, not later than eight (8) calendar days after execution and
delivery by you (or your beneficiary or personal representative, if applicable)
of the Release Agreement, but in no event before the date on which such Release
becomes effective. If you should die before all amounts payable to you have been
paid, such unpaid amounts shall be paid to your beneficiary under this Agreement
or, if you have not designated such a beneficiary in writing to the Company, to
the personal representative(s) of your estate.
3.5 WITHHOLDING OF TAXES
The Company may withhold from any amounts payable under this Plan all
federal, state, city or other taxes required by applicable law to be withheld by
the Company.
ARTICLE IV
OTHER RIGHTS AND BENEFITS NOT AFFECTED
4.1 OTHER BENEFITS
This Plan does not provide a pension for you, nor shall any payment
hereunder be characterized as deferred compensation. Except as set forth in
Section 4.2, neither the provisions of this Plan nor the Severance Payment
provided for hereunder shall reduce any amounts otherwise payable, or in any way
diminish your rights as an employee, whether existing now or hereafter, under
any written benefit, incentive, retirement, stock option, stock bonus or stock
purchase plan or any written employment agreement or other written plan or
arrangement not related to severance.
4.2 OTHER SEVERANCE PLANS SUPERSEDED
Upon your receipt and acceptance of your Individual Letter, and to the
extent required thereby, this Plan will supersede any and all other severance
plans of the Company or its Subsidiaries and severance agreements between you
and the Company and its Subsidiaries, and your participation in any other
severance plan of the Company and its Subsidiaries will be terminated.
4.3 EMPLOYMENT STATUS
This Plan does not constitute a contract of employment or, except as
set forth in your Individual Letter, impose on you any obligation to remain in
the employ of the Company, nor does it impose on the Company or any of its
Subsidiaries any obligation to retain you in your present or any other position,
nor does it change the status of your employment as an employee at will. Nothing
in this Plan shall in any way affect the right of the Company or any of its
Subsidiaries in its absolute discretion to change or reduce your compensation at
any time, or to change at any time one or more benefit plans, including but not
limited to pension plans, dental plans, health care plans, savings plans, bonus
plans, vacation pay plans, disability plans, and the like.
4
<PAGE> 5
ARTICLE V
SUCCESSOR TO COMPANY
The Company shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Plan, in the same manner and to the same extent that the Company would be
required to perform if no such succession or assignment had taken place. In such
event, the term "Company," as used in this Plan, shall mean (from and after, but
not before, the occurrence of such event) the Company as herein before defined
and any successor or assignee to the business or assets which by reason hereof
becomes bound by the terms and provisions of this Plan. The failure by any such
successor or assignee to assume such obligations shall not affect any
obligations of the Company existing under this Plan at the time of the
succession or assignment.
ARTICLE VI
CONFIDENTIALITY
6.1 NONDISCLOSURE OF CONFIDENTIAL MATERIAL
In the performance of your duties, you have previously had, and may in
the future have, access to confidential records and information, including, but
not limited to, development, marketing, purchasing, organizational, strategic,
financial, managerial, administrative, manufacturing, production, distribution
and sales information, data, specifications and processes presently owned or at
any time hereafter developed by the Company or its agents or consultants or used
presently or at any time hereafter in the course of its business, that are not
otherwise part of the public domain (collectively, the "Confidential Material").
All such Confidential Material is considered secret and has been and/or will be
disclosed to you in confidence. By your acceptance of your Severance Payment
under this Plan, you shall be deemed to have acknowledged that the Confidential
Material constitutes proprietary information of the Company which draws
independent economic value, actual or potential, from not being generally known
to the public or to other persons who could obtain economic value from its
disclosure or use, and that the Company has taken efforts reasonable under the
circumstances, of which this Section 6.1 is an example, to maintain its secrecy.
Except in the performance of your duties to the Company, you shall not, directly
or indirectly for any reason whatsoever, disclose or use any such Confidential
Material, except that the foregoing disclosure prohibition shall not apply as to
Confidential Material that (i) has been publicly disclosed or was within your
possession prior to its being furnished to you by the Company or becomes
available to you on a nonconfidential basis from a third party (in any of such
cases, not due to a breach by you of your obligations to the Company or by
breach of any other person of a confidential, fiduciary or confidential
obligation, the breach of which you know or reasonably should know), (ii) is
required to be disclosed by you pursuant to applicable law, and you provide
notice to the Company of such requirement as promptly as possible, or (iii) was
independently acquired or developed by you without violating any of the
obligations under this Plan and without relying on Confidential Material of the
Company. All records, files, drawings, documents, equipment and other tangible
items, wherever located, relating in any way to the Confidential Material or
otherwise to the Company's business, which you have prepared, used or
encountered or shall in the future prepare, use or encounter, shall be and
remain the Company's sole and exclusive property and shall be included in the
Confidential Material. Upon your termination of employment with the Company, or
whenever requested by the Company, you shall promptly deliver to the Company any
and all of the Confidential Material and copies thereof, not previously
delivered to the Company, that may be, or at any previous time has been, in your
possession or under your control.
5
<PAGE> 6
6.2 EQUITABLE RELIEF
By your acceptance of your Severance Payment under this Plan, you shall
be deemed to have acknowledged that violation of Section 6.1 would cause the
Company irreparable damage for which the Company cannot be reasonably
compensated in damages in an action at law, and that therefore in the event of
any breach by you of Section 6.1, the Company shall be entitled to make
application to a court of competent jurisdiction for equitable relief by way of
injunction or otherwise (without being required to post a bond). This provision
shall not, however, be construed as a waiver of any of the rights which the
Company may have for damages under this Plan or otherwise, and, except as
limited in Article VII, all of the Company's rights and remedies shall be
unrestricted.
ARTICLE VII
ARBITRATION
Except for equitable relief as provided in Section 6.2, arbitration in
accordance with the then most applicable rules of the American Arbitration
Association shall be the exclusive remedy for resolving any dispute or
controversy between you and the Company or any of its Subsidiaries, including,
but not limited to, any dispute regarding your employment or the termination of
your employment or any dispute regarding the application, interpretation or
validity of this Plan not otherwise resolved through the claims procedure set
forth in Section 8.9. The arbitrator shall be empowered to grant only such
relief as would be available in a court of law. In the event of any conflict
between this Plan and the rules of the American Arbitration Association, the
provisions of this Plan shall be determinative. If the parties are unable to
agree upon an arbitrator, they shall select a single arbitrator from a list of
seven arbitrators designated by the office of the American Arbitration
Association having responsibility for the city in which you primarily performed
services for the Company or its Subsidiaries immediately before your termination
of employment , all of whom shall be retired judges who are actively involved in
hearing private cases or members of the National Academy of Arbitrators, and
who, in either event, are residents of the area in which you primarily performed
services for the Company or its Subsidiaries immediately before your termination
of employment. If the parties are unable to agree upon an arbitrator from such
list, they shall each strike names alternatively from the list, with the first
to strike being determined by lot. After each party has used three strikes, the
remaining name on the list shall be the arbitrator. The Company shall bear and
pay, as incurred, the fees and expenses of the arbitrator and all other expenses
of the arbitration, including your attorneys fees and other expenses incurred by
you; provided, however, that if the arbitrator specifically finds that you have
not acted in good faith, you shall bear and pay all attorneys fees and other
expenses incurred by you, and one half (1/2) of the fees and expenses of the
arbitrator, and you shall promptly reimburse the Company for any such fees and
expenses theretofore paid by the Company which shall be borne by you under this
sentence. Unless mutually agreed otherwise by the parties, any arbitration shall
be conducted at a location within fifty (50) miles from the location in which
you primarily performed services for the Company or any of its Subsidiaries
immediately before your termination of employment. If the parties cannot agree
upon a location for the arbitration, the arbitrator shall determine the location
within such fifty (50) mile radius. Judgment may be entered on the award of the
arbitrator in any court having jurisdiction.
ARTICLE VIII
MISCELLANEOUS
8.1 APPLICABLE LAW
To the extent not preempted by the laws of the United States, the laws
of the State of Texas shall be the controlling law in all matters relating to
this Plan, regardless of the choice-of-law rules of the State of Texas or any
other jurisdiction.
6
<PAGE> 7
8.2 CONSTRUCTION
No term or provision of this Plan shall be construed so as to require
the commission of any act contrary to law, and wherever there is any conflict
between any provision of this Plan and any present or future statute, law,
ordinance, or regulation, the latter shall prevail, but in such event the
affected provision of this Plan shall be curtailed and limited only to the
extent necessary to bring such provision within the requirements of the law.
8.3 SEVERABILITY
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of this Plan and
this Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
8.4 HEADINGS
The Section headings in this Plan are inserted only as a matter of
convenience, and in no way define, limit, or extend or interpret the scope of
this Plan or of any particular Section.
8.5 ASSIGNABILITY
Your rights or interests under this Plan shall not be assignable or
transferrable (whether by pledge, grant of a security interest, or otherwise) by
you, your beneficiaries or legal representatives, except by will or by the laws
of descent and distribution.
8.6 TERM AND AMENDMENT
This Plan may be terminated or amended in any respect by resolution
adopted by the Board of Directors or an appropriate committee thereof, provided
no such termination or amendment shall adversely affect any Individual Letter
issued and accepted prior to the date of such termination or amendment. No
agreement or representations, written or oral, express or implied, with respect
to the subject matter hereof, have been made by the Company which are not
expressly set forth in this Plan or in your Individual Letter.
8.7 NOTICES
For purposes of this Plan, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered, telecopied, or sent by certified or overnight
mail, return receipt requested, postage prepaid, addressed to the respective
addresses, or sent to the respective telecopier numbers, last given by each
party to the other, provided that all notices to the Company shall be directed
to the attention of the Chief Executive Officer with a copy to the Chief
Financial Officer. All notices and communications shall be deemed to have been
received on the date of delivery thereof if personally delivered, upon return
confirmation if telecopied, on the third business day after the mailing thereof,
or on the date after sending by overnight mail, except that notice of change of
address shall be effective only upon actual receipt. No objection to the method
of delivery may be made if the written notice or other communication is actually
received.
8.8 ADMINISTRATION
This Plan constitutes a welfare benefit plan within the meaning of
Section 3(1) of ERISA. This letter constitutes the governing document of the
Plan. The Administrator of the Plan, within the meaning of Section 3(16) of
ERISA, and the Named Fiduciary thereof, within the meaning of Section 402 of
ERISA, is the Company. Attached hereto as Exhibit "B" is a statement of your
rights under ERISA.
7
<PAGE> 8
8.9 CLAIMS
If you believe you are entitled to a benefit under this Plan, you may
make a claim for such benefit by filing with the Company a written statement
setting forth the amount and type of payment so claimed. The statement shall
also set forth the facts supporting the claim. The claim may be filed by mailing
or delivering it to the Secretary of the Company.
Within sixty (60) calendar days after receipt of such a claim, the
Company shall notify you in writing of its action on such claim and if such
claim is not allowed in full, shall state the following in a manner calculated
to be understood by you:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent provisions of this Plan on
which the denial is based;
(c) A description of any additional material or information
necessary for you to be entitled to the benefits that have been denied
and an explanation of why such material or information is necessary;
and
(d) An explanation of this Plan's claim review procedure.
If you disagree with the action taken by the Company, you or your duly
authorized representative may apply to the Company for a review of such action.
Such application shall be made within one hundred twenty (120) calendar days
after receipt by you of the notice of the Company's action on your claim. The
application for review shall be filed in the same manner as the claim for
benefits. In connection with such review, you may inspect any documents or
records pertinent to the matter and may submit issues and comments in writing to
the Company. A decision by the Company shall be communicated to you within sixty
(60) calendar days after receipt of the application. The decision on review
shall be in writing and shall include specific reasons for the decision, written
in a manner calculated to be understood by you, and specific references to the
pertinent provisions of this Plan on which the decision is based.
Sincerely,
ROSS TECHNOLOGY, INC.
By:
----------------------------
Jack W. Simpson, Sr.
President and CEO
8
<PAGE> 1
EXHIBIT 10.60
[ROSS TECHNOLOGY LETTERHEAD]
May __, 1998
Mr. Jack W. Simpson, Sr.
ROSS Technology, Inc.
5316 Highway 290 West, Suite 500
Austin, Texas 78735
Re: Employee Retention and Severance Plan
Dear Jack:
Per our discussions, ROSS Technology, Inc. is pleased to offer you the
following benefits under its Employee Retention and Severance Plan. These
benefits supplement the benefits you have under your employment agreement with
the Company. This letter constitutes the "Individual Letter" referred to in the
Plan.
We have used some capitalized terms in this letter. Those terms have
the meanings set forth in the Plan. A copy of the Plan can be obtained from the
Human Resources Department.
You will be entitled to receive a Retention Bonus of $350,000 upon the
termination of your employment if you continue your employment with the Company
through December 31, 1998 (or such other earlier date as the Company may
otherwise terminate your employment without cause (as defined in your employment
agreement) or you earlier quit for Good Reason or pursuant to Section 7.5.4 of
your employment agreement). However, if your employment is terminated for cause,
you will not receive the Retention Bonus.
If you become entitled to receive the Retention Bonus described above,
the Company will also extend the period of time set forth in Section 7.5.3 of
your employment agreement during which the Company is required to fund the
annuity specified in Section 5.3 of that agreement from May 21, 1999 to November
21, 1999 by making two additional quarterly payments.
As a condition to receiving this Retention Bonus and the extended
funding of your annuity, you will have to sign a release on a form provided by
the Company, releasing any claims you may have against the Company. (You will,
of course, still receive any severance payments or other benefits to which you
may become entitled under your employment agreement as the result of the
termination of your employment.) A copy of the form of release is included with
this letter as Exhibit A. Because the Age Discrimination in Employment Act
applies to you, you will have twenty one days from the date you are presented
with the release to decide whether to sign it and payment of any sums due you
under this letter will occur eight days after you have executed the release and
delivered it to the Company (which is when the release will become effective as
to ADEA claims; the other waivers will be effective upon signing). This
Retention Bonus and the extended funding of your annuity will not be subject to
reduction for any amounts you receive under any subsequent employment.
Assuming that cause for termination of your employment under your
employment agreement does not otherwise exist, the Company has agreed that, if
it has begun shutdown, dissolution, liquidation or other similar proceedings, it
will terminate your employment without cause on or prior to December 31, 1998
(unless you otherwise agree to an extension), which will trigger Section 7.3 of
your employment agreement. The intention of this is to encourage you to remain
with the Company through these difficult times and to help maximize the value of
the Company and its assets. You agree that the shutdown, dissolution or
liquidation of the Company, by itself, will not constitute a termination of your
employment without cause, or permit you to resign either for Good Reason or
pursuant to Section 7.5.4 of your employment agreement.
1
<PAGE> 2
This Retention Bonus and the extended funding of your annuity are
subject to the terms and conditions of the Plan. This means, among other things,
that your receipt of the Retention Bonus and the extended funding of your
annuity is conditioned on your refraining from disclosing any confidential
material or information of the Company, and your compliance with any
confidentiality policies of the Company and with the terms of any
confidentiality agreements you have entered into with the Company. The Company
may sue you because you disclose, or to prevent your disclosure of, confidential
material or information.
The Plan is a welfare benefit plan within the meaning of the Federal
Employee Retirement Income Security Act of 1974 ("ERISA"). This letter
constitutes the Summary Plan Description required under ERISA. This letter
merely summarizes the detailed and technical provisions of the Plan. In the
event of a conflict between this letter and the Plan, the terms and provisions
of the Plan will control. You may obtain a copy of the Plan from the Human
Resources Department. Attached to this letter is an Exhibit B describing your
rights under ERISA. The Plan contains a claims procedure and an arbitration
provision.
Very truly yours,
-------------------------------
Fred T. May
Chairman of the Board
AGREED TO AND ACCEPTED:
- ------------------------
Name
- ------------------------
Date
2
<PAGE> 1
EXHIBIT 10.61
[ROSS TECHNOLOGY LETTERHEAD]
May __, 1998
Mr. Francis S. (Kit) Webster III
ROSS Technology, Inc.
5316 Highway 290 West, Suite 500
Austin, Texas 78735
Re: Employee Retention and Severance Plan
Dear Kit:
Per our discussions, ROSS Technology, Inc. is pleased to offer you the
following benefits under its Employee Retention and Severance Plan. These
benefits supplement the benefits you have under your employment letter agreement
with the Company. This letter constitutes the "Individual Letter" referred to in
the Plan.
We have used some capitalized terms in this letter. Those terms have
the meanings set forth in the Plan. A copy of the Plan can be obtained from the
Human Resources Department.
You will be entitled to receive a Retention Bonus of $185,000 upon the
termination of your employment if you continue your employment with the Company
through December 31, 1998 (or such other earlier date as the Company may
otherwise terminate your employment without Just Cause or you earlier quit for
Good Reason or pursuant to paragraph 2 of the March 11, 1998 amendment to your
employment agreement). However, if your employment is terminated for Just Cause,
you will not receive the Retention Bonus.
As a condition to receiving this Retention Bonus, you will have to sign
a release on a form provided by the Company, releasing any claims you may have
against the Company. (You will, of course, still receive any severance payments
to which you may become entitled under your employment letter agreement as the
result of the termination of your employment.) A copy of the form of release is
included with this letter as Exhibit A. Because the Age Discrimination in
Employment Act applies to you, you will have twenty one days from the date you
are presented with the release to decide whether to sign it and payment of any
sums due you under this letter will occur eight days after you have executed the
release and delivered it to the Company (which is when the release will become
effective as to ADEA claims; the other waivers will be effective upon signing).
This Retention Bonus will not be subject to reduction for any amounts you
receive under any subsequent employment.
Assuming that cause for termination of your employment under your
employment letter agreement does not otherwise exist, the Company has agreed
that, if it has begun shutdown, dissolution, liquidation or other similar
proceedings, it will terminate your employment without cause on or prior to
December 31, 1998 (unless you otherwise agree to an extension), which will
trigger your right to severance payments under your employment letter agreement.
The intention of this is to encourage you to remain with the Company through
these difficult times and to help maximize the value of the Company and its
assets. You agree that the shutdown, dissolution or liquidation of the Company,
by itself, will not constitute a termination of your employment without cause,
or permit you to resign for Good Reason or pursuant to paragraph 2 of the March
11, 1998 amendment to your employment agreement.
1
<PAGE> 2
This Retention Bonus is subject to the terms and conditions of the
Plan. This means, among other things, that your receipt of the Retention Bonus
is conditioned on your refraining from disclosing any confidential material or
information of the Company, and your compliance with any confidentiality
policies of the Company and with the terms of any confidentiality agreements you
have entered into with the Company. The Company may sue you because you
disclose, or to prevent your disclosure of, confidential material or
information.
The Plan is a welfare benefit plan within the meaning of the Federal
Employee Retirement Income Security Act of 1974 ("ERISA"). This letter
constitutes the Summary Plan Description required under ERISA. This letter
merely summarizes the detailed and technical provisions of the Plan. In the
event of a conflict between this letter and the Plan, the terms and provisions
of the Plan will control. You may obtain a copy of the Plan from the Human
Resources Department. Attached to this letter is an Exhibit B describing your
rights under ERISA. The Plan contains a claims procedure and an arbitration
provision.
Very truly yours,
---------------------------
Jack W. Simpson, Sr.
President and CEO
AGREED TO AND ACCEPTED:
- -------------------------
Name
- -------------------------
Date
2
<PAGE> 1
EXHIBIT 10.62
May 28, 1998
Mitch Alsup
ROSS Technology, Inc.
5316 Highway 290 West, Suite 500
Austin, Texas 78735
Re: Employee Retention and Severance Plan.
Dear Mitch:
As you know, ROSS recently announced that it is exploring various strategic
alternatives. We realize that the Company's current situation creates some
uncertainty, so we have developed an Employee Retention and Severance Plan to
provide you some security and incentive to continue your employment with the
Company, as well as with a potential successor to the Company or to the Viper
development design operations. You are a very valuable member of our team, and
we want you with us! The provisions of the Plan as they apply specifically to
you are summarized in this letter (which is the Individual Letter referred to in
the Plan). As with all compensation matters, your individual benefits under the
Plan are a private matter, and should not be discussed with other employees. Any
questions you may have should be discussed only with your immediate supervisor.
We have used some capitalized terms in this letter. Those terms have the
meanings set forth in the Plan. A copy of the Plan can be retrieved from the
Human Resources Department.
1. Initial Retention Bonus.
You will receive an initial Retention Bonus of $50,000. This payment is
contingent upon your agreement (as evidenced by your signature below)
to work at least until September 30, 1998 for the Company or any
successor to the Company after a Change of Control (which includes,
among other things, the sale of the Company as a whole or the sale of
the Viper development design operations). You will receive this initial
Retention Bonus within three days after you return a signed copy of
this letter to me.
1
<PAGE> 2
2. Additional Retention Bonus/Severance Payment In the Event of a
Change of Control.
(i) You will receive an additional combination
Retention Bonus/Severance Payment of $200,000 with $75,000
payable on July 31, 1998 and $125,000 payable on September 30,
1998 (which is in addition to any amounts that may be due to
you under the Federal Worker Adjustment and Retraining
Notification Act, if applicable) if there is a Change of
Control of the Company and the following conditions are
satisfied:
(a) you continue or accept, as applicable,
employment in Austin, Texas with the business that
will continue the operations of the Viper development
design team (which may be the Company or the
successor to the Company or the design team) at an
aggregate base salary and target bonus no less than
your current aggregate base salary and target bonus
with the Company;
(b) you remain Continuously Employed by the
Company or that successor, as applicable, from now
until September 30, 1998; and
(c) when your employment with the Company is
terminated, or on September 30, 1998, whichever is
earlier, you sign a release on a form provided by the
Company, releasing any claims you may have against
the Company. A copy of the form of release is
included with this letter as Exhibit A.
(i) The Company will waive some of the conditions set
forth in the prior paragraph under certain circumstances. This
will permit you to receive the Retention Bonus/Severance
Payments set forth in the prior paragraph as long as you
satisfy the remaining conditions.
(a) The Company will waive conditions (a)
and (b) in the prior paragraph if your employment is
not continued (other than for Just Cause) or you are
not offered employment in Austin, Texas by the
business that will continue the operations of the
Viper Development team, or if the job which continues
or which you are offered has an aggregate base salary
and target bonus less than your current aggregate
base salary and target bonus with the Company.
(b) The Company will waive condition (b) in
the prior paragraph if, subsequent to a Change of
Control, your employment is terminated without Just
Cause, if you quit for Good Reason prior to September
30, 1998, or if you die or become Disabled.
2
<PAGE> 3
(i) It is difficult to predict if or when a Change of
Control will occur. Accordingly, if a Change of Control has
not occurred by July 31, 1998 and/or September 30, 1998, you
will receive the Retention Bonus/Severance Payments payable on
those dates so long as (a) you are employed by the Company on
the applicable date and (b) a Change of Control transaction is
pending (i.e., an agreement has been signed which provides for
a Change of Control transaction.) When your employment is
subsequently terminated, or on September 30, 1998, whichever
is earlier, you still must sign the release described above or
you will have to refund these payments.
1. Alternative Retention Bonus/Severance Payment In the Event
a Change of Control Does Not Occur.
If a Change of Control of the Company does not occur or is not
pending on July 31, 1998, and you are Continuously Employed
with the Company through July 31, 1998, you will receive an
alternative Retention Bonus/Severance Payment of $200,000
(which is in addition to any amounts that may be due to you
under the Federal Worker Adjustment and Retraining
Notification Act, if applicable) upon the termination of your
employment without Just Cause or if you quit for Good Reason
(even if this occurs prior to July 31, 1998). You will also
need to sign the release mentioned above in order to receive
these payments.
Under these circumstances (and subject to executing the
release), you will also be entitled to a continuation of your
health benefits under the Company's medical and dental plans.
Until July 31, 1999, the Company will pay for your health
benefits coverage to the same extent as it has done up until
now, and you will be required to make the same payments you
have been making up until now. To be eligible for continued
health benefits coverage, you may be required to make a COBRA
election, even though the Company will be paying for all or
part of your health benefits coverage as just described. Your
health benefits coverage will cease, however, when you become
covered under any group health plan maintained by another
employer. If the Company is unable to provide you with
continuing health coverage, the Company will pay you the cash
value of such coverage through July 31, 1999. This amount will
be determined by the Company.
3
<PAGE> 4
2. Timing of Payments and Related Matters.
(i) Payments that are conditioned upon receipt in
advance of a release will not be made until the later of the
date that the release you sign becomes legally effective or
the date specified in this letter for that payment (see
paragraphs 2 and 3). If the Age Discrimination in Employment
Act applies to you (that is, if you are at least forty years
old), you will have twenty one days from the date you are
presented with the release to decide whether to sign it and
payment will occur eight days after you have executed the
release and delivered it to the Company. If the ADEA does not
apply to you, your release will be effective when you sign and
deliver the release to the Company and payment will be made at
that time.
(ii) We cannot predict when or if a Change of Control
will occur, or whether other circumstances may arise that
could permit or require a Retention Bonus/Severance Payment to
be due you earlier than the specified dates set forth in this
letter (for example, September 30, 1998 under paragraph 2 and
July 31, 1998 under paragraph 3). Thus, if the ADEA applies to
you, we cannot tell you under all circumstances the date you
will need to be presented a release to permit you to receive
any required payments on a particular date. As an example,
though, let's go through a few base cases:
(a) Let's assume a Change of Control has
occurred, you have continued your employment and we
know you will be entitled to receive a payment on
September 30, 1998 under paragraph 2, above. To get
that payment, you need to execute a release and have
the release become effective. As described above, if
the ADEA applies to you, you will have twenty one
days to decide whether to sign the release and it
will take seven days to become effective. If you
wanted to take the full twenty one days to decide
whether to sign the release and the seven day delay
on effectiveness was applicable, under those
circumstances, we would have to present you with the
release no later than September 2 so that a payment
could be made on September 30.
(b) Now let's assume everything is the same
as in clause (a), but we are unable to present you
with the release until September 30 (for example,
because we don't know until then that you will become
entitled to the payment). Now, if you sign the
release on September 30 and the seven day delay on
effectiveness is not applicable to you, you can still
get your payment on September 30; if the seven day
delay on effectiveness applies, you would get your
payment on October 8. If you wait to sign the release
(remember, if the ADEA applies to you, you have
twenty one days to decide whether to sign it), add
one additional day until payment can be made for each
day you wait until you sign.
4
<PAGE> 5
(c) Finally, let's assume there has been no
Change of Control, you have continued your employment
and we know you will be entitled to receive a payment
on July 31, 1998 under paragraph 3, above. Everything
about the analysis is the same as in clause (a) and
(b), except change the dates and use July 31, 1998 as
the base for the calculations.
(i) None of the payments under this letter will be
reduced by any payments you may otherwise receive pursuant to
other employment. Severance Payments will supersede any other
severance payments you may otherwise be entitled to receive
from the Company under any other severance plan or policy.
1. Honoring This Letter.
If there is a Change of Control and you are offered employment
in Austin, Texas by the business that will continue the
operations of the Viper development design team (which may be
the Company or the successor to the Company or the design
team) at an aggregate base salary and target bonus no less
than your current aggregate base salary and target bonus with
the Company, and you do not accept that position or you fail
to remain Continuously Employed by the Company or such
successor, as applicable, until September 30, 1998 (other than
because you are terminated without Just Cause or quit for Good
Reason), you must refund any Retention Bonuses or Severance
Payments you received under any paragraph of this letter. You
must also refund any Retention Bonuses/Severance Payments you
receive pursuant to paragraph 2(iii) if you do not
subsequently execute the required release.
2. Confidential Material.
Your receipt of Retention Bonuses or a Severance Payment is
conditioned on your refraining from disclosing any
confidential material or information of the Company. The
Company may sue you because you disclose, or to prevent your
disclosure of, confidential material or information.
5
<PAGE> 6
3. Summary Plan Description; ERISA Rights; Miscellaneous Provisions.
The Plan is a welfare benefit plan within the meaning of the
Federal Employee Retirement Income Security Act of 1974
("ERISA"). This letter constitutes the Summary Plan
Description required under ERISA. This letter merely
summarizes the detailed and technical provisions of the Plan.
In the event of a conflict between this letter and the Plan,
the terms and provisions of the Plan will control. You may
obtain a copy of the Plan from the Human Resources Department.
Attached to this letter is an Exhibit B describing your rights
under ERISA. The Plan contains a claims procedure and an
arbitration provision.
Very truly yours,
------------------------
Jack W. Simpson, Sr.
President and CEO
AGREED TO AND ACCEPTED:
- ---------------------------
Name
- ---------------------------
Date
6
<PAGE> 1
EXHIBIT 10.63
May 28, 1998
Trevor Smith
ROSS Technology, Inc.
5316 Highway 290 West, Suite 500
Austin, Texas 78735
Re: Employee Retention and Severance Plan.
Dear Trevor:
As you know, ROSS recently announced that it is exploring various strategic
alternatives. We realize that the Company's current situation creates some
uncertainty, so we have developed an Employee Retention and Severance Plan to
provide you some security and incentive to continue your employment with the
Company, as well as with a potential successor to the Company or to the Viper
development design operations. You are a very valuable member of our team, and
we want you with us! The provisions of the Plan as they apply specifically to
you are summarized in this letter (which is the Individual Letter referred to in
the Plan). As with all compensation matters, your individual benefits under the
Plan are a private matter, and should not be discussed with other employees. Any
questions you may have should be discussed only with your immediate supervisor.
We have used some capitalized terms in this letter. Those terms have the
meanings set forth in the Plan. A copy of the Plan can be retrieved from the
Human Resources Department.
1. Initial Retention Bonus.
You will receive an initial Retention Bonus of $50,000. This payment is
contingent upon your agreement (as evidenced by your signature below)
to work at least until September 30, 1998 for the Company or any
successor to the Company after a Change of Control (which includes,
among other things, the sale of the Company as a whole or the sale of
the Viper development design operations). You will receive this initial
Retention Bonus within three days after you return a signed copy of
this letter to me.
1
<PAGE> 2
2. Additional Retention Bonus/Severance Payment In the Event of a
Change of Control.
(i) You will receive an additional combination Retention
Bonus/Severance Payment of $200,000 with $75,000 payable on July 31,
1998 and $125,000 payable on September 30, 1998 (which is in addition
to any amounts that may be due to you under the Federal Worker
Adjustment and Retraining Notification Act, if applicable) if there is
a Change of Control of the Company and the following conditions are
satisfied:
(a) you continue or accept, as applicable, employment
in Austin, Texas with the business that will continue the
operations of the Viper development design team (which may be
the Company or the successor to the Company or the design
team) at an aggregate base salary and target bonus no less
than your current aggregate base salary and target bonus with
the Company;
(b) you remain Continuously Employed by the Company
or that successor, as applicable, from now until September 30,
1998; and
(c) when your employment with the Company is
terminated, or on September 30, 1998, whichever is earlier,
you sign a release on a form provided by the Company,
releasing any claims you may have against the Company. A copy
of the form of release is included with this letter as Exhibit
A.
(i) The Company will waive some of the conditions set forth in
the prior paragraph under certain circumstances. This will permit you
to receive the Retention Bonus/Severance Payments set forth in the
prior paragraph as long as you satisfy the remaining conditions.
(a) The Company will waive conditions (a) and (b) in
the prior paragraph if your employment is not continued (other
than for Just Cause) or you are not offered employment in
Austin, Texas by the business that will continue the
operations of the Viper Development team, or if the job which
continues or which you are offered has an aggregate base
salary and target bonus less than your current aggregate base
salary and target bonus with the Company.
(b) The Company will waive condition (b) in the prior
paragraph if, subsequent to a Change of Control, your
employment is terminated without Just Cause, if you quit for
Good Reason prior to September 30, 1998, or if you die or
become Disabled.
2
<PAGE> 3
(i) It is difficult to predict if or when a Change of Control
will occur. Accordingly, if a Change of Control has not occurred by
July 31, 1998 and/or September 30, 1998, you will receive the Retention
Bonus/Severance Payments payable on those dates so long as (a) you are
employed by the Company on the applicable date and (b) a Change of
Control transaction is pending (i.e., an agreement has been signed
which provides for a Change of Control transaction.) When your
employment is subsequently terminated, or on September 30, 1998,
whichever is earlier, you still must sign the release described above
or you will have to refund these payments.
1. Alternative Retention Bonus/Severance Payment In the Event a Change
of Control Does Not Occur.
If a Change of Control of the Company does not occur or is not pending
on July 31, 1998, and you are Continuously Employed with the Company
through July 31, 1998, you will receive an alternative Retention
Bonus/Severance Payment of $200,000 (which is in addition to any
amounts that may be due to you under the Federal Worker Adjustment and
Retraining Notification Act, if applicable) upon the termination of
your employment without Just Cause or if you quit for Good Reason (even
if this occurs prior to July 31, 1998). You will also need to sign the
release mentioned above in order to receive these payments.
Under these circumstances (and subject to executing the release), you
will also be entitled to a continuation of your health benefits under
the Company's medical and dental plans. Until July 31, 1999, the
Company will pay for your health benefits coverage to the same extent
as it has done up until now, and you will be required to make the same
payments you have been making up until now. To be eligible for
continued health benefits coverage, you may be required to make a COBRA
election, even though the Company will be paying for all or part of
your health benefits coverage as just described. Your health benefits
coverage will cease, however, when you become covered under any group
health plan maintained by another employer. If the Company is unable to
provide you with continuing health coverage, the Company will pay you
the cash value of such coverage through July 31, 1999. This amount will
be determined by the Company.
3
<PAGE> 4
2. Timing of Payments and Related Matters.
(i) Payments that are conditioned upon receipt in advance of a
release will not be made until the later of the date that the release
you sign becomes legally effective or the date specified in this letter
for that payment (see paragraphs 2 and 3). If the Age Discrimination in
Employment Act applies to you (that is, if you are at least forty years
old), you will have twenty one days from the date you are presented
with the release to decide whether to sign it and payment will occur
eight days after you have executed the release and delivered it to the
Company. If the ADEA does not apply to you, your release will be
effective when you sign and deliver the release to the Company and
payment will be made at that time.
(ii) We cannot predict when or if a Change of Control will
occur, or whether other circumstances may arise that could permit or
require a Retention Bonus/Severance Payment to be due you earlier than
the specified dates set forth in this letter (for example, September
30, 1998 under paragraph 2 and July 31, 1998 under paragraph 3). Thus,
if the ADEA applies to you, we cannot tell you under all circumstances
the date you will need to be presented a release to permit you to
receive any required payments on a particular date. As an example,
though, let's go through a few base cases:
(a) Let's assume a Change of Control has occurred,
you have continued your employment and we know you will be
entitled to receive a payment on September 30, 1998 under
paragraph 2, above. To get that payment, you need to execute a
release and have the release become effective. As described
above, if the ADEA applies to you, you will have twenty one
days to decide whether to sign the release and it will take
seven days to become effective. If you wanted to take the full
twenty one days to decide whether to sign the release and the
seven day delay on effectiveness was applicable, under those
circumstances, we would have to present you with the release
no later than September 2 so that a payment could be made on
September 30.
(b) Now let's assume everything is the same as in
clause (a), but we are unable to present you with the release
until September 30 (for example, because we don't know until
then that you will become entitled to the payment). Now, if
you sign the release on September 30 and the seven day delay
on effectiveness is not applicable to you, you can still get
your payment on September 30; if the seven day delay on
effectiveness applies, you would get your payment on October
8. If you wait to sign the release (remember, if the ADEA
applies to you, you have twenty one days to decide whether to
sign it), add one additional day until payment can be made for
each day you wait until you sign.
4
<PAGE> 5
(c) Finally, let's assume there has been no Change of
Control, you have continued your employment and we know you
will be entitled to receive a payment on July 31, 1998 under
paragraph 3, above. Everything about the analysis is the same
as in clause (a) and (b), except change the dates and use July
31, 1998 as the base for the calculations.
(i) None of the payments under this letter will be reduced by
any payments you may otherwise receive pursuant to other employment.
Severance Payments will supersede any other severance payments you may
otherwise be entitled to receive from the Company under any other
severance plan or policy.
1. Honoring This Letter.
If there is a Change of Control and you are offered employment in
Austin, Texas by the business that will continue the operations of the
Viper development design team (which may be the Company or the
successor to the Company or the design team) at an aggregate base
salary and target bonus no less than your current aggregate base salary
and target bonus with the Company, and you do not accept that position
or you fail to remain Continuously Employed by the Company or such
successor, as applicable, until September 30, 1998 (other than because
you are terminated without Just Cause or quit for Good Reason), you
must refund any Retention Bonuses or Severance Payments you received
under any paragraph of this letter. You must also refund any Retention
Bonuses/Severance Payments you receive pursuant to paragraph 2(iii) if
you do not subsequently execute the required release.
2. Confidential Material.
Your receipt of Retention Bonuses or a Severance Payment is conditioned
on your refraining from disclosing any confidential material or
information of the Company. The Company may sue you because you
disclose, or to prevent your disclosure of, confidential material or
information.
5
<PAGE> 6
3. Summary Plan Description; ERISA Rights; Miscellaneous Provisions.
The Plan is a welfare benefit plan within the meaning of the Federal
Employee Retirement Income Security Act of 1974 ("ERISA"). This letter
constitutes the Summary Plan Description required under ERISA. This
letter merely summarizes the detailed and technical provisions of the
Plan. In the event of a conflict between this letter and the Plan, the
terms and provisions of the Plan will control. You may obtain a copy of
the Plan from the Human Resources Department. Attached to this letter
is an Exhibit B describing your rights under ERISA. The Plan contains a
claims procedure and an arbitration provision.
Very truly yours,
---------------------------
Jack W. Simpson, Sr.
President and CEO
AGREED TO AND ACCEPTED:
- -------------------------
Name
- -------------------------
Date
6
<PAGE> 1
EXHIBIT 10.64
June 1, 1998
Joe Jones
Ross Technology, Inc.
5316 Highway 290 West
Austin, Texas 78735
Re: Employee Retention and Severance Plan
Dear Joe:
As you know, ROSS recently announced that it is exploring various strategic
alternatives. Due to the Company's deteriorating financial position, the Company
has determined that it will commence an orderly shutdown of all of its
operations, commencing immediately. We realize that the Company's current
situation creates some uncertainty, so we have developed an Employee Retention
and Severance Plan to provide you some security and incentive to continue your
employment with the Company, as well as with a potential successor to the
Company or to the Company's manufacturing operations. You are a very valuable
member of our team, and we want you with us! The provisions of the Plan as they
apply specifically to you are summarized in this letter (which is the Individual
Letter referred to in the Plan). As with all compensation matters, your
individual benefits under the Plan are a private matter, and should not be
discussed with other employees. Any questions you may have should be discussed
only with your immediate supervisor.
We have used some capitalized terms in this letter. Those terms have the
meanings set forth in the Plan. A copy of the Plan can be retrieved from the
Human Resources Department.
1. Eligibility for Severance Payment - General.
Subject to paragraph 2, you will become eligible to receive the
Severance Payments set forth in this letter if you meet the following
conditions:
(a) You continue your employment with the Company through
December 31, 1998 (or such earlier date as the Company may otherwise
specify in writing), unless you earlier quit for Good Reason or are
earlier terminated without Just Cause; and
(b) Upon your termination of employment, you sign a release on
a form provided by the Company, releasing any claims you
may have against the Company. A copy of the form of
release is included with this letter as Exhibit A.
However, the Company reserves the right to terminate your employment
for any reason. If your employment is terminated for Just Cause, you
will not be eligible to receive a Severance Payment.
1
<PAGE> 2
1. Eligibility for Severance Payment if there is a Change of Control.
As you know, the Company is actively seeking a buyer for the entire
Company, as well as various portions of its operations, including its
manufacturing operations. Your eligibility to receive a Severance
Payment pursuant to this Individual Letter and the Employee Retention
and Severance Plan may be affected by whether there is a Change of
Control or a sale of the Company's manufacturing operations.
(a) If a Change of Control occurs because of the Company sells
substantially all of its assets, or the Company sells substantially all
of the assets related to its manufacturing operations, and the buyer of
those assets offers you a "substantially similar job" (see clause (d),
below), you will not be eligible to receive a Severance Payment. You
will also not be eligible to receive a Severance Payment if you accept
a job with the buyer, whether or not it is a substantially similar job.
If you accept a job with the buyer, you will thereafter be subject to
all of its policies and plans, including any severance plans it may
have.
(b) If a Change of Control occurs because a buyer acquires the
Company's stock (regardless of the form of the transaction), and
thereafter, on or before March 31, 1999, the Company lays you off or
fires you without Just Cause, or you quit for Good Reason, then you
will still be eligible to receive a Severance Payment pursuant to the
other terms and conditions of this Individual Letter and the Employee
Retention and Severance Plan (including the requirement that you sign a
release).
(c) If a Change of Control occurs because a buyer acquires the
Company's stock (regardless of the form of the transaction), and you
remain Continuously Employed with the Company past March 31, 1999, then
you will not be eligible to receive a Severance Payment under this
Individual Letter and Retention and Severance Plan. You will thereafter
be subject to the Company's general severance policy as in effect from
time to time.
(d) A "substantially similar job" is defined as a job that (1)
has substantially the same responsibilities and duties as you currently
have or which you have at the time the Change of Control or asset sale
occurs and (2) offers you substantially the same Compensation. The
Compensation offered will be "substantially the same" if it is at least
95% of your Compensation at the time of the offer.
2
<PAGE> 3
1. Amount of Severance Payment.
If you become entitled to receive a Severance Payment, you will receive
a Severance Payment of $140,000 . This presumes all BridgePoint
personnel will be given at least 60 days advance notice of termination.
2. Payment of the Severance Payment.
If you become entitled to receive a Severance Payment, you will receive
it in one lump sum cash payment when the release you sign becomes
legally effective. If the Age Discrimination in Employment Act applies
to you (that is, if you are at least forty years old), you will have
twenty one days from the date you are presented with the release to
decide whether to sign it and payment will occur eight days after you
have executed the release and delivered it to the Company. If the ADEA
does not apply to you, your release will be effective when you sign and
deliver the release to the Company and payment will be made at that
time. This payment will not be reduced by any payments you may
otherwise receive pursuant to other employment. In addition, this
Severance Payment will supersede any other severance payments you may
otherwise be entitled to receive from the Company under any other
severance plan or policy.
3. Outplacement Services.
You will also be eligible to participate in an outplacement plan
consisting of a three-month reemployment skills consulting and training
service to be provided by a career consulting firm. This service is
designed to assist you in developing job search objectives, networking
skills and a professionally prepared resume.
4. Confidential Material.
Your receipt of a Severance Payment is conditioned on your refraining
from disclosing any confidential material or information of the
Company, and your compliance with any confidentiality policies of the
Company and with the terms of any confidentiality agreements you have
entered into with the Company. The Company may sue you because you
disclose, or to prevent your disclosure of, confidential material or
information.
3
<PAGE> 4
5. Summary Plan Description; ERISA Rights; Miscellaneous Provisions.
The Plan is a welfare benefit plan within the meaning of the Federal
Employee Retirement Income Security Act of 1974 ("ERISA"). This letter
constitutes the Summary Plan Description required under ERISA. This
letter merely summarizes the detailed and technical provisions of the
Plan. In the event of a conflict between this letter and the Plan, the
terms and provisions of the Plan will control. You may obtain a copy of
the Plan from the Human Resources Department. Attached to this letter
is an Exhibit B describing your rights under ERISA. The Plan contains a
claims procedure and an arbitration provision.
Very truly yours,
-------------------------
Jack W. Simpson, Sr.
President and CEO
AGREED TO AND ACCEPTED:
- --------------------------
Name
- --------------------------
Date
4
<PAGE> 1
EXHIBIT 10.65
June 1, 1998
Carter Godwin
Ross Technology, Inc.
5316 Highway 290 West
Austin, Texas 78735
Re: Employee Retention and Severance Plan
Dear Carter:
As you know, ROSS recently announced that it is exploring various strategic
alternatives for the Company. Due to the Company's deteriorating financial
position, the Company has determined that it will commence an orderly shutdown
of all of its operations, commencing immediately. We realize that the Company's
current situation creates some uncertainty, so we have developed an Employee
Retention and Severance Plan to provide you some security and incentive to
continue your employment with the Company, as well as with a potential successor
to the Company or to the Company's manufacturing operations. The provisions of
the Plan as they apply specifically to you are summarized in this letter (which
is the Individual Letter referred to in the Plan). As with all compensation
matters, your individual benefits under the Plan are a private matter, and
should not be discussed with other employees. Any questions you may have should
be discussed only with your immediate supervisor.
We have used some capitalized terms in this letter. Those terms have the
meanings set forth in the Plan. A copy of the Plan can be retrieved from the
Human Resources Department.
1. Eligibility for Severance Payment.
You will become eligible to receive the Severance Payment set forth in
this letter if you meet the following conditions:
(a) You continue your employment with the Company through December
31, 1998 (or such earlier date as the Company may otherwise
specify in writing), unless you earlier quit for Good Reason
or are terminated without Just Cause; and
(b) Upon your termination of employment, you sign a release on a
form provided by the Company, releasing any claims you may
have against the Company. A copy of the form of release is
included with this letter as Exhibit A.
However, the Company reserves the right to terminate your employment
for any reason. If your employment is terminated for Just Cause, you
will not be eligible to receive a Severance Payment.
1
<PAGE> 2
1. Amount of Severance Payment.
If you become entitled to receive a Severance Payment, you will receive
a Severance Payment of $98,977.
2. Payment of the Severance Payment.
If you become entitled to receive a Severance Payment, you will receive
it in one lump sum cash payment when the release you sign becomes
legally effective. If the Age Discrimination in Employment Act applies
to you (that is, if you are at least forty years old), you will have
twenty one days from the date you are presented with the release to
decide whether to sign it and payment will occur eight days after you
have executed the release and delivered it to the Company. If the ADEA
does not apply to you, your release will be effective when you sign and
deliver the release to the Company and payment will be made at that
time. This payment will not be reduced by any payments you may
otherwise receive pursuant to other employment. In addition, this
Severance Payment will supersede any other severance payments you may
otherwise be entitled to receive from the Company under any other
severance plan or policy.
3. Outplacement Services.
You will also be eligible to participate in an outplacement plan
consisting of a two-month reemployment skills consulting and training
service to be provided by a career consulting firm. This service is
designed to assist you in developing job search objectives, networking
skills and a professionally prepared resume.
4. Confidential Material.
Your receipt of a Severance Payment is conditioned on your refraining
from disclosing any confidential material or information of the
Company, and your compliance with any confidentiality policies of the
Company and with the terms of any confidentiality agreements you have
entered into with the Company. The Company may sue you because you
disclose, or to prevent your disclosure of, confidential material or
information.
2
<PAGE> 3
5. Summary Plan Description; ERISA Rights; Miscellaneous Provisions.
The Plan is a welfare benefit plan within the meaning of the Federal
Employee Retirement Income Security Act of 1974 ("ERISA"). This letter
constitutes the Summary Plan Description required under ERISA. This
letter merely summarizes the detailed and technical provisions of the
Plan. In the event of a conflict between this letter and the Plan, the
terms and provisions of the Plan will control. You may obtain a copy of
the Plan from the Human Resources Department. Attached to this letter
is an Exhibit B describing your rights under ERISA. The Plan contains a
claims procedure and an arbitration provision.
Very truly yours,
---------------------------------
Jack W. Simpson, Sr.
President and CEO
AGREED TO AND ACCEPTED:
- --------------------------
Name
- --------------------------
Date
3
<PAGE> 1
EXHIBIT 10.66
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.
VIPER AMENDMENT AGREEMENT
This agreement ("Agreement"), dated as of March 30, 1998, is entered
into by and between FUJITSU LIMITED, a Japanese Corporation ("Fujitsu"), and
ROSS TECHNOLOGY, INC., a Delaware corporation (the "Company").
RECITALS
A. Fujitsu and the Company are parties to a Development Agreement,
dated as of June 25, 1997, as amended by agreements dated September 29, 1997
(the "First Amendment") and December 26, 1997 (the "Second Amendment") (as so
amended, the "Development Agreement"), pursuant to which the Company has agreed
to develop a microprocessor known as the Viper (the "Viper"). Defined terms used
herein without definition have the respective meanings set forth in the
Development Agreement.
B. Pursuant to the Development Agreement, the Company has agreed to
deliver to Fujitsu certain Deliverables on the schedule attached to the
Development Agreement as Exhibit A, including, without limitation, to deliver to
Fujitsu Schematics in conformity with Milestone #4 of Exhibit B of the
Development Agreement (the "Subject Deliverable") on December 15, 1997.
C. The Company has delivered to Fujitsu the Subject Deliverable but the
Subject Deliverable is not in full conformity with Milestone #4 (as amended and
restated as Appendix 2 of the Second Amendment). Nonetheless, Fujitsu is willing
to accept the non-conforming deliverable attached hereto as Appendix 1 (the
"Alternate Deliverable"), provided that the Company agrees that (1) Milestone #4
of Exhibit B (Schematics) of the Development Agreement shall be amended and
restated as Appendix 2 hereto and, as restated, will provide for a separate
Milestone #4-1 and Milestone #4-2, (2) the acceptance of the Alternate
Deliverable shall satisfy the Company's obligations only as to Milestone #4-1
(and shall not affect the Company's obligations as to Milestone #4-2) and (3)
the acceptance of the Alternate Deliverable shall not affect the Company's
continuing obligations to develop Viper in accordance with the Specifications,
and otherwise on the terms and conditions, set forth in the Development
Agreement.
<PAGE> 2
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Amendment of Milestone #4 (SCHEMATICS). Milestone #4 of Exhibit B to
the Development Agreement (pages 7/22, 8/22 and 9/22) is hereby amended and
restated in its entirety as Appendix 2. Exhibit A of the Development Agreement
is hereby amended to provide that the payment of $4,500,000 with respect to
Milestone #4 shall, pursuant to this Agreement, be due $3,000,000 upon
acceptance of Milestone #4-1 and $1,500,000 upon acceptance of Milestone #4-2.
2. Delivery and Acceptance of Alternate Deliverable. The Company hereby
delivers the Alternate Deliverable to Fujitsu for acceptance. Subject to and
upon the terms and conditions of this Agreement, Fujitsu hereby accepts the
Alternate Deliverable, effective as of March 19, 1998, in full satisfaction of
the Company's obligations with respect to Milestone #4-1 of Exhibit B of the
Development Agreement, as restated hereby.
3. Limited Nature of Acceptance. The acceptance of the Alternate
Deliverable by Fujitsu shall not be deemed to modify in any respect the
performance specifications set forth in the Development Agreement (without
limitation, SPECint95 = 42 and SPECfp95 = 50) or the obligations of the Company
under the Development Agreement.
4. Payment Terms. Fujitsu will make payment to the Company of
$3,000,000 for the Alternate Deliverable, as provided in Section 4.1(a) of the
Development Agreement, by April 20, 1998. The Company confirms that no other
amounts are due or payable by Fujitsu to the Company at the present time under
the Agreement. Fujitsu agrees that such payment shall be deemed fully earned
upon the effectiveness of this Agreement and shall be non-refundable; provided,
however, that the Company agrees that nothing herein, or in the First Amendment
or Second Amendment, shall limit the accrual of late delivery penalties through
the date of Fujitsu's acceptance as provided in Section 6.2 of the Development
Agreement, and for such purposes the parties agree that Milestone #4-1
Deliverable was delivered 94 days late.
5. Representations and Warranties. Each party hereby represents and
warrants to the other that the execution and delivery by such party of this
Agreement have been duly authorized by all necessary corporate and other action
and do not and will not require any consent or approval of, notice to or action
by, any person (including any governmental agency) in order to be effective and
enforceable. The Development Agreement, as amended by this Agreement,
<PAGE> 3
constitutes the legal, valid and binding obligation of such party, enforceable
against it in accordance with its terms, without defense or counterclaim.
6. Reservation of Rights. The Company acknowledges and agrees
that neither Fujitsu's forbearance in exercising its rights in connection with
the delivery of the Alternate Deliverable nor the execution by Fujitsu of this
Agreement shall be deemed (i) to create a course of dealing or otherwise
obligate Fujitsu to forbear or execute a similar agreement under the same or
similar circumstances in the future, or (ii) to waive, relinquish or impair any
right of Fujitsu to future performance by the Company of the Development
Agreement strictly in accordance with its terms.
7. Miscellaneous.
(a) This Agreement contains the entire and exclusive agreement
and understanding between the parties with respect to its subject matter. Except
as herein expressly amended, all terms and conditions of the Development
Agreement are and shall remain in full force and effect. All references to the
Development Agreement shall henceforth refer to the Development Agreement as
amended hereby. There are no oral or other agreements of any kind or nature with
respect to the obligations of the parties under the Development Agreement, which
remains the sole and complete embodiment of the parties' understandings.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns. No third
party beneficiaries are intended in connection with this Agreement.
(c) This Agreement shall be governed by and construed in
accordance with the law of the State of California (without regard to principles
of conflicts of laws).
(d) This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
ROSS TECHNOLOGY, INC.
By: /s/ Trevor S. Smith
------------------------------------------
Title: V.P. of Engineering
---------------------------------------
FUJITSU LIMITED
Hatsuo Murano for
By: /s/ Yoshiro Yoshioka
------------------------------------------
Title: Group President, Computer System Group
---------------------------------------
**
<PAGE> 1
EXHIBIT 11
Ross Technology,Inc.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
The following reconciliation details the numerator and denominator used to
calculate basic and diluted earnings (loss) per share for the years ended March
30, 1998, March 31, 1997 and April 1, 1996:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 30, March 31, April 1,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) (38,271) (86,705) 18,160
Dividends related to preferred stock - - (832)
--------- ---------- ----------
Net income (loss) applicable to common
shareholders (38,271) (86,705) 17,328
Shares used in basic earnings (loss) per share
computations 23,450 23,396 14,067
Shares used in diluted earnings (loss) per share
computations 23,450 23,396 21,033
Basic earnings (loss) per share (1.63) (3.71) 1.23
Diluted earnings (loss) per share (1.63) (3.71) 0.82
</TABLE>
COMPUTATION OF SHARES USED IN EARNINGS (LOSS) PER SHARE COMPUTATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 30, April 1, April 3,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Average outstanding common shares 23,450 23,396 14,067
Average common equivalent shares -
dilutive effect of preferred shares * - 4,312
Average common equivalent shares -
dilutive effect of option shares * * 2,654
---------- ---------- ----------
Shares used in earnings per share
Computation 23,450 23,396 21,033
========== ========== ==========
</TABLE>
* Excluded due to anti-dilutive effect.
<PAGE> 1
EXHIBIT 21
SUBSIDIARY
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 July 7, 1998
relating to the consolidated balance sheets of Ross Technology, Inc. and
subsidiary as of March 30, 1998 and March 31, 1997, 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 30, 1998 and the related
schedule, which report appears in the March 30, 1998 annual report on Form 10-K
of Ross Technology, Inc.
Our report dated July 7, 1998, contains an explanatory paragraph that states
that the Company has experienced recurring losses from operations and is
experiencing difficulty in generating sufficient cash flow to meet its
obligations and sustain its operations, and has announced its intention to begin
an orderly shutdown of its operations, which raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements and financial statement schedule do not include any adjustments that
might result from the outcome of that uncertainty.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
Austin, Texas
July 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-30-1998 MAR-31-1997 APR-01-1996
<PERIOD-START> APR-01-1998 APR-02-1996 APR-04-1995
<PERIOD-END> MAR-30-1998 MAR-31-1997 APR-01-1996
<CASH> 787 2,811 17,941
<SECURITIES> 0 0 0
<RECEIVABLES> 6,340 14,617 25,044
<ALLOWANCES> 458 1,555 2,057
<INVENTORY> 7,808 16,308 32,321
<CURRENT-ASSETS> 15,162 37,067 75,955
<PP&E> 3,325 17,752 23,688
<DEPRECIATION> 0 10,972 7,569
<TOTAL-ASSETS> 18,487 54,819 97,893
<CURRENT-LIABILITIES> 27,467 75,044 31,619
<BONDS> 0 0 0
0 0 0
1 0 0
<COMMON> 23 23 23
<OTHER-SE> (9,004) (20,248) 66,251
<TOTAL-LIABILITY-AND-EQUITY> 18,487 54,819 97,893
<SALES> 42,057 83,104 100,805
<TOTAL-REVENUES> 42,057 83,104 100,805
<CGS> 43,238 107,951 53,921
<TOTAL-COSTS> 43,238 107,951 53,921
<OTHER-EXPENSES> 35,014 59,433 27,567
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 2,076 1,472 (1,474)
<INCOME-PRETAX> (38,271) (85,752) 17,843
<INCOME-TAX> 0 953 (317)
<INCOME-CONTINUING> (38,271) (86,705) 18,160
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (38,271) (86,705) 17,328
<EPS-PRIMARY> (1.63) (3.71) 1.23
<EPS-DILUTED> (1.63) (3.71) .82
</TABLE>
