<PAGE> 1
SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 3)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Information Statement [ ] Confidential, for Use of
the Commission Only (as
permitted by Rule
14c-5(d)(2))
[ ] Definitive Information Statement
ROSS TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Information Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[ROSS TECHNOLOGY, INC. LOGO]
TWO CIELO CENTER, THIRD FLOOR
1250 CAPITAL OF TEXAS HIGHWAY, SOUTH
AUSTIN, TEXAS 78746
November , 1998
Dear Stockholders:
The attached Information Statement is being furnished to stockholders of
ROSS Technology, Inc., a Delaware corporation (the "Company"), in connection
with proposals to (i) sell the assets (the "Sale of Assets") related to the
Company's manufacturing, sale, distribution and customer service (but not the
design) business for the 32-bit hyperSPARC(TM) families of microprocessors and
the hyperSTATION(TM) and SPARCplug(TM) families of 32-bit systems and products
to BridgePoint Technical Manufacturing Corporation, a newly formed Texas
corporation (the "Buyer"), pursuant to the Asset Purchase Agreement (the "Asset
Purchase Agreement"), dated as of July 23, 1998, between the Company and the
Buyer and (ii) approve the Plan of Complete Liquidation and Dissolution (the
"Plan") of the Company. The Asset Purchase Agreement is attached to the
Information Statement as Annex A and the Plan is attached as Annex B. The Sale
of Assets, the Asset Purchase Agreement and the Plan have been approved by the
Board of Directors of the Company, the holder of a majority of the outstanding
shares of Common Stock, par value $.001 per share (the "Common Stock"), of the
Company entitled to vote and the holder of all of the outstanding shares of
Series B Convertible Preferred Stock, $.001 par value per share (the "Preferred
Stock"), of the Company.
The attached Information Statement is being provided to you pursuant to
Rule 14c-2 under the Securities Exchange Act of 1934, as amended. The
Information Statement contains a more detailed description of the Asset Purchase
Agreement, the Sale of Assets and the Plan. I encourage you to read the
Information Statement, including Annex A and Annex B, thoroughly.
In accordance with the Delaware General Corporation Law, the Company's
Restated Certificate of Incorporation and the Certificate of Designation for the
Preferred Stock, Fujitsu Limited, a Japanese corporation, as holder of a
majority of the outstanding shares of Common Stock entitled to vote and holder
of all of the outstanding shares of Preferred Stock, has executed a written
consent approving the Asset Purchase Agreement, the Sale of Assets and the Plan.
ACCORDINGLY, STOCKHOLDERS OF THE COMPANY ARE NOT BEING ASKED FOR, AND ARE
REQUESTED NOT TO SEND, PROXIES TO VOTE THEIR SHARES WITH RESPECT TO THE ASSET
PURCHASE AGREEMENT, THE SALE OF ASSETS OR THE PLAN. FOR THAT REASON, NO PROXY
CARD HAS BEEN ENCLOSED FOR STOCKHOLDERS. NO MEETING OF STOCKHOLDERS WILL BE HELD
TO CONSIDER APPROVAL OF THE ASSET PURCHASE AGREEMENT, THE SALE OF ASSETS OR THE
PLAN. The Sale of Assets will not be consummated, and the Plan will not become
effective, until at least twenty days after the mailing of this Information
Statement.
Sincerely,
/s/ FRED T. MAY
------------------------------------
Fred T. May
Chairman of the Board
<PAGE> 3
Mailed to Stockholders
on or about November , 1998
ROSS TECHNOLOGY, INC.
TWO CIELO CENTER, THIRD FLOOR
1250 CAPITAL OF TEXAS HIGHWAY, SOUTH
AUSTIN, TEXAS 78746
------------------------
INFORMATION STATEMENT
------------------------
INTRODUCTION
This Information Statement is being furnished to holders of the outstanding
shares of Common Stock, par value $.001 per share (the "Common Stock"), and to
the holder of all of the outstanding shares of Series B Convertible Preferred
Stock, par value $.001 per share (the "Preferred Stock"), of ROSS Technology,
Inc., a Delaware corporation (the "Company"), in connection with the written
consent of Fujitsu Limited, a Japanese corporation ("Fujitsu"), the holder of a
majority of the outstanding shares of the Common Stock and the holder of all of
the outstanding shares of the Preferred Stock, to (i) the sale of assets (the
"Sale of Assets") related to the Company's manufacturing, sale, distribution and
customer service (but not the design) business for the 32-bit hyperSPARC(TM)
families of microprocessors and the hyperSTATION(TM) and SPARCplug(TM) families
of 32-bit systems and products (the "Business") to BridgePoint Technical
Manufacturing Corporation, a newly formed Texas corporation ("Buyer"), in which
Joe D. Jones (currently Vice President of Operations of the Company) is Chief
Executive Officer, President and currently sole stockholder (it is anticipated
that Mr. Jones will own approximately 15% of Buyer's common stock at such time
as the Sale of Assets is consummated, with incentives to ultimately own
approximately 22%), pursuant to the Asset Purchase Agreement, dated as of July
23, 1998, between the Company and Buyer (the "Asset Purchase Agreement") and
(ii) the dissolution and liquidation of the Company pursuant to a Plan of
Complete Liquidation and Dissolution (the "Plan"), as more fully described in
this Information Statement. Copies of the Asset Purchase Agreement and the Plan
are attached hereto as Annex A and Annex B, respectively. To the best of the
Company's knowledge, other than Mr. Jones, no officer, director or holder of at
least five percent (5%) of the Company's Common Stock or Preferred Stock has a
financial interest in the Sale of Assets. This Information Statement also
provides certain information regarding transactions between the Company and
Fujitsu.
The purchase price (the "Purchase Price") payable by the Buyer for the Sale
of Assets is $5.66 million, which includes $250,000 to be deposited by the Buyer
in an escrow account for an indemnification holdback amount to cover possible
indemnification claims from Buyer pursuant to the Asset Purchase Agreement and,
if applicable, an amount to be determined at or prior to the closing to be
deposited by the Buyer in an escrow account for a tax holdback amount, to cover
possible tax obligations to the Texas comptroller of public accounts. All sales
taxes (other than sales taxes arising from the Sale of Assets), ad valorem
taxes, utility charges, insurance premiums, rent, lease payments, payroll and
employee benefits, and normal operating expenses (including the payment of
reasonable trade payables for inventory or services received or first ordered
after June 29, 1998 and that are paid in the ordinary course of business, but
excluding principal, interest payments and other expenses on debt and general
and administrative expenses of the Company) and other expenses reasonably
allocable to the Business if the Business were to be accounted for as a separate
operating division of the Company, in each case incurred in the Business, shall
be prorated between Buyer and the Company as of June 29, 1998. Such proration
shall be settled between Buyer and the Company as a net adjustment to the
Purchase Price on the closing date of the Sale of Assets (the "Closing Date").
The Company will also pay $1.72 million to the Buyer on the Closing Date in
consideration for the assumption by Buyer of certain warranty repair liabilities
of the Company. See "The Asset Purchase Agreement."
------------------------
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF THE TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
<PAGE> 4
Pursuant to the Plan, the Company will be liquidated by (i) the sale (or
sales) of substantially all of its remaining assets and, (ii) after payment of
all the claims, obligations and expenses owing to the Company's creditors, by
cash and in-kind distributions (if any) to the holder of the Preferred Stock (up
to the $50.0 million aggregate liquidation preference of the Preferred Stock),
with the remainder (if any) to holders of the Common Stock on a pro rata basis,
and, if deemed necessary, appropriate or desirable by the Board of Directors, by
distributions of its assets and funds from time to time to one or more
liquidating trusts established for the benefit of stockholders (subject to the
claims of creditors), or by a final distribution of its then remaining assets to
a liquidating trust established for the benefit of stockholders (subject to the
claims of creditors). BASED ON THE ANTICIPATED VALUE OF THE COMPANY'S ASSETS AND
THE AMOUNTS OWED TO CREDITORS OF THE COMPANY, THE COMPANY DOES NOT BELIEVE IT
WILL HAVE ANY FUNDS OR ASSETS REMAINING TO MAKE DISTRIBUTIONS TO EITHER
PREFERRED OR COMMON STOCKHOLDERS. THEREFORE, IT IS HIGHLY UNLIKELY THAT ANY
DISTRIBUTIONS WILL BE MADE TO STOCKHOLDERS.
Should the Board of Directors determine that one or more liquidating trusts
are necessary, appropriate or desirable, approval of the Plan constitutes
stockholder approval of the appointment by the Board of Directors of one or more
trustees to any such liquidating trusts and the execution of liquidating trust
agreements with the trustees on such terms and conditions as the Board of
Directors, in its absolute discretion, shall determine. See "The Plan of
Complete Liquidation and Dissolution" for a more detailed description of the
Plan. See also "Contingent Liabilities; Contingency Reserve; Liquidating Trust"
for further information relating to circumstances when the establishment of a
liquidating trust might be necessary, appropriate or desirable.
If the Sale of Assets pursuant to the Asset Purchase Agreement is not
consummated for any reason, approval of the Plan will also constitute approval
of the sale of such assets by the Company on such terms and conditions as the
Board of Directors in its absolute discretion may determine. Further, the
approval of the Plan will constitute approval of the sale of all remaining
assets of the Company on such terms and conditions as the Board of Directors in
its absolute discretion may determine. THE COMPANY INTENDS TO PROCEED WITH
LIQUIDATION AND DISSOLUTION REGARDLESS OF WHETHER THE SALE OF ASSETS IS
CONSUMMATED.
In conformance with the Delaware General Corporation Law ("DGCL"), the
Company's Restated Certificate of Incorporation and the Certificate of
Designation for the Preferred Stock (the "Certificate of Designation"), the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock entitled to vote and the outstanding shares of Preferred Stock,
each voting separately as a class, is required to approve the Asset Purchase
Agreement, the Sale of Assets and the Plan. In accordance with the DGCL,
Fujitsu, as holder of a majority of the outstanding shares of Common Stock and
holder of all outstanding shares of Preferred Stock of the Company, has executed
a written consent approving the Asset Purchase Agreement, the Sale of Assets and
the Plan. ACCORDINGLY, THE COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY. FOR THAT REASON, NO PROXY CARD HAS BEEN
ENCLOSED AND NO MEETING OF STOCKHOLDERS WILL BE HELD TO CONSIDER APPROVAL OF THE
ASSET PURCHASE AGREEMENT, THE SALE OF ASSETS AND THE PLAN. The Sale of Assets
will not be consummated, and the Plan will not become effective, until at least
twenty days after the mailing of this Information Statement.
THIS INFORMATION STATEMENT IS FURNISHED BY THE COMPANY FOR INFORMATION
PURPOSES ONLY. This Information Statement is first being mailed on or about
November , 1998 to holders of record of Common Stock and Preferred Stock as of
the close of business on July 28, 1998 (the "Record Date"). As of the Record
Date, 23,476,965 shares of Common Stock and 500,000 shares of Preferred Stock
were outstanding.
The stockholders of the Company will retain their equity interest in the
Company following the consummation of the Sale of Assets. After the Sale of
Assets, the Company intends to dissolve and liquidate and pay out the net
proceeds of the Sale of Assets, the net proceeds of any other assets sales and
any other funds or assets remaining in the Company, to satisfy the Company's
obligations to its creditors, then if any funds or assets are remaining, to the
holder of the Preferred Stock, to the extent of the $50.0 million aggregate
liquidation preference of the Preferred Stock, and then to the holders of the
Common Stock, on a pro rata
2
<PAGE> 5
basis, pursuant to the Plan. THE COMPANY DOES NOT BELIEVE IT WILL HAVE ANY FUNDS
OR ASSETS REMAINING TO MAKE DISTRIBUTIONS TO EITHER PREFERRED OR COMMON
STOCKHOLDERS. THEREFORE, ANY DISCUSSIONS REGARDING A DISTRIBUTION TO
STOCKHOLDERS ARE THEORETICAL, AND DISTRIBUTIONS TO STOCKHOLDERS ARE HIGHLY
UNLIKELY.
THE SALE OF ASSETS IS CONDITIONED UPON, AMONG OTHER THINGS, THE RECEIPT OF
FINANCING BY THE BUYER, THE SECURING OF ANY NECESSARY GOVERNMENTAL APPROVALS AND
CONSENTS AND THE CONSENTS OF CERTAIN PARTIES TO AGREEMENTS WITH THE COMPANY.
THERE CAN BE NO ASSURANCE THAT THE CONDITIONS TO THE SALE OF ASSETS WILL BE
SATISFIED OR WAIVED AND THAT THE SALE OF ASSETS WILL BE CONSUMMATED. SEE "THE
ASSET PURCHASE AGREEMENT -- CONDITIONS."
THE INFORMATION CONTAINED HEREIN REGARDING FUJITSU AND THE BUYER, INCLUDING
UNDER "SUMMARY -- THE SALE OF ASSETS -- THE PARTIES," "CERTAIN INFORMATION
CONCERNING FUJITSU" AND "CERTAIN INFORMATION CONCERNING THE BUYER" HAS BEEN
SUPPLIED BY FUJITSU AND THE BUYER, RESPECTIVELY. NO PERSONS HAVE BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS INFORMATION STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Reports, proxy statements and
other information filed by the Company can be inspected and copied at the public
reference facilities at the SEC's office at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at the SEC's Regional Office at Seven
World Trade Center, Suite 1300, New York, New York 10048 and at the SEC's
Regional Office at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, at prescribed rates. Such reports, proxy statements and other information
concerning the Company can also be inspected and copied at the offices of The
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006. Such material may also be accessed electronically by
means of the SEC's home page on the Internet at http://www.sec.gov.
3
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction................................................ 1
Available Information....................................... 3
Summary..................................................... 5
The Stockholder Consent to the Sale of Assets and the
Plan...................................................... 9
Special Factors............................................. 9
The Sale of Assets.......................................... 27
The Asset Purchase Agreement................................ 34
The Plan of Complete Liquidation and Dissolution............ 41
Unaudited Pro Forma Condensed Consolidated Balance Sheet.... 48
Certain Federal Income Tax Consequences..................... 50
Business.................................................... 53
Selected Consolidated Financial Data........................ 63
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 65
Security Ownership of Certain Beneficial Owners and
Management................................................ 73
Certain Additional Information Concerning the Company....... 74
Certain Information Concerning Fujitsu...................... 74
Certain Information Concerning Buyer........................ 75
Market Price Data........................................... 76
Absence of Appraisal Rights................................. 76
Fees and Expenses........................................... 77
Miscellaneous............................................... 78
Index to Financial Statements and Schedule.................. F-1
Annex A -- Asset Purchase Agreement
Annex B -- Plan of Complete Liquidation and Dissolution
Schedule I -- Directors and Executive Officers of the
Company
Schedule II -- Directors and Executive Officers of Fujitsu
Schedule III -- Directors and Executive Officers of the
Buyer
</TABLE>
4
<PAGE> 7
SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. Reference is made to, and this summary is qualified
in its entirety by, the more detailed information contained in this Information
Statement and Annex A and Annex B attached hereto. References in this
Information Statement to the "Company" shall be deemed to refer to the Company
together with its subsidiary. Unless otherwise defined herein, capitalized terms
used in this summary have the respective meanings ascribed to them elsewhere in
this Information Statement or in the Annexes attached hereto. Stockholders are
urged to read this Information Statement and the Annexes hereto in their
entirety.
THE STOCKHOLDER CONSENT TO
THE SALE OF ASSETS AND THE PLAN
Consent Required and
Received................... Pursuant to Sections 271 and 275 of the DGCL, the
Company's Restated Certificate of Incorporation and
the Certificate of Designation, the written consent
of the holders of a majority of the shares of
Common Stock and Preferred Stock outstanding and
entitled to vote, each voting separately as a
class, is required to approve the Sale of Assets,
the Asset Purchase Agreement and the Plan. Fujitsu
holds approximately 60.0% of the outstanding Common
Stock and 100% of the outstanding Preferred Stock
and has consented in writing to the Sale of Assets,
the Asset Purchase Agreement and the Plan, which
consent satisfies the requirements of Section 271
and 275. See "The Stockholder Consent to the Sale
of Assets and the Plan."
THE SALE OF ASSETS
The Parties................ The Company was originally incorporated in Texas in
August 1988 and is a majority-owned subsidiary of
Fujitsu. The Company designs, manufactures and
markets high-performance microprocessors and
associated semiconductor products and system
boards, workstations and servers based upon the
SPARC(TM) architecture, a reduced instruction set
computing ("RISC") architecture. The principal
executive offices of the Company are located at Two
Cielo Center, Third Floor, 1250 Capital of Texas
Highway, South, Austin, Texas 78746, and its
telephone number is (512) 329-2499.
The Buyer is a newly formed Texas corporation which
has been formed for the purpose of acquiring the
assets of the Business pursuant to the Asset
Purchase Agreement and operating the Business. Joe
D. Jones (currently Vice President of Operations of
the Company) is Chief Executive Officer, President
and currently sole stockholder of the Buyer (it is
anticipated that Mr. Jones will own approximately
15% of Buyer's common stock at such time as the
Sale of Assets is consummated, with incentives to
ultimately own approximately 22%). The principal
executive offices of the Buyer are located at 4007
Commercial Center Drive, Austin, Texas 78744, and
its telephone number is (512) 434-4726. See
"Certain Information Concerning the Buyer."
Assets to Be Sold.......... Pursuant to the Asset Purchase Agreement, the
Company has agreed to sell to the Buyer
substantially all of its assets used in the
Business. See "The Asset Purchase
Agreement -- Assets to Be Sold."
Purchase Price............. The purchase price to be paid by the Buyer pursuant
to the Asset Purchase Agreement is $5.66 million in
cash, which includes $250,000 that will be
deposited by the Buyer in an escrow account for an
indemnification holdback amount and, if applicable,
an amount to be determined at or prior to the
Closing to be deposited by the Buyer in an escrow
account for a tax holdback amount, plus the
assumption by the Buyer of certain liabilities, all
as more fully described in this Information
5
<PAGE> 8
Statement. There will be a net purchase price
adjustment for the proration of certain operating
expenses (including reasonable trade payables for
inventory or services received or first ordered as
part of the Business after June 29, 1998 and that
are paid in the ordinary course of business, but
excluding taxes associated with the Sale of Assets,
debt obligations and general and administrative
expenses) reasonably allocable to the Business as
of June 29, 1998 through the Closing Date. In
addition, the Company will pay $1.72 million to the
Buyer for the assumption of certain warranty repair
liabilities of the Company. See "The Asset Purchase
Agreement -- Purchase Price" and "-- Assumed
Liabilities."
Closing of the Sale of
Assets..................... The consummation of the Sale of Assets (the
"Closing") will occur on August 15, 1998 or such
later date as the parties may agree following the
satisfaction or waiver of the conditions contained
in the Asset Purchase Agreement. See "The Asset
Purchase Agreement -- Conditions."
Approval by the Board of
Directors................ The Board of Directors believes that the Sale of
Assets is in the best interests of the Company, its
creditors and stockholders and is fair to the
Company's unaffiliated stockholders and has
approved the Sale of Assets and the Asset Purchase
Agreement. The Board of Directors' approval of the
Sale of Assets and the Asset Purchase Agreement is
based upon a number of factors described in this
Information Statement. See "The Sale of
Assets -- Approval of the Board of Directors and
Reasons for the Sale of Assets; Recommendation of
the Ad Hoc Committee; Fairness of the Sale of
Assets."
Use of Proceeds;
Liquidation and
Dissolution.............. Of the approximately $5.66 million in total
purchase price from the Sale of Assets, $250,000
will be deposited by Buyer into an escrow account
for an indemnification holdback amount; if
applicable, an amount to be determined at or prior
to Closing will be deposited by Buyer into an
escrow account for a tax holdback amount; $1.72
million will be paid by the Company to the Buyer
for the assumption of certain warranty repair
liabilities of the Company that the Buyer agrees to
assume completely in exchange for the $1.72 million
payment; and approximately $150,000 will be used to
pay expenses incurred in connection with the Sale
of Assets. The Company expects to use the remainder
of the proceeds from the Sale of Assets and asset
sales made pursuant to the Plan or otherwise to pay
its obligations to its creditors and to pay
expenses incurred in connection with liquidation
and dissolution, and if any funds or assets are
remaining, to make distributions with respect to
the Preferred Stock (up to its $50.0 million
aggregate liquidation preference) and thereafter
pro rata to its holders of Common Stock. THE
COMPANY DOES NOT BELIEVE THERE WILL BE ANY ASSETS
OR FUNDS AVAILABLE FOR DISTRIBUTION TO PREFERRED OR
COMMON STOCKHOLDERS. See "The Sale of Assets -- Use
of Proceeds; Liquidation and Dissolution."
Certain Tax Consequences... The Sale of Assets will be a taxable transaction to
the Company for United States Federal income tax
purposes and the Company will recognize gain or
loss on the Sales of Assets pursuant to the Asset
Purchase Agreement. It is anticipated that there
will not be any material tax payable at the
corporate level because of net operating losses
incurred by the Company. See "Certain Federal
Income Tax Consequences."
6
<PAGE> 9
Conditions to the Sale of
Assets..................... The obligations of the Company and the Buyer to
consummate the Sale of Assets are subject to
approval by the Company's preferred and common
stockholders, as well as the satisfaction or waiver
of certain other conditions customary to a
transaction of this nature, including, among
others, (i) obtaining any necessary governmental
approvals, (ii) the absence of orders of any court
or governmental entity that enjoin, restrain or
prohibit the Asset Purchase Agreement or the
consummation of the Sale of Assets, (iii) the
consummation of the Sale of Assets must not be
illegal, (iv) the representations and warranties of
the Company and Buyer must be true and correct, (v)
the Company and the Buyer shall have performed all
of their respective obligations under the Asset
Purchase Agreement, (vi) no material adverse effect
shall have occurred, (vii) the receipt of consents
to the Sale of Assets of certain third parties who
have agreements with the Company, (viii) the Buyer
shall have entered into a silicon wafer and cell
license rights agreement with Fujitsu, (ix) the
Buyer shall have entered into an intellectual
property license agreement with the Company and
Fujitsu, and (x) the Buyer shall have obtained debt
and equity financing of at least $9.0 million, as
well as other conditions. See "The Asset Purchase
Agreement -- Conditions."
Termination................ The Asset Purchase Agreement may be terminated in
certain circumstances, including the following: (i)
by mutual consent of the Company and the Buyer;
(ii) by either the Company or the Buyer if there is
a breach by the other party of any representation,
warranty, covenant or other agreement, a court or
governmental order, decree or ruling that
restrains, enjoins or otherwise prohibits the
transaction, the closing does not occur by the
later of August 15, 1998 or fifteen (15) days after
receipt of any required consent of a governmental
entity or after the date the Company is first
permitted under Applicable Law to act upon the
stockholder consent necessary to consummate the
Sale of Assets; (iii) by the Buyer, in the event of
more than $500,000 of damage to any of the Acquired
Assets; and (iv) if the Company enters into a
binding agreement for the acquisition, merger or
combination of the Company as a whole or the sale
of the Company's assets as a whole. If the Asset
Purchase Agreement is terminated under the
circumstance described in clause (iv), the Buyer
will be entitled to receive reimbursement of its
reasonable and documented costs and expenses up to
$100,000. See "The Asset Purchase
Agreement -- Termination."
Interests of Certain
Persons in the Sale of
Assets................... Joe D. Jones (currently Vice President of
Operations of the Company) is Chief Executive
Officer, President and currently sole stockholder
of the Buyer (it is anticipated that Mr. Jones will
own approximately 15% of Buyer's common stock at
such time as the Sale of Assets is consummated,
with incentives to ultimately own approximately
22%). To the best of the Company's knowledge, other
than Mr. Jones, no officer, director or holder of
at least five percent (5%) of the Company's Common
Stock or Preferred Stock has a financial interest
in the Sale of Assets. See "The Sale of
Assets -- Interests of Certain Persons in the Sale
of Assets."
No Appraisal Rights........ Under the DGCL, the holders of shares of the Common
Stock and Preferred Stock will not be entitled to
appraisal rights in connection with the Asset
Purchase Agreement or the Sale of Assets.
7
<PAGE> 10
THE PLAN
Approval by the Board of
Directors................ The Board of Directors believes that the
liquidation and dissolution of the Company in
accordance with the Plan (whether or not the Sale
of Assets is consummated) are in the best interests
of the Company, its creditors and stockholders and
has approved the Plan. Regardless of whether the
Sale of Assets is consummated, the Plan represents,
in the Board's opinion, the most prudent way for
the Company to discharge its known liabilities, to
provide for contingent and unknown liabilities and
to limit its exposure as a result of future
business activities. Among other things, the Plan
gives the Board of Directors the authority to sell
all or substantially all of the assets of the
Company (including the assets to be sold pursuant
to the Asset Purchase Agreement, in the event that
the Sale of Assets is not consummated for any
reason). The Board of Directors' approval of the
Plan is based upon a number of factors described in
this Information Statement. See "The Plan of
Complete Liquidation and Dissolution -- Approval of
the Board of Directors and Reasons for Adopting the
Plan."
Certain Tax Consequences... As with the Sale of Assets, the Company will
recognize gain or loss for United States federal
income tax purposes on the sales of its assets
pursuant to the Plan. After the approval of the
Plan and until the liquidation is completed, the
Company will continue to be subject to income tax
on its taxable income. Upon distributions, if any,
of property to stockholders pursuant to the Plan,
the Company will recognize gain or loss as if such
property was sold to the stockholders at its fair
market value, unless certain exceptions to the
recognition of gain or loss apply. It is
anticipated that there will not be any material tax
payable at the corporate level because of net
operating losses incurred by the Company. As a
result of the liquidation of the Company,
stockholders will recognize gain or loss equal to
the difference between the sum of the amount of
cash distributed to them and the fair market value
(at the time of distribution) of property
distributed to them and their tax basis for their
shares of the Common Stock or Preferred Stock. THE
COMPANY DOES NOT BELIEVE THAT THERE WILL BE ANY
FUNDS OR ASSETS AVAILABLE FOR DISTRIBUTION TO
PREFERRED OR COMMON STOCKHOLDERS. See "Certain
Federal Income Tax Consequences."
No Appraisal Rights........ Under the DGCL, the holders of shares of the Common
Stock and Preferred Stock will not be entitled to
appraisal rights in connection with the Plan.
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THE STOCKHOLDER CONSENT TO THE SALE OF ASSETS AND THE PLAN
Section 271 of the Delaware General Corporation Law ("DGCL") permits a
Delaware corporation to sell all or substantially all of its assets if the sale
is approved by stockholders holding a majority of the shares entitled to vote
thereon. In addition, Section 275 of the DGCL permits a Delaware corporation to
dissolve if the dissolution is approved by stockholders holding a majority of
the shares entitled to vote thereon. Pursuant to the Company's Restated
Certificate of Incorporation and the Certificate of Designation, holders of the
Common Stock and Preferred Stock are entitled to separate votes on the above
matters. Fujitsu owns approximately 60.0% of the outstanding Common Stock and
100% of the outstanding Preferred Stock and, on July 28, 1998, Fujitsu executed
and delivered to the Company its written consent to the Sale of Assets, the
Asset Purchase Agreement and the Plan. The written consent executed and
delivered by Fujitsu satisfies the stockholder approval requirements of Sections
271 and 275 of the DGCL. Accordingly, no vote of any other stockholder is
necessary and stockholder votes are not being solicited.
Subject to the terms and conditions of the Asset Purchase Agreement, it is
contemplated that the Sale of Assets will be consummated not earlier than twenty
(20) days after the mailing of this Information Statement and following
satisfaction or waiver of the conditions contained in the Asset Purchase
Agreement. See "The Asset Purchase Agreement -- Conditions." The Plan will
become effective not earlier than twenty (20) days after the mailing of this
Information Statement. Once the Plan is effective, the Company shall undertake
the actions contemplated by the Plan, including selling all or substantially all
of the Company's other remaining assets, at such times as the Board of
Directors, in its absolute discretion, deems necessary, appropriate or
advisable. If the Sale of Assets pursuant to the Asset Purchase Agreement is not
consummated for any reason, approval of the Plan will also constitute approval
of the sale of such assets by the Company on such terms and conditions as the
Board of Directors in its absolute discretion may determine.
This Information Statement is first being mailed to stockholders on or
about November , 1998.
SPECIAL FACTORS
GENERAL BACKGROUND
Over the last three years, the Company's revenues have decreased from
$100.8 million in the fiscal year ended April 1, 1996 ("Fiscal 1996") to $83.1
million in the fiscal year ended March 31, 1997 ("Fiscal 1997") and $42.1
million in the fiscal year ended March 30, 1998 ("Fiscal 1998"). The reduction
in sales primarily reflected the migration of the Company's primary customers
away from the Company's 32-bit products to its competitors' 64-bit products. 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 net losses of $86.7 million and $38.3 million in Fiscal 1997 and Fiscal
1998, respectively. The continued reduction in the level of sales resulted in a
continued increase in the per unit manufacturing overhead associated with parts
and products assembled by the Company, keeping the Company's gross profit below
expectations. Due to the Company's continued financial deterioration and its
inability to provide cash flow from operations, in Fiscal 1998 the Company
recorded an $11.2 million charge for the write-down of certain fixed assets as
circumstances indicated that the carrying amount of such assets might not be
recoverable.
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 Preferred Stock to Fujitsu in return for a payment of $50.0 million to
the Company, which the Company then used to make a partial prepayment of its
outstanding indebtedness to The Dai-Ichi Kangyo Bank, Ltd. ("DKB") and in
satisfaction of its reimbursement obligations to Fujitsu under certain loan
guaranties provided by Fujitsu to DKB. Furthermore, Fujitsu provided a guaranty
for a new $20.0 million line of credit from DKB, which was originally scheduled
to expire on March 31, 1998. The credit facility and the guaranty have been
extended to November 30 and December 31, 1998, respectively. The total amount
available under the credit facility 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
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absence of a renewal or extension of the guaranty, the Company will default on
the repayment of its indebtedness to DKB as the Company does not have the
capability to repay this debt.
In early 1998, in an attempt to bolster the Company's deteriorating
financial position and take advantage of excess capacity in the Company's
manufacturing operations, management of the Company directed members of the
Company's operations team, including Mr. Jones, to investigate the possibility
of using the Company's manufacturing facility as an outsource manufacturer or
testing facility for third parties. However, potential customers were unwilling
to utilize the Company's capabilities. Potential customers indicated that they
perceived the Company as failing and unable to maintain relationships for the
length of time necessary to make such relationships commercially feasible.
Potential customers also indicated that they were reluctant to disclose their
confidential intellectual property (a necessary part of any manufacturing or
testing operation) to a competitor.
Although the Company believed that it could potentially realize significant
revenues from the Company's 64-bit Viper microprocessor under development if it
could successfully complete that development project, the Company did not
believe that the development project could be completed, if at all, until at the
earliest the end of calendar 1999. However, due to the Company's deteriorating
financial condition, the Company did not have sufficient financing to complete
the Viper development project. In addition, the Viper development project was
highly complex and sophisticated, the Company had failed to timely meet certain
development milestones, and there could be no assurance that the Company could
successfully complete development by the end of calendar 1999 or at all.
Moreover, the Company had not achieved any "design wins" for the Viper project
(that is, a decision by an OEM manufacturer that it would use the Viper
microprocessor in a particular product).
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 the Company's operations. The decision was
precipitated by the continuing decrease in revenues from the Company's sales of
its 32-bit products. Under the shutdown plan approved by the Company's Board of
Directors, it was anticipated that the Company would continue its operations at
a scaled-back level through the end of calendar year 1998. Under this shutdown
plan, the Company hoped to avoid undue disruption to its customers, which were
given an opportunity to place final "End of Life" orders for their forecasted
needs, which the Company would strive to meet. The Company also believed that,
by endeavoring to keep its design and product engineers in place as well as a
scaled-back manufacturing 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 formed a business unit, named BridgePoint, out of its
Austin, Texas manufacturing operation that contains its significantly
scaled-back sales, service and manufacturing operations and employees, as well
as the inventory related to its 32-bit products. At the time the BridgePoint
business unit was formed, it was anticipated that the BridgePoint unit would
serve the Company's customers until the end of 1998, unless it was sold
separately. The Company currently anticipates that it will cease all operations
by early 1999.
On July 2, 1998, the Board of Directors of the Company established the Ad
Hoc Committee of the Board of Directors to make recommendations to the Board of
Directors with respect to asset sales by the Company and related matters in
connection with the implementation of the Company's shutdown plan. The Ad Hoc
Committee consists of Fred T. May, the Company's Chairman of the Board, Jack W.
Simpson, Sr., the Company's Chief Executive Officer and President, and Edward F.
Thompson.
At the direction of the Company's Board of Directors, the Company has
explored certain strategic alternatives for its business, including an
acquisition of the entire Company by a third party and the sale of various
assets, including the 64-bit "Viper" development project and associated
intellectual property, the Business and the Company's Design Center in Israel.
In connection with these activities, the Company had discussions with potential
buyers to determine whether there was any interest in an acquisition of the
Company as a whole or any of its assets. At the time these activities began, the
Company's assets consisted primarily of the following: (i) the intellectual
property related to its 32-bit microprocessor designs (the "32-bit Intellectual
Property"); (ii) the assets related to the Business (i.e., the assets to be
acquired by the Buyer pursuant to the Asset Purchase Agreement), including
manufacturing operations and processes, product
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inventory and customer lists; (iii) the Company's intellectual property relating
to the Company's 64-bit "Viper" development project (the "64-bit Intellectual
Property" and, together with the 32-bit Intellectual Property, the "Intellectual
Property"); (iv) the "Viper" development design team (the "Viper Design Team");
and (v) the Company's Design Center in Israel, ROSS Semiconductors (Israel) Ltd.
("RIL").
The Company has sold RIL and certain of the Intellectual Property to
Fujitsu and has entered into the Asset Purchase Agreement pursuant to which it
will sell the Acquired Assets to the Buyer. See "-- Transactions with
Fujitsu -- The IP Sale" and "-- Sale of RIL" and "-- Background of the Asset
Purchase Agreement." No discussions or negotiations are in process for any of
the Company's remaining assets (including intellectual property rights relating
to the 64-bit "Viper" development project, the Colorado 5 microprocessor and the
BMus chip set) and the Company believes that it is unlikely that it will be able
to find buyers for any of these assets. While the Company hopes to pay all of
its creditors in full, its ability to do so depends upon its ability to generate
sufficient cash from the sale of its products and assets. The Company at this
time is seeking to maximize its asset value for creditors.
ATTEMPTED SALE OF THE COMPANY OR ITS VARIOUS ASSETS OTHER THAN TO FUJITSU OR
BUYER
Attempted Sale to Sun. The Company's two largest customers have
historically been Fujitsu and Sun Microsystems, Inc. ("Sun"). To the Company's
knowledge, Fujitsu and Sun are the two primary electronics companies that design
products based on the SPARC(TM) architecture, which is the architecture utilized
by the Company in its microprocessor products (SPARC(TM) is a reduced
instruction set computing architecture that was originally developed by Sun).
Fujitsu's and Sun's utilization of the SPARC(TM) architecture utilized by the
Company in its microprocessor products made them the most likely, and perhaps
only, candidates to acquire the Company as a whole. Fujitsu has not expressed an
interest in acquiring the entire Company.
Commencing in October 1997, representatives of Sun and Fujitsu held a
number of discussions regarding a possible transaction whereby (i) Sun would
acquire Fujitsu's shares of the Company's Common Stock and Preferred Stock and
(ii) Sun would offer to acquire the shares of the Company's Common Stock held by
the Company's other stockholders. The transaction would have been subject to,
among other things, the approval of the Company's Board of Directors. Although
Sun and Fujitsu exchanged drafts of a share acquisition agreement and related
documents, they were unable to reach agreement on the terms of the transaction,
and the discussions were terminated in March 1998.
In late 1997, Jack W. Simpson, Sr., the Company's Chief Executive Officer
and President, had two meetings with senior executives of Sun and Sun's
microelectronics division, Sun Microelectronics ("SME"), to determine, among
other things, whether Sun had an interest in acquiring the Company as an
entirety or any of its various assets, including its inventory of 32-bit
products. Mr. Simpson also explored whether Sun had an interest in the Company's
design capabilities and the potential for a design win for the Company's 64-bit
Viper development product. Sun dispatched a team of employees to the Company in
approximately September 1997 to inspect the Company's inventory of 32-bit
SPARC(TM) products to determine Sun's interest in purchasing any or all of such
inventory, as well as Sun's interest in the Business. In October 1997,
representatives of Sun visited the Company to conduct a technical review of the
Company's operations and intellectual property. In late March and early April
1998, the Company's management had discussions with Sun in an attempt to reach
an agreement in which Sun would acquire the entire Company (including the assets
that are the subject of the Sale of Assets), which the Company's management
believed was the only possible transaction that could result in the Company's
stockholders receiving value. Following a meeting at Sun's headquarters in
California in late March 1998, Mr. Simpson sent approximately five letters on
behalf of the Company setting forth specific proposals to the president of SME,
concluding April 20, 1998. The Company and SME thereafter had numerous
conversations in which the Company explored SME's interest in acquiring the
Company as a whole or any of its various assets. However, SME did not at any
time make a specific proposal regarding the terms under which SME would be
interested in pursuing a potential acquisition of the Company or any of its
assets. As the discussions between SME and the Company were progressing very
slowly, by May 1998, the Company believed it unlikely that such a sale would be
completed. However, due to the importance to the Company and its stockholders of
a potential transaction with Sun, the Company's Board of Directors determined in
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May 1998 to delay as long as practicable any decision with regard to dissolution
of the Company as long as a sale of the Company in its entirety seemed at least
remotely possible.
After several months of analysis and discussion, SME informed the Company
in late June 1998 (before the Company entered into a non-binding letter of
intent with the Buyer with respect to the Sale of Assets) that it was not
interested in acquiring the Company as a whole, the Intellectual Property or the
Business (including the Company's inventory of 32-bit microprocessor products),
but might still consider a purchase of the Viper Design Team. However, in late
July 1998, following a meeting between the Company and SME in July 1998 at the
Company's headquarters in Austin, Texas and SME's interviewing of a number of
the Company's engineers, SME informed the Company that it would not make a bid
for the Viper Design Team.
Attempted Sale of the Viper Design Team and 64-bit Intellectual
Property. The Company also attempted to sell the Viper Design Team and the
64-bit Intellectual Property, either together or separately, to companies other
than Sun. In December 1997, Mr. Simpson visited executives of Advanced Micro
Devices ("AMD") at AMD's headquarters in California to determine AMD's interest
in a possible acquisition of the 64-Bit Intellectual Property and/or the Viper
Design Team; AMD subsequently informed the Company in January 1998 that it was
not interested in pursuing a transaction. A detailed proposal letter and bid
package (the "Bid Package") was sent on June 5, 1998 to 21 companies that the
Company's management believed were most likely to be interested in these assets.
These companies included Sun, Hewlett Packard, IBM, Intel, Samsung, NEC,
Fujitsu, Centaur, Micron and Toshiba. Only IBM requested additional information;
IBM also dispatched a team in early July 1998 to meet with the Company's
engineers. In addition, in approximately April and May 1998, the Company made
presentations to Intel and Cadence, respectively, regarding the 64-bit
Intellectual Property and the Viper Design Team. No acquisition proposals of any
kind were made, however, by IBM, Intel, Cadence or any other company besides
Fujitsu for either the Viper Design Team or the 64-bit Intellectual Property. In
addition, on June 26, 1998 a proposal was sent by an intermediary on behalf of
the Company to several Taiwanese companies. None of these companies expressed
any interest in a transaction with the Company. As a result, the Company did not
believe that it would be able to find a buyer for the 64-bit Intellectual
Property other than Fujitsu. Because no company expressed an interest in
acquiring the Viper Design Team, the members of the Viper Design Team were laid
off on July 31, 1998 as part of the Company's orderly shutdown plan.
Attempted Sale of RIL. In December 1997, the Company's Board of Directors
authorized the Company's management to attempt to sell RIL, subject to final
approval of the sale transaction by the Board of Directors. The Company
contacted a number of companies regarding their potential interest in acquiring
RIL and in May 1998 reached an agreement in principle with Motorola regarding
the terms of Motorola's acquisition of RIL. In mid-June 1998, Motorola informed
the Company that it had decided not to proceed with the proposed transaction and
terminated negotiations with the Company. See "-- Transactions with
Fujitsu -- Sale of RIL."
Attempted Sale of 32-bit Intellectual Property. The Bid Package also
included information regarding the 32-bit Intellectual Property, although the
Company did not believe there would be any interest in the 32-bit Intellectual
Property because all such intellectual property was based on 32-bit SPARC(TM)
architecture, for which the Company does not expect continued acceptance given
the substantial decrease in the market for 32-bit products. The Company also
directly informed the two most likely purchasers of such intellectual property,
Fujitsu and Sun, of the Company's interest in selling such intellectual
property, and only Fujitsu expressed an interest in acquiring any of such
intellectual property. See "-- Attempted Sale to Sun" and "-- Transactions with
Fujitsu -- The IP Sale." In addition to the specific sales efforts described
above, the Company issued a number of press releases beginning in March 1998
relating to its interest in selling the Company as an entirety or its various
assets. Accordingly, the Company believes that its interest in being acquired or
selling its assets was well-publicized and well-known. However, no acquisition
proposals were made by any third party for the Company as a whole and no
acquisition proposals were made by any third party (other than Fujitsu, the
Buyer and Motorola) for any of the Company's assets.
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TRANSACTIONS WITH FUJITSU
Supply of Wafer Products. During Fiscal 1997, Fiscal 1998 and the first two
quarters of the fiscal year ending March 31, 1999 ("Fiscal 1999") the Company
purchased from Fujitsu 100% of the dollar amount of the Company's silicon wafer
requirements for production (approximately $23.7 million, $7.3 million and
$32,000, respectively). During the first two quarters of Fiscal 1999, the
Company also paid Fujitsu approximately $556,000 in accrued interest on overdue
payments for its wafer and die purchases in Fiscal 1997 and Fiscal 1998. On
September 30, 1997, as part of the Recapitalization (as defined below), Fujitsu
paid the Company approximately $2.3 million in settlement of certain claims
relating to wafer performance. See "-- Credit Guarantees and the
Recapitalization."
The Company is under no contractual obligation to purchase its wafer
requirements exclusively from Fujitsu and, prior to September 30, 1997, Fujitsu
was under no contractual obligation to sell wafer products to the Company. Since
September 30, 1997, the Company's purchases of silicon wafers from Fujitsu have
been governed by the terms of a letter agreement which sets forth the parties'
agreement in principle on the terms of a formal wafer supply agreement and which
obligates Fujitsu, subject to the terms thereof, to satisfy any purchase orders
placed by the Company for silicon wafers. Prior to and after entering into such
letter agreement, the terms and conditions of all sales of silicon wafers by
Fujitsu to the Company have been governed by individual purchase orders placed
by the Company and negotiated by the Company and Fujitsu in the ordinary course
of business. The Company believes that its purchases from Fujitsu were on terms
comparable to those available from unaffiliated suppliers, except that the
Company believes that Fujitsu provided more favorable payment terms to the
Company than would otherwise have been commercially available to it.
Although the Company and Fujitsu have exchanged drafts of the formal wafer
supply agreement contemplated by the letter agreement referred to above, the
Company and Fujitsu have not entered into the formal wafer supply agreement and
do not expect to do so prior to completion of the Company's orderly shutdown of
its operations.
Purchase of OEM Products. Historically, the Company's sales have been
concentrated among a limited number of large customers, including Fujitsu and
its affiliates. The general decline in the Company's sales has resulted in an
increasing dependence on sales to Fujitsu and its affiliates, which accounted
for 23%, 40% and 56%, respectively, of the Company's net sales in Fiscal 1997,
Fiscal 1998 and the first two quarters of Fiscal 1999, respectively, even as the
dollar amount of these purchases declined from approximately $19.3 million to
$17.0 million and to $6.8 million, respectively, in these periods. The terms and
conditions of the Company's product sales to Fujitsu and its affiliates are
governed by individual purchase orders negotiated by Fujitsu and its affiliates
and the Company in the ordinary course of business. The Company believes that
its sales to Fujitsu and its affiliates have been on terms comparable to those
the Company makes available to unaffiliated third party purchasers. The Company
has not provided Fujitsu and its affiliates with more favorable payment terms
than those the Company has provided to unaffiliated third party purchasers.
The Colorado-4 Development Agreement and License. On February 12, 1997, the
Company and Fujitsu entered into a letter agreement (the "Letter Agreement")
pursuant to which the Company granted to Fujitsu an exclusive right to negotiate
terms for (a) development by the Company and RIL of a microprocessor core, based
upon the Colorado 4 hyperSPARC(TM) architecture, for use as an embedded
controller and (b) the possible acquisition by Fujitsu of all of the outstanding
shares of RIL (See "-- The Sale of RIL"). Pursuant to the Letter Agreement,
Fujitsu had the exclusive right to negotiate with the Company regarding the
terms of a final agreement regarding the microprocessor core development for the
period commencing February 12, 1997 and ending March 31, 1997. As consideration
for such exclusivity, Fujitsu advanced the Company the sum of $3.5 million,
which, under the Letter Agreement, was to be applied against the amount payable
to the Company if the parties successfully negotiated a final agreement during
the exclusivity period or was to be returned to Fujitsu if no final agreement
had been executed by March 31, 1997.
The Company and Fujitsu thereafter entered into a Development Agreement,
effective as of March 31, 1997 (the "Colorado 4 Development Agreement"),
relating to the development of a microprocessor core, code-named DANlite, based
upon the Colorado 4 architecture for use as an embedded microcontroller. Under
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the Colorado 4 Development Agreement, Fujitsu agreed to pay the Company $4.5
million, ($3.5 million of which had already been disbursed, with the remaining
balance of $1.0 million paid upon the satisfaction of various development
milestones), certain costs and expenses and certain royalties. As of August 1,
1998, the Company had not earned any royalties from this license because the
Fujitsu product which is to utilize the Colorado 4 microprocessor core has not
been completed by Fujitsu. Fujitsu's obligations to pay potential future
royalties to the Company with respect to the Colorado 4 microprocessor core were
satisfied in connection with the IP Sale. See "-- The IP Sale."
The Viper Development Agreement and License. The Company and Fujitsu
entered into a development agreement (the "Viper Development Agreement"), dated
June 25, 1997 and effective as of April 1, 1997, relating to the Company's
Ultrasparc(TM) compatible microprocessor known as "Viper". Under the Viper
Development Agreement, the Company agreed to develop a 64-bit microprocessor
chip and to share with Fujitsu ownership of the resulting technology. In
addition, each company acquired the right to exploit the technology in its own
derivative products and to grant sublicenses on a limited basis. Pursuant to the
Viper Development Agreement, Fujitsu initially agreed to pay an aggregate of
$34.5 million in partial funding, to be paid in periodic installments, provided
that the Company met certain milestones. The Viper Development Agreement allowed
for a price reduction or cancellation in the event that the Company failed to
meet such milestones.
The Company failed to timely meet each of the milestones set forth in the
Viper Development Agreement for Fiscal 1997 and Fiscal 1998. On September 29,
1997, December 26, 1997 and March 30, 1998, respectively, the Company and
Fujitsu amended the Viper Development Agreement to redefine the Company's
deliverables and to relieve the Company of its obligation to meet certain
development milestones. As of July 31, 1998, the Company had received payments
of $16.5 million from Fujitsu under the Viper Development Agreement. Due to the
Company's deteriorating financial condition, the Company concluded that it would
not be able to complete development of the Viper project under the Viper
Development Agreement (as discussed above, the members of the Viper Design Team
were laid off on July 31, 1998) and the agreement was terminated on July 31,
1998. See " -- Termination Agreement."
Termination Agreement. In connection with the Company's planned shutdown of
its operations, the Company and Fujitsu entered into a Termination Agreement
(the "Termination Agreement"), dated as of August 31, 1998 and effective as of
July 31, 1998, which provides for the termination of certain agreements between
Fujitsu and the Company, including the Viper Development Agreement and certain
license agreements and confidentiality agreements (subject to the survival of
certain specified provisions of the terminated agreements). In general, the
terminated agreements provided for the license of certain technology related to
the SPARC(TM) architecture and technology by Fujitsu to the Company for use in
its design and manufacturing operations, but no longer necessary for the
operation of the Business. The Termination Agreement also provides that no
further payments are due from either party under the Viper Development Agreement
and for the waiver by Fujitsu of potential penalties otherwise due from the
Company totaling approximately $1.2 million for the Company's inability to meet
the development schedule set forth in the Viper Development Agreement. The
Termination Agreement also provides that certain specified agreements necessary
for the operation of the Business will survive and be assigned to Buyer in
connection with the consummation of the Sale of Assets.
Credit Guarantees and the Recapitalization. In November 1996, the Company
established a "New Credit Facility" with DKB for a maximum of $25 million,
guaranteed by Fujitsu; in February 1997, such New Credit Facility was increased
to $50 million. In September 1997, a separate and additional $10 million credit
facility was established by the Company, also guaranteed by Fujitsu. On
September 29, 1997, the principal amount outstanding under these credit
facilities was $56 million, of which $6 million was due on September 30, 1997
and $50 million was due on March 31, 1998.
On June 18, 1997, the Company received a commitment (the "Assurance
Letter") from Fujitsu that "In accordance with our plan for ROSS Technology, we
[Fujitsu] are ready to provide the necessary funding through debt guarantees or
other types of financing for ROSS Technology not to incur cash flow shortages
through April 1, 1998."
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On July 14, 1997, the Company received notification from The Nasdaq Stock
Market, Inc. ("Nasdaq") that the Company was not in compliance with the net
tangible asset requirement for continued listing of the Common Stock on the
Nasdaq National Market. In connection with such notification, Nasdaq requested
that the Company provide it with plans for complying with the net tangible asset
requirement ($4 million in the Company's case). Nasdaq also informed the Company
that if the Company was unable to demonstrate compliance with these requirements
on or before July 25, 1997, Nasdaq would immediately commence the process of
delisting the Company's Common Stock.
On July 22, 1997, in order to avoid delisting of the Common Stock by Nasdaq
and to meet certain of its payment obligations under its credit facilities with
DKB, Mr. Simpson and Francis S. (Kit) Webster III, the Company's Chief Financial
Officer, visited Fujitsu's offices in Japan and asked Fujitsu to consider
recapitalizing the Company in a transaction (the "Recapitalization") in which
Fujitsu would provide the Company with additional funding and certain of the
Company's existing debt would be converted into convertible preferred stock with
an aggregate liquidation preference of $50 million. In a letter dated July 30,
1997, Fujitsu indicated that it was considering the Company's request for the
Recapitalization.
On August 11, 1997, Mr. Simpson sent a memorandum to Fujitsu advising
Fujitsu of the status of the Company's discussions with Nasdaq concerning the
potential delisting of the Company's Common Stock and reiterating the Company's
need to engage in the Recapitalization. Messrs. Simpson and Webster again
visited Fujitsu at its offices in Japan from August 19, 1997 to August 21, 1997
to further explain the Company's need for the Recapitalization and to discuss
how the Company intended to use the proceeds of the proposed new financing. On
August 25, 1997, Fujitsu's executive management committee approved the
Recapitalization in principle based on the provision of additional financing to
the Company and the satisfaction of $50 million of the Company's debt
obligations to DKB in return for the issuance of convertible preferred stock to
Fujitsu with an aggregate liquidation preference of $50 million.
The Board of Directors of the Company thereafter directed the Special
Committee of the Board (which for these purposes consisted of Mr. Fred T. May,
the Company's Chairman of the Board, who was and is unaffiliated with Fujitsu)
to negotiate the terms of the Recapitalization on behalf of the Company. The
Special Committee thereupon retained separate legal advisors and retained
Robertson, Stephens & Co., LLC ("Robertson Stephens") to provide the Special
Committee with independent financial advice. The Special Committee, with the
assistance of Robertson Stephens and the Special Committee's legal counsel,
along with the Company and its legal counsel, thereupon engaged in negotiations
with Fujitsu and its counsel regarding the terms of the Recapitalization. On
September 9, 1997, the Company's Board of Directors held a meeting at which it
received a report from the Special Committee of the Board of Directors on a
proposed Letter of Intent (the "Recapitalization Letter of Intent") setting
forth the principal terms of the Recapitalization pursuant to which Fujitsu
would satisfy $50 million of the Company's principal debt obligations to DKB and
the Company would issue $50 million of a new Series B Convertible Preferred
Stock (the "Preferred Stock") to Fujitsu. In connection with such transaction,
Fujitsu's guarantee of the Company's obligations to DKB would be reduced to $20
million. The principal terms of the Preferred Stock would include the following:
1. The Preferred Stock would be convertible into Common Stock at any
time. The number of shares of Common Stock into which the Preferred Stock
would be converted, except when a "Special Conversion Condition" applies
(see below) would be the liquidation preference per share ($100.00) divided
by the average of the closing price of the Common Stock on the five trading
days immediately prior to the date of conversion (the "Market Price"). The
Common Stock issuable upon conversion would be eligible for registration at
the Company's expense under the previously-existing Shareholders Agreement
among the Company, Fujitsu, Sun and Roger D. Ross.
2. There would be two Special Conversion Conditions: (1) for two years
from the date of closing, the number of shares of Common Stock into which
the Preferred Stock may be converted would be the liquidation preference
per share ($100.00) divided by $2.50; and (2) if the Company declared
bankruptcy or if the Company requested future additional funding or credit
support from Fujitsu, subject to certain limited exceptions, the number of
shares of Common Stock into which the Preferred Stock
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may be converted would be the liquidation preference per share ($100.00)
divided by the lower of the Market Price or $2.00 (but in no event less
than $1.00).
3. The Preferred Stock would not carry a stated dividend but would
participate pro rata in any dividends on the Common Stock on an "as
converted" basis. The Preferred Stock would have no voting rights for
directors but would be entitled to a class vote on certain specified
matters.
The closing of the Recapitalization described in the Recapitalization
Letter of Intent was contingent upon several conditions, including (a) agreement
between the Company and Fujitsu on the terms and conditions of the definitive
agreements for the Recapitalization; (b) approval of the transaction and the
definitive agreements by the Company's Board of Directors and the Special
Committee of the Board, and receipt of any required governmental or other
approvals; (c) receipt by the Special Committee of an opinion from a reputable
investment banking firm that the sale of the Preferred Stock to Fujitsu is fair
to the Company from a financial point of view; and (d) confirmation to the
parties' reasonable satisfaction that the Company's Common Stock would continue
to trade on the Nasdaq National Market after the closing.
At the September 9, 1997 meeting, Mr. May reported on the negotiations
regarding the proposed Recapitalization that he had had with Fujitsu as the sole
member of the Special Committee. Mr. May also reported that the Special
Committee had received an opinion from Robertson Stephens that, as of September
9, 1997, the Recapitalization was fair to the Company and the Company's
stockholders (other than Fujitsu) from a financial point of view, and that the
Special Committee had determined to recommend to the Board of Directors that the
Board of Directors approve the Recapitalization Letter of Intent.
Representatives of Robertson Stephens also made a presentation to the Board of
Directors regarding the analysis they had performed regarding the terms of the
Recapitalization, with particular focus on the terms of the Preferred Stock.
Following discussion, the Board of Directors approved the Recapitalization
Letter of Intent.
On September 10, 1997, the Company and Fujitsu entered into the
Recapitalization Letter of Intent. Between September 10 and September 29, 1997,
the Company (in connection with the Special Committee) and Fujitsu negotiated
the terms of a Stock Purchase Agreement (the "Stock Purchase Agreement") and a
Certificate of Designation setting forth the terms of the Preferred Stock (the
"Certificate of Designation") which would implement the Recapitalization
described in the Recapitalization Letter of Intent. On September 28, 1997, the
Special Committee held a meeting at which Mr. May reviewed the terms of the
current draft of the Stock Purchase Agreement and the Certificate of Designation
(which were substantially in conformance with the Recapitalization Letter of
Intent) and was informed that Robertson Stephens was prepared to issue its
opinion that the Recapitalization was fair to the Company and the Company's
stockholders (other than Fujitsu) from a financial point of view (although
formal issuance of the opinion would not occur until final negotiations on the
terms of the Stock Purchase Agreement had been completed).
On September 28, 1997, the Company's Board of Directors held a meeting at
which it received a report from the Special Committee of the Board of Directors
on the proposed Recapitalization as set forth in the Stock Purchase Agreement
and the Certificate of Designation. Mr. May reported on the negotiations
regarding the proposed Recapitalization that he had had with Fujitsu as the sole
member of the Special Committee. Mr. May also reported on the proposed Robertson
Stephens opinion. Following discussion, the Board of Directors approved the
Stock Purchase Agreement and the Certificate of Designation, subject to final
approval of the Special Committee, which would not be given until the Special
Committee received an updated fairness opinion from Robertson Stephens.
The Company and Fujitsu thereupon completed negotiation of the Stock
Purchase Agreement and the Certificate of Designation and, following issuance of
the updated fairness opinion from Robertson Stephens and approval of the Special
Committee, on September 30, 1997 the Company and Fujitsu entered into the Stock
Purchase Agreement and implemented the Recapitalization whereby the Company
issued 500,000 shares of Preferred Stock to Fujitsu and Fujitsu paid $50.0
million to the Company, which funds were used by the Company to partially pay
its existing debt to DKB. The shares of Preferred Stock were issued by the
Company to Fujitsu in full and complete satisfaction of the Company's
obligations to reimburse Fujitsu for the payments made by Fujitsu under its
guarantees of the Company's debt to DKB. In connection with the
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Recapitalization, Fujitsu also provided a new guaranty for a $20.0 million line
of credit from DKB, which was originally scheduled to expire on March 31, 1998.
Both the credit facility and the guaranty have been extended to November 30 and
December 31, 1998, respectively. Pursuant to the Stock Purchase Agreement, the
Company agreed that Fujitsu's obligations to the Company under the Assurance
Letter were fully satisfied and extinguished as of the closing of the
Recapitalization.
On September 30, 1997, the Company filed a Current Report on Form 8-K with
the SEC reporting the consummation of the Recapitalization and including as an
exhibit a pro forma condensed consolidated balance sheet of the Company as of
August 31, 1997 evidencing compliance with the net tangible assets requirement
for continued listing of the Company's Common Stock on The Nasdaq Stock Market's
National Market. On October 9, 1997, the Company received formal notification
that Nasdaq had determined that the Company was in compliance with all
requirements for continued listing of the Company's Common Stock on Nasdaq's
National Market.
In connection with, and as a condition to consummation of the transactions
contemplated by the Stock Purchase Agreement, the Company and Fujitsu also
entered into an Agreement for Reimbursement of Wafer Payments dated as of
September 30, 1997 (the "Reimbursement Agreement") pursuant to which the Company
and Fujitsu settled all disputes between them or their respective affiliates
relating to silicon wafer and die deliveries prior to September 30, 1997 in
exchange for a payment from Fujitsu to the Company of approximately $2.3 million
and mutual releases of silicon-related claims for periods through June 30, 1997
(except for certain warranty claims by the Company and certain invoices rendered
in the ordinary course by Fujitsu for purchases by the Company). The
Reimbursement Agreement was approved by the Special Committee on September 29,
1997.
The IP Sale. In mid-April 1998, Company representatives visited Fujitsu to,
among other things, ascertain whether Fujitsu would be interested in acquiring
the Company's intellectual property, including the 32-bit Intellectual Property
and the 64-bit Intellectual Property, and the Viper Design Team. At that time,
Fujitsu again indicated to the Company that it was not interested in acquiring
the Company as a whole, the Business or the Viper Design Team, but indicated
that it might be interested in acquiring certain of the Intellectual Property.
Representatives of Fujitsu and the Company thereafter met on May 20 and May 21,
1998 at the Company's executive offices in Austin, Texas to discuss a possible
purchase. As a result of these meetings, and after discussions with certain of
the Company's engineers, Fujitsu provided the Company with a preliminary list of
the Intellectual Property that it would be interested in purchasing. The
preliminary list included portions of the 32-bit Intellectual Property and the
64-bit Intellectual Property, although the list did not indicate a proposed
purchase price.
On May 30, 1998, the Company proposed a $15 million purchase price for
"Colorado-related" intellectual property (which comprised a portion of the
32-bit Intellectual Property) and a $10 million purchase price for all of the
64-bit Intellectual Property. After consideration of the Company's proposal on
June 23, 1998 Fujitsu counter-proposed a purchase price in the range of $4
million to $5 million for the Intellectual Property that it was interested in
purchasing (which did not include all of the Intellectual Property for which the
Company proposed purchase prices). The Company and Fujitsu thereafter engaged in
negotiations, and ultimately agreed upon an Asset Purchase and License Agreement
(the "Asset Purchase and License Agreement") pursuant to which the Company would
sell (the "IP Sale") certain intellectual property rights to Fujitsu for $7.6
million. The intellectual property to be acquired by Fujitsu under the Asset
Purchase and License Agreement (the "Acquired IP") included (a) intellectual
property relating to the Colorado 4 microprocessor core, including the DANlite1,
DANlite2 and DANlite3 microprocessor core versions originally developed by RIL;
(b) certain intellectual property relating to the HyperSPARC(TM) module and test
programs and photon bus; (c) certain intellectual property relating to the
64-bit Viper development project; and (d) four patents relating to the Company's
32-bit microprocessor designs. The Acquired IP included a significant portion of
the 32-bit Intellectual Property (but not any of the Company's intellectual
property rights relating to the Colorado 5 microprocessors or its Mbus chip
set), and the 64-bit Intellectual Property (but not any of the patent rights
applied for by the Company with respect thereto). The consideration to be paid
by Fujitsu included consideration for the termination of Fujitsu's obligations
to pay future royalties to the Company under the Colorado 4 Development
Agreement for Fujitsu's use of the
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DANlite microprocessor core. During discussions, the Company requested from
Fujitsu, and Fujitsu agreed to provide, a royalty-free license (the "License")
pursuant to which the Company could continue to utilize the Acquired IP in the
Company's 32-bit manufacturing operations. Fujitsu also agreed to permit the
Company to assign its rights under the License to a successor to the Company's
32-bit manufacturing operations, subject to Fujitsu's reasonable consent.
Fujitsu subsequently agreed to permit the Company to assign its rights under the
License to the Buyer, contingent upon the closing of the Sale of Assets. Fujitsu
also indicated its willingness to negotiate any additional licenses that might
be requested by the Buyer.
On July 2, 1998, the Executive Committee of the Board of Directors met to
consider the IP Sale in order to make a recommendation to the Board of Directors
on whether to approve the IP Sale. The members of the Executive Committee
present at that meeting were Messrs. May, Simpson and Thompson; not present at
the meeting were Mr. Yasushi Tajiri and Mr. Masahiro Saida, each of whom is
affiliated with Fujitsu. Messrs. May and Simpson are unaffiliated with Fujitsu
(other than through Mr. Simpson's employment by the Company), while Mr. Thompson
is an advisor to Fujitsu and acts as an independent board member for or advisor
to various other Fujitsu subsidiaries. (Messrs. May, Simpson and Thompson also
constitute all of the members of the Ad Hoc Committee established by the Board
of Directors at the July 2, 1998 meeting to make recommendations to the Board of
Directors with respect to asset sales by the Company and related matters in
connection with the implementation of the Company's shutdown plan.) The members
of the Executive Committee present at the July 2, 1998 meeting, a majority of
whom are unaffiliated with Fujitsu, voted unanimously to recommend that the
Board of Directors approve the IP Sale. At a meeting held later in that same
day, the Board of Directors voted unanimously to approve the Asset Purchase
Agreement and the IP Sale. The Company and Fujitsu thereupon entered into the
Asset Purchase and License Agreement as of July 10, 1998 and consummated the IP
Sale on July 27, 1998. Fujitsu financed its acquisition of the Acquired IP
through its working capital reserves.
As described above, although the Company marketed the Acquired IP to a
number of potential purchasers, Fujitsu was the only party that expressed an
interest in acquiring the Acquired IP. See "-- Attempted Sale of the Company or
its Various Assets other than to Fujitsu or Buyer." The Company believes that
the only other likely potential purchaser of the Intellectual Property sold to
Fujitsu was Sun, because Sun is the only other major semiconductor manufacturer
that utilizes the SPARC(TM) architecture. However, during numerous discussions
with the Company, Sun did not express any firm interest in acquiring any of the
Company's Intellectual Property.
The Sale of RIL. On December 6 and December 11, 1996, Roger D. Ross, the
then-President of the Company, asked Mr. Ryusuke Hoshikawa, a member of the
Board of Directors of each of the Company and Fujitsu, if Fujitsu would be
interested in acquiring all of the issued and outstanding shares of capital
stock of RIL from the Company and indicated that the Company had made a similar
offer to Sun for the sale of such shares for $7 million. In January 1997, Mr.
Hoshikawa and Hirohiko Kondo, the then-Group Senior Vice President and General
Manager Marketing of the LSI Products Group of Fujitsu (and the current Senior
Vice President of the Semiconductor Group of Fujitsu), visited RIL. On February
12, 1997, the Company and Fujitsu entered into a memorandum of agreement
regarding the development by the Company and RIL of a microprocessor based on
the Company's Colorado 4 hyperSPARC(TM) architecture for use as an embedded
microcontroller. In such memorandum of agreement, the Company agreed not to
negotiate the sale of RIL with any third party through March 31, 1997. See
"-- The Colorado-4 Development Agreement and License." During such period, the
Company and Fujitsu continued to discuss the possible sale of RIL. However, the
Company requested a $7 million purchase price and Fujitsu proposed a $2.5
million purchase price. The Company and Fujitsu were unable to reach an
agreement on the purchase price and such discussions were discontinued in March
1997 without any agreement being reached, although informal discussions began
again in mid-1997.
In December 1997, the Company's Board of Directors authorized the Company's
management to attempt to sell RIL, subject to final approval of the sale
transaction by the Board of Directors. The Company's management, with the
assistance of Yoav Talgam, the President of RIL, attempted to locate potential
buyers of RIL. The Company had discussions with Sun and Motorola regarding their
potential interest in acquiring RIL. In addition, on December 13, 1997, Mr.
Webster sent a letter to Mr. Kondo informing Fujitsu of the
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<PAGE> 21
Company's intention to seek prospective purchasers of RIL for $7 million and
asking Fujitsu to reconsider an acquisition of RIL. On January 17, 1998, Fujitsu
received a draft Preliminary Valuation Analysis of RIL from the Tokyo office of
KPMG Peat Marwick LLP ("KPMG Japan"), pursuant to which KPMG Japan valued RIL,
using a replacement cost approach, at between $1.6 million and $2.0 million and,
using a market multiple approach, at between $2.2 million and $3.1 million. See
"-- Special Factors Relating to the IP Sale and the Sale of RIL -- The KPMG
Japan Valuation Analysis." On January 23, 1998, Messrs. Kondo, Simpson and
Thompson visited RIL and Mr. Kondo offered, on behalf of Fujitsu, to purchase
all of the shares of RIL for $2.6 million. On January 31, 1998, Mr. Simpson sent
a letter to Mr. Kondo offering on behalf of the Company to sell all of the
shares of RIL, and to license certain of the Company's intellectual property
relating to RIL's development activities, for $8 million. On February 16, 1998,
Mr. Kondo proposed on behalf of Fujitsu the acquisition of the RIL shares and
certain of the Company's intellectual property for $8 million, of which
approximately $1.7 million would be allocated to certain microprocessors that
RIL had developed and was then developing on Fujitsu's behalf. However, due to
budgetary constraints and adverse developments in the semiconductor business
generally, Fujitsu withdrew this proposal on March 10, 1998 and discussions of a
purchase then ended. Mr. Webster thereafter sent a letter to Fujitsu asking
Fujitsu to pay for RIL's development of the microprocessors that were then under
development (and for which Fujitsu had proposed to allocate approximately $1.7
million of any RIL purchase price). On April 7, 1998, Mr. Kondo sent a letter to
Mr. Webster indicating Fujitsu's agreement to this proposal. Fujitsu paid
approximately $1.7 million to the Company with respect to such development
effort in early May 1998.
During and after its negotiations with Fujitsu (approximately January
through June 1998), the Company engaged in in-person and telephonic negotiations
with Motorola regarding an acquisition of RIL by Motorola. Motorola also engaged
in legal and financial due diligence of RIL in Israel. After Fujitsu withdrew
its offer, the Board of Directors of the Company authorized the Company's
management to proceed to negotiate the sale of RIL to Motorola for $4.5 million,
which price had been proposed by Motorola based on the number of RIL's employees
and the scope of its historical development activities. Following further
discussions with Motorola, Motorola indicated to the Company that it would only
be willing to pay $3.75 million for RIL due to a reduction in the number of
RIL's employees, as certain of RIL's employees had quit in order to pursue other
opportunities or were not prepared to confirm their willingness to be employed
by Motorola.
In early May 1998, Motorola provided the Company with a draft of a purchase
agreement. The Company responded to this draft in late May and received a
revised draft purchase agreement from Motorola on or about June 7, 1998. The
Company's management continued to have discussions with Motorola regarding the
terms of Motorola's proposed acquisition of RIL. On or about June 10, 1998,
however, Motorola informed the Company that it had decided not to proceed with
the proposed transaction and terminated discussions with the Company. Motorola
indicated to the Company that it would not proceed with its proposed acquisition
of RIL because an insufficient number of RIL's employees were willing to be
employed by Motorola.
Following termination of discussions with Motorola regarding its proposed
acquisition of RIL, the Company and RIL continued to seek potential purchasers
of RIL, but were unable to obtain any offers. On or about June 15, 1998, as part
of the Company's orderly shutdown plan, RIL issued termination notices, to be
effective July 15, 1998, notifying its employees of the Company's intention to
shutdown RIL and all of its operations. The Company did not expect to realize
any significant value from RIL's assets in connection with a shutdown, because
the Company believed that the liquidation value of RIL's assets was
insignificant (RIL's tangible assets had a de minimis value and its intangible
assets (primarily third party software licenses) were in general
non-transferrable) and that substantially all of RIL's value to a third party
purchaser relates to its employees. The Company believes that it would have
incurred approximately $600,000 of costs and expenses in connection with a
shutdown of RIL's operations. Following Motorola's termination of negotiations
with the Company regarding the sale of RIL, RIL's workforce was reduced from
approximately 31 employees to approximately 16 employees, both as a cost-saving
measure and as a result of resignations.
On June 14, 1998, following the request of Mr. Simpson, Mr. Talgam
contacted Mr. Kondo to request that Fujitsu reconsider an acquisition of RIL by
Fujitsu in order to avoid a shutdown of RIL's operations. On June 22, 1998,
Messrs. Kondo and Talgam met in Israel to discuss the possibility of such an
acquisition and the manner in which Fujitsu would continue to operate RIL. On
July 2, 1998, Fujitsu provided the Company
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with a term sheet setting forth the terms and conditions under which Fujitsu
would be prepared to acquire all of RIL's issued and outstanding shares of
capital stock for $2.5 million.
On or about July 6, 1998, Fujitsu provided the Company with a draft of a
Share Acquisition Agreement (the "RIL Agreement") providing for the sale by the
Company to Fujitsu of all of RIL's issued and outstanding capital stock on the
terms set forth in the term sheet (the "Sale of RIL"). Fujitsu and the Company
thereafter negotiated the terms of the RIL Agreement, as well as the retention
terms for RIL's employees. The Company and Fujitsu reached agreement on all
terms of the RIL Agreement by approximately July 21, 1998. The RIL Agreement
provided for the sale of all of the issued and outstanding shares of capital
stock of RIL to Fujitsu for $2.5 million, with Fujitsu's obligations to
consummate the Sale of RIL to be conditioned upon, among other things, the
receipt of confirmations of continued employment from certain of RIL's
employees, the conversion of all loans from the Company to RIL into capital, RIL
having cash on hand, as of July 31, 1998, of $500,000 (after paying its payroll
in full through that date) and the payment by the Company of a previously-agreed
sale bonus to Mr. Talgam of $185,000. Thereafter, Fujitsu and Mr. Talgam
completed negotiation of the retention terms for RIL's employees, including Mr.
Talgam. On July 21, 1998 and July 30, 1998, the Ad Hoc Committee of the Board
met to consider the Sale of RIL in order to make a recommendation to the Board
of Directors on whether to approve the Sale of RIL. The members of the Ad Hoc
Committee present at those meetings were Messrs. May, Simpson and Thompson, who
constitute all of the members of the committee. The members of the Ad Hoc
Committee, a majority of whom are unaffiliated with Fujitsu, voted unanimously
to recommend that the Board of Directors approve the Sale of RIL. At a meeting
held on July 30, 1998, the Board of Directors of the Company received the
recommendation of the Ad Hoc Committee and voted unanimously to approve the Sale
of RIL and the RIL Agreement. The Company and Fujitsu entered into the RIL
Agreement on August 6, 1998 and the Sale of RIL was consummated on August 10,
1998. Fujitsu financed its acquisition of RIL through its working capital
reserves.
SPECIAL MATTERS RELATING TO THE IP SALE AND THE SALE OF RIL
Approval of the Board of Directors; Recommendation of the Executive
Committee and Ad Hoc Committee; Fairness of the IP Sale and the Sale of RIL. The
Board of Directors believes that the IP Sale and the Sale of RIL were in the
best interests of the Company, its creditors and stockholders and were fair to
the Company's unaffiliated stockholders. Accordingly, the Board of Directors
approved the IP Sale and the Sale of RIL. In reaching its determination, the
Board of Directors consulted with the Company's management, as well as its legal
advisors, and considered the following factors. The following discussion of the
factors considered by the Board of Directors is not intended to be exhaustive
but summarizes the material factors considered.
1. The Company's prior decision to shutdown its operations after a
careful analysis of the Company's financial condition, assets, liabilities,
technology, operations and prospects. See "Special Factors -- General
Background." The Company has borrowed the entire $20.0 million available to
it under its line of credit with DKB, which line of credit is due on
November 30, 1998, and believes it has no other sources for equity or debt
financing. In addition, the Company has suffered decreasing revenues and
substantial operating losses, is currently unable to generate cash flow
from operations and has been unable to successfully market its 32-bit
technology in a business environment moving towards an increased
utilization of and demand for the 64-bit technology of the Company's
competitors. The Company also did not have the resources to complete
development of its proposed 64-bit "Viper" product. The Company does not
have the alternative of continuing its operations, including the operations
of the Business, and cannot at this time generate a positive return for its
stockholders.
2. The results of the Company's consideration of alternatives to the
IP Sale and the Sale of RIL, including the Board of Directors' judgment
that it would not be possible to dispose of the Company as a whole, the
Acquired IP or RIL on terms more favorable to the Company and its
stockholders. In this regard, the Company had been unable to locate a buyer
for the Company as a whole. In addition, the Company has been unable to
obtain any other bids for the Acquired IP and the only other bidder for RIL
had terminated negotiations with the Company. Accordingly, although the
Company does not believe that any funds or assets will be available for
distribution to the Company's stockholders after
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consummation of the IP Sale, the Sale of RIL and the Sale of Assets and
following dissolution and liquidation under the Plan, the Board of
Directors did not believe that there were any alternatives available to the
Company that would permit any such distributions.
3. The belief of the Board of Directors that the industry in which the
Company operates is highly competitive and that the Company does not have
the products or resources necessary to be competitive or to continue its
operations for an extended period of time.
4. The proposed terms and structure of the IP Sale and the Sale of
RIL, including the terms of the Asset Purchase and License Agreement and
the RIL Agreement, and the fact that the Company's representations and
warranties contained in the Asset Purchase and License Agreement and the
RIL Agreement survive the respective closings for a period of only six
months.
5. In the case of the IP Sale, the Company's immediate need to raise
funds in order to finance an orderly shutdown, including the costs
associated with the termination of a substantial percentage of the
Company's employees and the opportunity to sell the Acquired IP on terms
that would permit the Company's continued use of the 32-bit Intellectual
Property included in the Acquired IP in its business, pending completion of
the shutdown. Given that the Company was unable to locate any other bidders
for the Acquired IP, the Company believes that the liquidation value of the
Acquired IP was de minimis, and in any event less than the price paid by
Fujitsu for the Acquired IP.
6. In the case of the Sale of RIL, the fact that RIL's operations had
been scaled back (including a significant reduction in the number of
employees) and the Company had otherwise determined to cause RIL to
shutdown its operations at an estimated cost of approximately $600,000
prior to resumed negotiations with Fujitsu for a purchase of RIL. The
Company believes that RIL would have had a negative liquidation value
because it did not expect that RIL would realize any significant value from
RIL's assets in connection with any shutdown. Although RIL's assets had a
book value of approximately $1.6 million, most of such book value related
to nontransferrable software and the Company believed that substantially
all of RIL's value to a third party purchaser related to its employees
(Fujitsu and Motorola both indicated to the Company that they were not
interested in RIL's software and the prices they proposed to pay for RIL
related to the number of RIL's employees).
7. The recommendation of the Executive Committee and the Ad Hoc
Committee, respectively, that the Board of Directors approve and adopt the
IP Sale and the Asset Purchase and License Agreement and the Sale of RIL
and the RIL Agreement.
In view of the variety of factors considered in connection with its
evaluation of the IP Sale and the Sale of RIL, respectively, the Board of
Directors did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the Board of
Directors may have given differing weights to differing factors.
In determining to recommend that the Board of Directors approve and adopt
the IP Sale and the Sale of RIL, the Executive Committee (in the case of the IP
Sale) and the Ad Hoc Committee (in the case of the Sale of RIL) considered the
same material factors listed above (other than item 7) as did the Board of
Directors. In view of the variety of factors considered in connection with its
evaluation of the IP Sale and the Sale of RIL, the Executive Committee and the
Ad Hoc Committee did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Executive
Committee and the Ad Hoc Committee may have given differing weights to differing
factors.
The approval of the Company's stockholders was not required in connection
with either the IP Sale or the Sale of RIL. The Company's directors and
executive officers have informed the Company that, if such a vote of the
stockholders had been required, they would have voted their shares of Common
Stock in favor of such transactions and would have recommended that the
Company's stockholders vote in favor of such transactions.
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Position of Fujitsu Regarding the Fairness of the IP Sale and the Sale of
RIL. Based on the information available to Fujitsu, Fujitsu believes that the IP
Sale and the Sale of RIL were fair to the Company and its unaffiliated
stockholders. Fujitsu's belief is based upon the following factors, weighted
approximately in order:
1. Fujitsu believes that the Company was unable to obtain a
financially or strategically superior offer for the Acquired IP or RIL.
Despite repeated efforts to locate prospective purchasers for the Company
as a whole or any of its various assets, including a directed marketing
campaign in which Fujitsu understands that marketing materials were
directly circulated to potential purchasers, Fujitsu understands that the
Company was unable to locate a buyer for the Company as a whole or to
obtain any other bids for the Acquired IP, and that the only other bidder
for RIL terminated its negotiations with the Company before Fujitsu
expressed an interest in again considering the purchase of RIL. Fujitsu
believes that no better offer would have been made to the Company with
respect to the Acquired IP or RIL. See "-- Attempted Sale of the Company or
its Various Assets Other Than to Fujitsu or Buyer."
2. In the case of the IP Sale, Fujitsu's interest in acquiring the
Acquired IP on terms which would permit the Company's continued use of the
32-bit Intellectual Property included in the Acquired IP in its business,
including in its negotiations with the Buyer for the Sale of Assets.
3. In the case of the Sale of RIL, the fact that RIL's operations had
been scaled back (including a significant reduction in its engineering
staff) and the Company had otherwise determined to cause RIL to shutdown
its operations at an estimated cost of approximately $600,000 prior to
resumed negotiations with Fujitsu for the Sale of RIL.
4. In the case of the Sale of RIL, the Valuation (as defined below)
which Fujitsu obtained from KPMG Japan setting forth a valuation range for
RIL, between, in the case of the Replacement Cost Approach, $1.6 million
and $2.0 million, and, in the case of the Market Multiple Approach, $2.2
million and $3.1 million. Although the ultimate purchase price of $2.5
million for the Sale of RIL was agreed upon after material and adverse
changes in RIL's circumstances (including the departure of approximately
one-half of its employees and two-thirds of its key engineering
management), the purchase price fell within the valuation ranges set forth
in the Valuation. See "-- Special Matters Relating to the IP Sale and the
Sale of RIL -- The KPMG Valuation Analysis."
The KPMG Japan Valuation Analysis. On January 17, 1998, after receiving the
Company's offer to sell all of the issued and outstanding capital stock of RIL
to Fujitsu for $7 million, Fujitsu received a draft Preliminary Valuation
Analysis (the "Valuation") from KPMG Japan. Fujitsu retained KPMG Japan based on
the worldwide experience of KPMG Peat Marwick LLP ("KPMG") in auditing
semiconductor companies and because KPMG Japan has provided accounting services
to many of Fujitsu's foreign affiliates. Since April 1, 1996, no material
relationships have existed between KPMG and its affiliates, on the one hand, and
the Company or its affiliates, on the other hand, except that KPMG (through its
office in Austin, Texas) has been retained as the Company's independent public
accountants and audited the Company's financial statements for Fiscal 1997 and
Fiscal 1998.
During its preparation of the Valuation, KPMG Japan used a Replacement Cost
Approach (whereby the value of the business is determined based upon the
replacement costs for the investor, which, in the case of RIL, relate to the
amount of cash that would have to be expended in order to re-establish its then
in place assembled workforce and to re-acquire its business assets) and a Market
Multiple Approach (whereby the value of the business is determined by comparing
the business of the subject company to those of comparable publicly traded or
quoted companies; in this analysis, KPMG Japan adopted a revenue multiple
(derived by comparing the total capitalization to the revenue volume of the
comparable companies) which is applied to RIL's potential revenue in order to
estimate its value). The Valuation sets forth a valuation range between, in the
case of the Replacement Cost Approach, $1.6 million and $2.0 million, and, in
the case of the Market Multiple Approach, $2.2 million and $3.1 million. Such
valuations were presented on the basis of a "debt-free", "operating" enterprise
value. Accordingly, the foregoing valuations did not include the value of cash
and cash equivalent assets (approximately $460,000 as of December 31, 1997) and
amounts due to RIL
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(approximately $2.25 million as of December 31, 1997). In connection with the
preparation of the Valuation, KPMG Japan did not receive instructions from
Fujitsu and Fujitsu did not impose any limitations on the scope of the
investigation performed by KPMG Japan.
The foregoing description of the Valuation does not purport to be complete.
A copy of the Valuation has been filed as an exhibit to the Schedule 13E-3 filed
by the Company, Fujitsu and the Buyer with the SEC. See "Miscellaneous." Copies
thereof will be made available for inspection and copying at the principal
executive offices of the Company during its regular business hours by any
interested stockholder of the Company or his or her representative who has been
so designated in writing.
The $2.5 million purchase price paid by Fujitsu to the Company on August
10, 1998 in connection with the consummation of the Sale of RIL was the result
of negotiations between the Company and Fujitsu, and KPMG Japan did not
recommend any specific price. The Sale of RIL was consummated more than six
months after the completion of the Valuation and after material negative changes
in RIL's circumstances, including the departure of approximately one-half of its
employees and two-thirds of its key engineering management.
Purpose of the IP Sale and the Sale of RIL; Reasons for the IP Sale and the
Sale of RIL. Fujitsu entered into the Asset Purchase and License Agreement and
the RIL Agreement in order to acquire the Acquired IP and RIL. Fujitsu
determined to enter into and consummate the IP Sale and the Sale of RIL because
the Company was unable to locate any other prospective purchasers and had
decided to engage in an orderly shutdown of its operations. In addition, the IP
Sale will enable Fujitsu to further develop certain SPARC(TM) products which
would otherwise have been discontinued through the shutdown of the Company's
operations. The Sale of RIL prevented the disbanding of RIL's engineering staff
who have been involved in the development of certain microprocessors on
Fujitsu's behalf. Fujitsu believes that the remaining RIL engineers can continue
to constitute a productive design and development group, capable of continuing
development of the DanLITE series of products previously developed by RIL for
Fujitsu under development agreements with the Company. The timing of the IP Sale
and the Sale of RIL was determined by the Company.
The Company determined to enter into and consummate the IP Sale and the
Sale of RIL due to the Company's deteriorating financial condition and the
decision of the Company to engage in an orderly shutdown of its operations. The
Company did not believe that it had any alternatives at the time that were
superior to the IP Sale and the Sale of RIL, taken individually or together. See
"Special Factors -- General Background;" "-- Transactions with Fujitsu;" and
"-- Approval of the Board of Directors and Reasons for the IP Sale and Sale of
RIL; Recommendation of the Executive Committee and the Ad Hoc Committee;
Fairness of the IP Sale and the Sale of RIL."
Plans for the Company After the IP Sale and the Sale of RIL. The Company
consummated the IP Sale and the Sale of RIL as part of the Company's orderly
shutdown plan and the Company intended to proceed, and is proceeding, with the
orderly shutdown of its operations. The Company intends to proceed with
liquidation and dissolution after the Sale of Assets is consummated or if the
Sale of Assets is not consummated for any reason, in order to further implement
the Company's orderly shutdown of its operations. The Company anticipates that
it will reduce the size of its Board of Directors after the Dissolution Date (as
defined below), although no decisions have been made. The Company's Common Stock
currently trades in the over-the-counter bulletin board maintained by The Nasdaq
Stock Market. See "Market Price Data." After the Dissolution Date, the Company's
stock transfer books will be closed and the Company's Common Stock will cease to
trade. The Company intends to terminate the registration of the Common Stock
under the Exchange Act and thereafter the Company will no longer be required to
file periodic reports with the SEC. See "The Plan of Complete Liquidation and
Dissolution."
BACKGROUND OF THE ASSET PURCHASE AGREEMENT
The Asset Purchase Agreement. In April 1998, the Board of Directors of the
Company instructed management to prepare estimates of the time and cost of an
orderly shutdown of the Company's manufacturing operations to be presented at
the meetings of the Board of Directors and its committees scheduled for
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May 13 and May 14, 1998. Mr. Jones, on behalf of the Buyer, approached Company
management in late April 1998 regarding the possible acquisition of the assets
of the Business. Despite efforts by the Company to identify and locate other
potential purchasers, the Buyer was the only bidder for the Business. See
"-- Attempted Sale of the Company or its Various Assets Other than to Fujitsu or
Buyer." The Buyer described possible acquisition terms to the Company, and was
informed that the Company was willing to engage in further discussions. The
Buyer thereupon engaged outside advisors and legal counsel, and began to solicit
the necessary outside funding.
On behalf of the Buyer and at the request of the Company, Mr. Jones made a
presentation to the Company's Board of Directors and its committees at their May
13 and 14, 1998 meetings regarding the Buyer's proposed acquisition of the
Business. Members of the Board of Directors and management asked and received
answers to questions regarding the Buyer's proposal. Mr. Jones was thereupon
excused from the meetings so that the Board of Directors and management could
discuss the proposal. At these meetings, the Company's Chief Financial Officer
also discussed with the Board of Directors the financial implications to the
Company of the proposed Sale of Assets as compared to a shutdown of the Business
which would otherwise be required if a buyer for the Business or the Company as
a whole could not be located. The Board of Directors thereupon instructed the
Company's management to proceed with negotiations with the Buyer regarding the
proposed Sale of Assets, and the Company's management informed the Buyer of the
Company's intention to proceed with such negotiations. The Company did not at
this time or otherwise make available to the Buyer or Mr. Jones the cost details
of the Company's proposed shutdown plan; similarly, neither Buyer's business
plan nor fund raising operations were aided by or reviewed by the Company's
management.
On June 10, 1998, the Buyer presented a draft letter of intent and
confidentiality agreement to the Company. Over the next two weeks, the Company
and the Buyer engaged in extensive negotiations regarding the letter of intent,
with the Company insisting that the letter of intent be non-binding. The parties
agreed that the purchase price to be paid by the Buyer for the Acquired Assets
would be $5.66 million, the price originally proposed by Buyer in its
presentation at the May 13 and May 14, 1998 meetings of the Board of Directors
and its committees. On June 25, 1998, the Company and the Buyer executed a
non-binding letter of intent setting forth the primary terms of the Buyer's
proposed acquisition of the Business, including the purchase price and the
amount to be paid by the Company to the Buyer for Buyer's assumption of certain
of the Company's warranty obligations. The Company and the Buyer also executed a
confidentiality agreement at that time.
On June 26, 1998, the Buyer provided the Company with an initial draft of
the Asset Purchase Agreement. For the next several weeks, the Company and the
Buyer engaged in extensive negotiations of the terms of the Asset Purchase
Agreement and related ancillary agreements. Throughout this process, the members
of the Board of Directors were kept informed by management on an informal basis
of the status of the talks, as well as the Company's continuing efforts to sell
its other assets. In addition, the Executive Committee of the Board of Directors
and the full Board discussed the status of the proposed transaction at their
respective meetings held on July 2, 1998. On July 2, 1998, the Board of
Directors of the Company established the Ad Hoc Committee of the Board of
Directors (consisting of Fred T. May, the Company's Chairman of the Board, Jack
W. Simpson, Sr., the Company's Chief Executive Officer and President, and Edward
F. Thompson) to make recommendations to the Board of Directors with respect to
asset sales by the Company and related matters in connection with the
implementation of the Company's shutdown plan.
Throughout the negotiations, the Company insisted that it retain the
ability, after execution of the Asset Purchase Agreement, to enter into
negotiations pursuant to any proposal by a third party for the sale of the
Company as an entirety or all or any portion of the Business, to continue any
discussions in progress for any acquisition proposal and to terminate the Asset
Purchase Agreement if the Company were to enter into a binding agreement for the
acquisition, merger or combination of the Company as a whole or the sale of all
of the Company's assets as a whole. The Buyer ultimately acceded to this demand.
The Ad Hoc Committee reviewed the proposed Sale of Assets in detail at a
meeting held on July 15, 1998 and met again on July 21, 1998 to, among other
things, consider the Sale of Assets and the Asset Purchase Agreement. On July
21, 1998, the Ad Hoc Committee, a majority of whose members are unaffiliated
with Fujitsu, voted unanimously to recommend that the Board of Directors approve
the Sale of
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<PAGE> 27
Assets and the Asset Purchase Agreement. The Board of Directors thereupon met on
July 22, 1998 to, among other things, consider the Sale of Assets and the Asset
Purchase Agreement. Such meeting was attended by all of the directors, as well
as Francis S. (Kit) Webster III, the Company's Chief Financial Officer, and
representatives of Irell & Manella LLP, legal counsel to the Company, and
Richards, Layton & Finger, P.A., special Delaware counsel to the Company. The
members of the Board had previously been provided with a copy of the most recent
draft of the Asset Purchase Agreement and related documents and at the meeting
were apprised of the principal terms of the transaction, the DGCL and applicable
case law and received the recommendation of the Ad Hoc Committee that the Sale
of Assets and the Asset Purchase Agreement be approved. Following discussion,
the Board of Directors thereupon unanimously approved the Sale of Assets, the
Asset Purchase Agreement and related documents.
Agreements between the Buyer and Fujitsu. Fujitsu currently supplies 100%
of the Company's requirement for silicon wafers and is the only supplier
currently qualified to supply such wafers. See "Transactions with
Fujitsu -- Supply of Wafer Products." Accordingly, shortly after the Buyer
provided the Company with a draft of the letter of intent and confidentiality
agreement, the Buyer contacted Fujitsu to request a commitment from Fujitsu that
it would continue to supply the silicon wafers used in the Business to the Buyer
on terms substantially similar to those on which Fujitsu currently sells silicon
wafers to the Company. Negotiations regarding such commitment have been
conducted primarily by the Buyer's and Fujitsu's respective counsels. A wafer
supply agreement, with terms substantially similar to the agreement in principle
between the Company and Fujitsu, is expected to be executed prior to the
consummation of the Sale of Assets. Under the agreed terms, the Buyer has the
right, but not the obligation, to purchase its requirements for certain wafer
products from Fujitsu. The costs of such silicon wafers is expected to be a
substantial portion of Buyer's operating costs for the next two years.
Although Fujitsu agreed that it would provide its consent to the assignment
of the License by the Company to the Buyer, the Buyer determined that it
required a more detailed license to the technology covered by the License.
Accordingly, beginning in early July, Fujitsu, the Company and the Buyer entered
into extensive negotiations regarding such license, which resulted in a
Technology Framework Agreement among the Company, Fujitsu and the Buyer, to be
effective as of the consummation of the Sale of Assets.
The Company has been informed that the Buyer and Fujitsu have not entered
into any other agreements, whether with regard to future product sales by Buyer
to Fujitsu or otherwise.
Buyer's Funding of the Sale of Assets. The Company has been informed that
the Buyer intends to fund the Sale of Assets and continued operation of its
business through both equity investments and debt facilities totaling
approximately $9.0 million. The equity investments will consist of the sale of
Buyer's Series A Preferred Stock, representing approximately 25% of the fully
diluted capital stock of Buyer, to a group of investors who are unaffiliated
with the Company. The debt facilities will consist of a senior revolving line of
credit, a senior term loan, and a senior subordinated term loan with attached
warrants to purchase five percent (5%) of Buyer's common stock. The senior
revolving line of credit and the senior term loan will be made pursuant to a
Loan and Security Agreement, to be dated as of the date of the consummation of
the Sale of Assets, between Buyer and the lender. The Loan and Security
Agreement is expected to be secured by a lien on substantially all of the assets
of Buyer and to contain financial and other covenants typical for loans of this
type. The revolving line of credit will mature twelve months from the closing
date, with interest payable monthly and accruing at a variable rate of interest,
per annum, most recently announced as the lender's "prime rate" (the "Prime
Rate") plus 0.5%. The senior term loan will mature 48 months from the closing
date, with interest payable monthly and accruing at the Prime Rate plus 1%. The
senior subordinated term loan will be made pursuant to a Senior Subordinated
Loan and Security Agreement, to be dated as of the date of the consummation of
the Sale of Assets, between the Buyer and the lender. The Senior Subordinated
Loan and Security Agreement is expected to be secured by a lien on substantially
all of the assets of the Buyer, subordinated only to the lien of the Loan and
Security Agreement, and to contain financial and other covenants typical for
loans of this type. The senior subordinated term loan will mature 36 months from
the closing date, with interest payable monthly and accruing at 12% per annum.
The senior subordinated term loan will have attached warrants to purchase the
Buyer's common stock, at an exercise price of $.01 per share, equaling five
percent (5.0%) of the fully diluted capital stock of the Buyer. The Buyer has no
present plans or
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arrangements to finance or repay such borrowings other than repayments through
cash generated from operations.
BACKGROUND OF THE PLAN
On April 2, 1998, the Company announced that it was considering various
strategic alternatives for its business, including a sale of the Company as a
whole, the sale of various of the Company's assets and, potentially, an orderly
liquidation of the Company. On June 1, 1998, the Company announced that the
Board of Directors of the Company had approved an orderly shutdown of the
Company's operations which would likely lead to the Company's liquidation and
dissolution. See "-- General Background." In conjunction with the Sale of Assets
and in furtherance of the shutdown of the Company's operations, on July 22, 1998
the Board of Directors adopted the Plan to implement the orderly dissolution and
liquidation of the Company.
ABSENCE OF FAIRNESS OPINIONS
The Company did not receive fairness opinions in connection with the Sale
of Assets, the IP Sale or the Sale of RIL, although the Special Committee
received on June 4, 1998 a valuation report from Houlihan Lokey Howard & Zukin
Financial Advisors, Inc. ("Houlihan Lokey"), a nationally-recognized valuation
firm, regarding its 64-bit Intellectual Property, the Viper Design Team and the
BP Assets (as defined below). See "-- Appraisal Report of Houlihan Lokey."
Houlihan Lokey was not asked to and did not evaluate any of the Sale of Assets,
the IP Sale or the Sale of RIL. No valuation was obtained of the Company's
32-bit Intellectual Property, because the Company did not believe that there
would be any buyers for the 32-bit Intellectual Property given the substantial
migration of customers from 32-bit products to 64-bit products. Portions of the
64-bit Intellectual Property and a significant portion of the 32-bit
Intellectual Property were included in the Acquired IP (i.e., the assets subject
to the IP Sale), subject to the License.
The Company was unable to locate any buyers for the Acquired IP or RIL
other than Fujitsu (a potential acquiror of RIL, Motorola, terminated
discussions with the Company before a definitive agreement for a sale was
reached), and was unable to locate any bidders for the Acquired Assets (i.e.,
the assets that are the subject of the Sale of Assets) other than the Buyer. See
"-- Attempted Sale of the Company or its Various Assets other than to Fujitsu or
Buyer" and "-- Transactions with Fujitsu -- The Sale of RIL." The Board of
Directors and its committees did not rely upon the valuation report in
determining that the IP Sale, the Sale of RIL and the Sale of Assets were fair
to and in the best interests of the Company's stockholders, because the only
available alternative to the Company was to receive no or substantially less
consideration for these assets (for example, by selling the Acquired Assets in a
liquidation transaction following the completion of the EOL program). The
Company had determined to cause RIL to shutdown its operations at the time that
Fujitsu approached the Company to re-express its interest in acquiring RIL. See
"-- Transactions with Fujitsu -- The Sale of RIL." Also, the Company was unable
to locate any buyers for the 64-bit Intellectual Property (other than Fujitsu)
or the Viper Design Team and on July 31, 1998 terminated the employment of all
of the members of that team. See "-- Attempted Sale of the Company or its
Various Assets other than to Fujitsu or Buyer."
The absence of a fairness opinion from an independent financial advisor for
any of the IP Sale, the Sale of RIL and the Sale of Assets presents the
potential risk that the Company received less than fair consideration for the
Acquired IP and RIL and may receive less than fair consideration in connection
with the Sale of Assets. The Board of Directors believes that this risk is
minimal because, notwithstanding extensive efforts to do so, the Company had
been unable to locate other buyers of the assets sold or to be sold in any of
those transactions. In addition, as discussed above, at the time of the IP Sale
and Sale of RIL and at the time the Company entered into the Asset Purchase
Agreement, the Company had determined to commence an orderly shutdown of its
operations (including the Business and RIL) and the only available alternatives
to these transactions was to receive no or substantially less consideration for
these assets.
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POTENTIAL CONFLICTS OF INTEREST
In the past, the Company has utilized a Special Committee consisting of one
member, Mr. Fred T. May, to approve or recommend transactions between the
Company and Fujitsu. The Special Committee was not utilized in connection with
the IP Sale or the Sale of RIL and the Board of Directors believed that it would
be beneficial to have a committee with more than one member consider these
transactions. The IP Sale and Sale of RIL were recommended for approval at
committee meetings at which a majority of the members either present or on the
committee were unaffiliated with Fujitsu. On July 2, 1998, the Executive
Committee of the Board met to consider the IP Sale in order to make a
recommendation to the Board of Directors on whether to approve the IP Sale. The
members of the Executive Committee present at that meeting were Messrs. May,
Simpson and Thompson (who are also all of the members of the Ad Hoc Committee);
not present at the meeting were Mr. Ryusuke Hoshikawa and Mr. Masahiro Saida,
each of whom is affiliated with Fujitsu. Messrs. May and Simpson are
unaffiliated with Fujitsu (other than through Mr. Simpson's employment by the
Company), while Mr. Thompson is an advisor to Fujitsu and acts as an independent
board member for or advisor to various other Fujitsu subsidiaries. The members
of the Executive Committee present at the July 2, 1998 meeting, a majority of
whom are unaffiliated with Fujitsu, voted unanimously to recommend that the
Board of Directors approve the IP Sale. On July 30, 1998, the Ad Hoc Committee
of the Board met to consider the Sale of RIL in order to make a recommendation
to the Board of Directors on whether to approve the Sale of RIL. The members of
the Ad Hoc Committee present at that meeting were Messrs. May, Simpson and
Thompson, who constitute all of the members of the committee. The members of the
Ad Hoc Committee, a majority of whom are unaffiliated with Fujitsu, voted
unanimously to recommend that the Board of Directors approve the Sale of RIL.
See "-- Transactions with Fujitsu -- The IP Sale; -- The Sale of RIL" and
"-- Special Matters Relating to the IP Sale and the Sale of RIL -- Approval of
the Board of Directors; Recommendation of the Executive Committee and the Ad Hoc
Committee; Fairness of the IP Sale and the Sale of RIL."
THE SALE OF ASSETS
APPROVAL OF THE BOARD OF DIRECTORS AND REASONS FOR THE SALE OF ASSETS;
RECOMMENDATION OF THE AD HOC COMMITTEE; FAIRNESS OF THE SALE OF ASSETS.
The Board of Directors believes that the Sale of Assets is in the best
interests of the Company, its creditors and stockholders and is fair to the
Company's unaffiliated stockholders. Accordingly, the Board of Directors has
approved the Sale of Assets and the Asset Purchase Agreement. In reaching its
determination, the Board of Directors consulted with the Company's management,
as well as its legal advisors, and considered the following factors. The
following discussion of the factors considered by the Board of Directors is not
intended to be exhaustive but summarizes the material factors considered.
1. The Company's prior decision to shutdown its operations after a
careful analysis of the Company's financial condition, assets, liabilities,
technology, operations and prospects. See "Special Factors -- General
Background." The Company has borrowed the entire $20.0 million available to
it under its line of credit with DKB, which line of credit is due on
November 30, 1998, and believes it has no other sources for equity or debt
financing. In addition, the Company has suffered decreasing revenues and
substantial operating losses, is currently unable to generate cash flow
from operations and has been unable to successfully market its 32-bit
technology in a business environment moving towards an increased
utilization of and demand for the 64-bit technology of the Company's
competitors. The Company also does not have the resources to complete
development of its 64-bit "Viper" product. The Company does not have the
alternative of continuing its operations, including the operations of the
Business, and cannot at this time generate a positive return for its
stockholders.
2. The results of the Company's consideration of alternatives to the
Sale of Assets, including the Board of Directors' judgment that it would
not be possible to dispose of the Company as a whole or the Business and
its related assets on terms more favorable to the Company and its
stockholders. In this regard, the Company has been unable to locate a buyer
for the Company as a whole. In addition, the
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Company has been unable to obtain any other bids for the Business.
Accordingly, although the Company does not believe that any funds or assets
will be available for distribution to the Company's stockholders after
consummation of the Sale of Assets and following dissolution and
liquidation under the Plan, the Board of Directors did not believe that
there were any alternatives available to the Company that would permit any
such distributions.
3. The belief of the Board of Directors that the industry in which the
Company operates is highly competitive and that the Company does not have
the products or resources necessary to be competitive or to continue its
operations for an extended period of time.
4. The proposed terms and structure of the Sale of Assets, including
the terms of the Asset Purchase Agreement, the Buyer's desire to acquire
the Business and its related assets and the fact that the Company's
representations and warranties contained in the Asset Purchase Agreement,
other than claims at law or equity based on its fraudulent acts or
omissions (which survive until expiration of the applicable statute of
limitations) survive the closing of the Sale of Assets only for a period of
twelve months. In addition, the Asset Purchase Agreement expressly limits
the Company's indemnification obligations (other than for sales tax
liabilities) to the indemnification holdback amount of $250,000. Moreover,
the Buyer also will assume certain contracts and liabilities of the
Company, in addition to certain warranty repair liabilities of the Company
to be assumed in consideration of the $1.72 million payment by the Company
to the Buyer. The book value of the Acquired Assets is $2.6 million. The
Company had estimated that the Sale of Assets will generate approximately
$4 million more in net proceeds for the Company than would a shutdown of
the Business and the sale of the Acquired Assets in liquidation. Also, the
Board of Directors believes that the continued manufacture and sale by the
Buyer of the Company's 32-bit products reduces the risk of claims by the
Company's customers with respect to the shutdown of the Company's
operations. See "The Asset Purchase Agreement -- Representations and
Warranties" and "-- Purchase Price."
5. The fact that Fujitsu had agreed to provide its consent in writing
to the adoption of the Asset Purchase Agreement, the Sale of Assets and the
Plan.
6. The recommendation of the Ad Hoc Committee that the Board of
Directors approve and adopt the Sale of Assets and the Asset Purchase
Agreement.
In view of the variety of factors considered in connection with its
evaluation of the Sale of Assets, the Asset Purchase Agreement and the Plan, the
Board of Directors did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Board of
Directors may have given differing weights to differing factors.
In determining to recommend that the Board of Directors approve and adopt
the Sale of Assets and the Asset Purchase Agreement, the Ad Hoc Committee
considered the same material factors listed above (other than item 6) as did the
Board of Directors. In view of the variety of factors considered in connection
with its evaluation of the Sale of Assets and the Asset Purchase Agreement, the
Ad Hoc Committee did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Ad Hoc
Committee may have given differing weights to differing factors.
As the holder of a majority of the outstanding shares of Common Stock and
all of the outstanding shares of Preferred Stock, Fujitsu has executed a written
consent approving the Sale of Assets and accordingly no vote of any other
stockholder is required to approve the Sale of Assets and stockholder votes are
not being solicited. See "The Stockholder Consent to the Sale of Assets and the
Plan." The Company's directors and executive officers have informed the Company
that, if such a vote of the stockholders had been required, they would have
voted their shares of Common Stock in favor of such transactions and would have
recommended that the Company's stockholders vote in favor of such transactions.
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POSITION OF THE BUYER REGARDING THE FAIRNESS OF THE SALE OF ASSETS
Based on the information available to the Buyer, the Buyer believes that
the Sale of Assets is fair to the Company. The Buyer's belief is based upon the
following factors, weighted approximately in order of their appearance.
1. The Buyer believes that the Company was unable to obtain a
financially or strategically superior offer for the sale of the Business or
the sale of the Company as a whole. Despite repeated requests by the Buyer
during the negotiation of the letter of intent and the Asset Purchase
Agreement that the Company agree to refrain from any other negotiations
regarding the Sale of Assets, the Company retained the ability to enter
into negotiations pursuant to any proposal of a third party for the sale of
all or any portion of the Business, to continue any discussions in progress
for any acquisition proposal and to terminate the Asset Purchase Agreement
if the Company enters into a binding agreement for the acquisition, merger
or combination of the Seller as a whole or the sale of all of the Company's
assets as a whole. See "The Asset Purchase Agreement -- Negative Covenants"
and "-- Termination." The Buyer believes that no better offer has been or
will be made to the Company with respect to the sale of the Business or the
sale of the Company as a whole.
2. The terms and structure of the Asset Purchase Agreement. Pursuant
to the Asset Purchase Agreement, the Buyer will assume certain warranty
repair and other contractual obligations of the Company, the Buyer will
hire approximately 40 employees of the Company who would otherwise be paid
severance, the representations and warranties of the Company contained in
the Asset Purchase Agreement survive the closing of the Sale of Assets for
only 12 months, and the indemnification obligations of the Company are
limited to an indemnification holdback amount of $250,000.
3. The Buyer believes that it has made a unique offer for the Business
as a going concern that is preferable to the other alternatives for the
Company of which the Buyer is aware. Absent a strategic merger or
substantial capital infusions, the Buyer does not believe that the Company
could generate profits in the foreseeable future, if at all. In addition,
the Buyer believes that the Sale of Assets may be a financially better
alternative to the Company than liquidation of the assets included in the
Business, because the Buyer believes that the Sale of Assets (i) has
enabled the Company to retain the staff necessary for its orderly shutdown,
(ii) will reduce the Company's severance expenses because the Company will
not be required in general to pay severance to Company employees who are
hired by Buyer, (iii) will enable the Company to satisfy certain of its
warranty repair obligations and (iv) may reduce the risk of claims against
the Company by customers resulting from the cessation of shipments of
products.
The Buyer believes that the Sale of Assets is fair to the Company's
unaffiliated stockholders for the same reasons that it believes that the Sale of
Assets is fair to the Company. The Buyer notes, however, that at no time was the
Company's proposal for an orderly shutdown of the Business made available to or
reviewed by the Buyer. In addition, Buyer has not been involved in any decisions
or transactions with respect to the IP Sale or the Sale of RIL. Moreover, Buyer
does not have access to, nor has Buyer seen, the financial information of the
Company, other than such financial information as is publicly available.
Accordingly, Buyer's beliefs as stated herein with respect to the fairness of
the Sale of Assets are based solely upon market information generally available
to the public and the information known to Mr. Jones as Vice President of
Operations of the Company.
APPRAISAL REPORT OF HOULIHAN LOKEY
General. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan
Lokey") is a nationally recognized financial advisory firm active in the
valuation of businesses and securities and in rendering advisory services in
connection with mergers and acquisitions, leveraged buyouts, private placements
of debt and equity, corporate reorganizations, employee stock ownership plans
and other corporate transactions. Houlihan Lokey was retained, based on its
qualifications, expertise and reputation in providing such financial advice to
companies, by the Special Committee of the Board of Directors to assist the
Company in the valuation of certain assets. Houlihan Lokey was not asked to, and
did not, solicit third party indications of interest in acquiring some or all of
the assets of the Company. Additionally, Houlihan Lokey has specifically advised
the Company that its valuation of the assets is not directly relevant to the
Sale of Assets and the other transactions
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engaged in by the Company. No material relationships have existed between
Houlihan Lokey and its affiliates, on the one hand, and the Company, on the
other hand, during the past two years. Houlihan Lokey does not beneficially own
and has never beneficially owned any interest in the Company or the BP Assets
(as defined below). The term "BP Assets" as used herein means the Business
exclusive of its distribution capability and customer service.
The purchase price paid by Fujitsu in connection with the IP Sale and the
Sale of RIL and to be paid by Buyer in connection with the Sale of Assets was
the result of negotiations between the Company and Fujitsu (in the case of the
IP Sale and the Sale of RIL) and between the Company and the Buyer (in the case
of the Sale of Assets) and Houlihan Lokey was not asked to and did not recommend
any specific price, or render any financial advice or other services, for any of
these transactions.
Houlihan Lokey relied upon and assumed, without independent verification,
that the financial information provided to it was reasonably prepared and
reflected the best then available estimates of the future financial results and
condition of the Company and the BP Assets, and that there was no material
change in the assets, financial condition, business or prospects of the Company
or the BP Assets since the date of the most recent financial information made
available to Houlihan Lokey. With respect to projected financial results,
Houlihan Lokey assumed with the consent of the Special Committee that they were
reasonably prepared on bases reflecting the best then available estimates and
judgments of the management of the Company as to the future performance of
relevant assets. Houlihan Lokey did not independently verify the accuracy and
completeness of the information supplied to it by the Company relating to the
Company or the BP Assets (including, without limitation, the financial
information) and does not assume any responsibility with respect to it. Houlihan
Lokey has not made any independent appraisal of any of the properties or assets
of the Company (including the BP Assets).
The assets that Houlihan Lokey analyzed were: (a) the intellectual property
relating to the Company's 64-bit Viper development project ("Viper"), (b) the
Viper Design Team, which Houlihan Lokey evaluated as part of Viper and as a
separate asset, and (c) the BP Assets. Because the Company was unable to find a
buyer for the Viper Design Team in connection with the IP Sale, the Sale of
Assets or otherwise, the following summary does not include Houlihan Lokey's
valuation analysis of the Viper Design Team.
Valuation Analysis of 64-bit Viper Intellectual Property. In connection
with the preparation of its valuation analysis of the 64-bit Viper intellectual
property, Houlihan Lokey made such reviews, analyses and inquiries as it deemed
necessary and appropriate under the circumstances. Among other things, Houlihan
Lokey: (i) met with certain members of senior management of the Company and
various design personnel to discuss the operations, financial condition, future
prospects and operations and performance of the Company and Viper, (ii) visited
the corporate offices of the Company, (iii) reviewed certain audited historical
financial data as well as projected financial data regarding Viper, (iv)
conducted a comparable transaction analysis involving similar intellectual
property and (v) considered such other information and conducted such other
studies, analyses, inquiries and investigations as Houlihan Lokey deemed
appropriate.
In valuing the 64-bit Viper intellectual property, Houlihan Lokey
considered three valuation approaches: (i) an income approach, (ii) a cost to
reproduce approach, and (iii) a market or comparable transaction approach.
Houlihan Lokey concluded that, given the uncertainty and extreme high level of
risk, the income and cost to reproduce approaches were not meaningful when
analyzing the value of the intellectual property of the Company's 64-bit Viper
development project. Accordingly, Houlihan Lokey relied primarily on the market
approach in determining value. Houlihan Lokey analyzed comparable publicly
disclosed transactions and completed or recently announced acquisitions of
similar intellectual property. This approach involved the analysis of
transactions involving intellectual property similar to Viper's primary
functions.
In valuing the 64-bit Viper intellectual property, Houlihan Lokey analyzed
16 such transactions announced between December 1, 1996 and April 30, 1998. The
selected transactions that were analyzed and the dates the transactions were
announced are as follows: Oak Technology's acquisition of Odeum MicroSystem's
personnel (April 1998); Mitel's acquisition of Plessey Semiconductor (February
1998); IBM's acquisition of CommQuest (February 1998); National Semiconductor's
acquisition of Future Integrated Systems (November 1997); LSI Logic's
acquisition of Mint Technology (August 1997); Information Storage
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Devices' acquisition of National Semiconductor's digital speech processor
business unit (April 1997); Intel's acquisition of Case Technology (January
1997); Advanced Micro Circuits' acquisition of Ten Mountains Design (April
1998); American Microsystems' acquisition of Focus Semiconductor (May 1997);
Aspec Technology's acquisition of SIS Microelectronics (April 1998); Brooktree's
acquisition of Weitek (December 1996); IKOS' acquisition of certain rights of
Interra (January 1998); National Semiconductor's acquisition of ComCore
Semiconductor (April 1998); Cadence Design Systems' acquisition of Excellent
Design (March 1998); Avant!'s acquisition of VLSI Technology (July 1997); and
S3's acquisition of certain patents of Exponential Technology (September 1997).
Based on the aforementioned methodology and transactions, Houlihan Lokey
estimated the fair market value for the intellectual property of the 64-bit
Viper development project to be in the approximate range of $5 to $10 million.
Independent Valuation Analysis of the BP Assets. In connection with the
preparation of its valuation of the BP Assets, Houlihan Lokey made such reviews,
analyses and inquiries, as it deemed necessary and appropriate under the
circumstances. Among other things, Houlihan Lokey: (i) reviewed the "Business
Plan Proposal" provided to it, (ii) reviewed financial information within the
Business Plan Proposal regarding the operations and cash flow on a stand-alone
pro forma basis for years 1998 through 2003, (iii) met with certain members of
the senior management of the Company to discuss the operations, financial
condition, future prospects, operations, and performance of the BP Assets and
(iv) considered such other information and conducted such other studies,
analyses, inquiries and investigations as Houlihan Lokey deemed appropriate.
Houlihan Lokey applied the discounted cash flow ("DCF") valuation approach
in arriving at an independent valuation of the BP Assets. In employing the DCF
approach, the financial information described in the Business Plan Proposal was
utilized. This financial information was predicated on the fact that the BP
Assets could operate on a stand-alone basis. The BP Asset's cash flows in the
financial information were analyzed on a "debt-free" basis (before cash payments
to equity and interest-bearing debt investors) in order to develop a value
indication for the BP Assets. The present value of the interim cash flows and
the terminal value were determined using a risk-adjusted rate of return or
"discount rate." The discount rate, in turn, was determined through an analysis
of rates of return on alternative investment opportunities with similar risk
characteristics as the BP Assets. Based on the DCF approach, Houlihan Lokey
determined that a reasonable estimate of value for the BP Assets ranged from
approximately $6 to $7 million. Houlihan Lokey's valuation estimate for the BP
Assets did not include any reserve for the Company's warranty repair liabilities
for products previously sold.
The foregoing summary does not purport to be a complete description of the
analyses performed and factors considered by Houlihan Lokey in reaching its
valuations, although it includes the material factors considered by Houlihan
Lokey. The valuation of an entity is a complex process and is not susceptible to
partial analysis or summary description. Selecting portions of the analyses or
of the summary set forth above, without considering the analysis as a whole,
could create an incomplete view of the processes underlying Houlihan Lokey's
valuation. In arriving at its valuation, Houlihan Lokey considered the results
of all such reviews, calculations and analyses. Accordingly, an analysis of the
results of the foregoing is not solely mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of various assets of the Company and other factors that could
affect the public trading or private market values of the assets or companies to
which they are being compared.
Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based on numerous factors or events beyond the
control of Houlihan Lokey or the Company, Houlihan Lokey assumes no
responsibility if future results are materially different from those forecasted.
Houlihan Lokey's value conclusions are necessarily based on business, economic,
market and other conditions as they exist and can be evaluated by Houlihan Lokey
at the date of the value conclusions. Houlihan Lokey has not been requested by
the Company, and does not intend, to update its value conclusions based on
information since such date.
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A copy of the Houlihan Lokey Appraisal has been filed as an exhibit to the
Schedule 13E-3 filed by the Company, Fujitsu and the Buyer with the SEC. See
"Miscellaneous." Copies thereof will be made available for inspection and
copying at the principal executive offices of the Company during its regular
business hours by any interested stockholder of the Company or his or her
representative who has been so designated in writing.
PURPOSE OF THE ASSET PURCHASE AGREEMENT AND THE SALE OF ASSETS; REASONS FOR THE
SALE OF ASSETS
The Buyer has entered into the Asset Purchase Agreement to obtain the
Business and to attempt to make the Business, together with other lines of
business complementary to the Business into which the Buyer intends to expand,
profitable. The Sale of Assets was structured by the Buyer to acquire the
Business separately from the other operations and obligations of the Company,
including the debt incurred by the Company. The Sale of Assets will transfer
from the Company to the Buyer assets with a net book value to the Company of
$2.6 million as of September 29, 1998 and, in effect, all of the Company's net
revenues and earnings generated from sales of products after June 29, 1998. The
net revenues of the Company for Fiscal 1996, Fiscal 1997 and Fiscal 1998 were
$100.8 million, $83.1 million and $42.1 million, respectively, and the net
earnings (losses) of the Company for those three fiscal years were $17.3
million, ($86.7 million) and ($38.3 million), respectively. The timing of the
Sale of Assets has been dictated by the Company.
The Sale of Assets will provide the Buyer with the future revenues of the
Business and with facilities and personnel that may allow the Buyer to
transition the Business into new service and product areas, such as outsource
manufacturing and test services, which have proven to be unavailable to the
Company. See "-- General Background." The Buyer will also bear the risk of
losses generated by the Business and any decrease in the value of the Business
after the consummation of the Sale of Assets. Unless the Buyer is able to
successfully implement such new services and products, the Buyer anticipates the
necessity of liquidating the Business to repay the debt to be incurred by the
Buyer in connection with the Sale of Assets.
The Company determined to enter into the Sale of Assets at this time due to
the Company's deteriorating financial condition and the decision of the Company
to engage in an orderly shutdown of its operations. The Company does not believe
that it has any alternatives at this time that are superior to the Sale of
Assets. See "Special Factors -- General Background;" "-- Background of the Asset
Purchase Agreement;" and "Approval of the Board of Directors and Reasons for the
Sale of Assets; Recommendation of the Ad Hoc Committee; Fairness of the Sale of
Assets."
PLANS FOR THE COMPANY AFTER THE SALE OF ASSETS
The Company intends to proceed with liquidation and dissolution promptly
after the Sale of Assets is consummated or if the Sale of Assets is not
consummated for any reason, in order to further implement the Company's orderly
shutdown of its operations. The Company anticipates that it will reduce the size
of its Board of Directors after the Dissolution Date, although no decisions have
been made. The Company's Common Stock currently trades in the over-the-counter
bulletin board maintained by The Nasdaq Stock Market. See "Market Price Data."
After the Dissolution Date, the Company's stock transfer books will be closed
and the Company's Common Stock will cease to trade. The Company intends to
terminate the registration of the Common Stock under the Exchange Act and
thereafter the Company will no longer be required to file periodic reports with
the SEC. See "The Plan of Complete Liquidation and Dissolution."
USE OF PROCEEDS; LIQUIDATION AND DISSOLUTION.
Of the approximately $5.66 million in gross proceeds from the Sale of
Assets, $250,000 will be deposited by Buyer into an escrow account for an
indemnification holdback amount to cover any indemnity claims made by the Buyer
pursuant to the Asset Purchase Agreement; if applicable, an amount to be
determined at or prior to the closing of the Sale of Assets will be deposited by
Buyer into an escrow account for a tax holdback amount to cover any sales tax
liabilities to the Texas comptroller of public accounts; $1.72 million will be
paid by the Company to the Buyer for the assumption of certain warranty repair
liabilities of the Company; and approximately $150,000 will be used to pay
expenses related to the Sale of Assets. The remainder of the
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proceeds will be used to satisfy the Company's obligations to its creditors and
to pay expenses incurred in connection with liquidation and dissolution, and if
any assets or funds are remaining, they will be distributed to the stockholders
of the Company in accordance with the provisions of the Plan. At September 28,
1998, the Company had balance sheet obligations, consisting of trade accounts
payable, accrued liabilities (including employee severance) and payables to
Fujitsu (primarily for products purchased from Fujitsu) of approximately $10.4
million. This amount excludes the $20.0 million note payable to DKB that is
guaranteed by Fujitsu. Expenses of liquidation and dissolution are estimated to
be approximately $900,000. The Company will also use (and has already used a
portion of) the approximately $10.1 million in gross proceeds it received in
connection with the IP Sale and the Sale of RIL to satisfy the Company's
obligations to its creditors and to pay expenses incurred in connection with
those transactions. While the substantial majority of the Company's obligations
are to unrelated third parties, the Company's obligations include an
approximately $1.3 million trade payable to Fujitsu and a $20 million note
payable to DKB, which obligation is guaranteed by Fujitsu. Although the Company
does not believe that it will be able to repay any substantial portion of its
debt to DKB, any payment to DKB would reduce Fujitsu's obligations under its
guarantee. If Fujitsu makes any payments in connection with its guarantee of the
Company's obligations to DKB, Fujitsu will be subrogated to DKB's rights and
will have a creditor claim against the Company in the amount of such payments.
THE COMPANY DOES NOT BELIEVE IT WILL HAVE ANY FUNDS OR ASSETS AVAILABLE FOR
DISTRIBUTION TO ITS PREFERRED OR COMMON STOCKHOLDERS.
Following the Sale of Assets, the Company's assets will consist principally
of (a) cash from the proceeds of the Sale of Assets, the IP Sale and the Sale of
RIL and (b) certain other intellectual property rights. Since the Company will
no longer have any operating assets, the Company intends to cease business other
than winding up its affairs and matters incidental thereto, preserving the value
of the Company's remaining assets pending the sale thereof, satisfying its
obligations to its creditors and distributing the remaining net proceeds, if
any, to its stockholders. At such time after either the consummation of the Sale
of Assets or the termination of the Asset Purchase Agreement, as applicable, as
the Board may deem appropriate, the Company will be dissolved upon filing a
Certificate of Dissolution pursuant to the DGCL (the effectiveness of which may
be delayed to the extent permitted by the DGCL). The Board may, in its sole
discretion, establish a contingency reserve to satisfy any claims against the
Company and expenses of the sale of its assets and the liquidation and
dissolution. See "Plan of Complete Liquidation and Dissolution -- Contingent
Liabilities; Contingency Reserve; Liquidating Trust."
THE COMPANY INTENDS TO PROCEED WITH LIQUIDATION AND DISSOLUTION PURSUANT TO
THE PLAN REGARDLESS OF WHETHER THE SALE OF ASSETS IS CONSUMMATED.
INTERESTS OF CERTAIN PERSONS IN THE SALE OF ASSETS.
The Company has entered into the Asset Purchase Agreement with Buyer, a
newly formed Texas corporation, in which Joe D. Jones (currently Vice President
of Operations of the Company), is Chief Executive Officer, President and
currently sole stockholder (it is anticipated that Mr. Jones will own
approximately 15% of Buyer's common stock at such time as the Sale of Assets is
consummated, with incentives to ultimately own approximately 22%). Certain other
employees of the Company are expected to become officers and stockholders of
Buyer prior to or at the Closing. The Company believes that the sale is an arms
length transaction; however, the full value of the assets of the BridgePoint
unit may not be realized by the Company because the Sale of Assets will occur in
connection with the Company's previously-announced orderly shutdown of its
operations and, in the absence of the Sale of Assets, the Company will have to
continue its planned shutdown of the Business. To the best of the Company's
knowledge, other than Mr. Jones, no officer, director or holder of at least five
percent (5%) of the Company's Common Stock or Preferred Stock has a financial
interest in the Sale of Assets.
As part of the Company's orderly shutdown, the Company provided severance
packages to all eligible employees as required by its general severance policy.
All of the Company's executive officers, other than Frank Baffi, the Company's
former Vice President of Sales, were retained pursuant to individual retention
agreements. Given the Company's uncertain financial position, retention
agreements were provided by the
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Company to such executive officers to provide incentives so that the key
personnel necessary to effect the sale of the Company's assets remained with the
Company until such time as their services were no longer required. The retention
amounts applicable to the Company's executive officers are as follows: Jack W.
Simpson, Sr., President and Chief Executive Officer, $576,854; Francis S. (Kit)
Webster III, Chief Financial Officer, $185,000; Mitchell K. Alsup, Chief
Architect, $250,000; Trevor S. Smith, Vice President of Engineering, $250,000;
and Joe D. Jones, Vice President of Operations, $140,000. These retention
payments are not dependent upon whether the Sale of Assets is consummated. These
payments do not include the following severance payments that may also be made
pursuant to employment agreements, none of which payments are dependent upon
whether the Sale of Assets is consummated: Mr. Simpson, $1,004,787 (including
certain benefits of approximately $158,000); Mr. Webster, $185,000; and Mr.
Baffi, $170,000 (this amount was paid in connection with Mr. Baffi's
termination).
ACCOUNTING TREATMENT.
The Sale of Assets will be accounted for as a purchase.
THE ASSET PURCHASE AGREEMENT
The following summary describes the material terms and conditions of the
Asset Purchase Agreement. Terms which are not otherwise defined in this summary
have the meaning set forth in the Asset Purchase Agreement, a copy of which is
attached as Annex A to this Information Statement. STOCKHOLDERS ARE URGED TO
READ THE ASSET PURCHASE AGREEMENT IN ITS ENTIRETY.
PURCHASE PRICE.
The Asset Purchase Agreement provides for the sale by the Company to the
Buyer of the Acquired Assets and the Business for an aggregate consideration
equal to $5.66 million in cash, of which $250,000 will be deposited by Buyer
into an escrow account for an Indemnification Holdback Amount to cover possible
indemnification claims incurred by the Buyer pursuant to the Asset Purchase
Agreement, and, if applicable, an amount to be determined at or prior to the
Closing will be deposited by Buyer into an escrow account for a Tax Holdback
Amount to cover possible sales tax claims payable to the Texas comptroller of
public accounts. If the Closing had occurred as of September 28, 1998, the
Company estimates that the Tax Holdback Amount would have been zero. All sales
taxes (other than sales taxes arising from the Sale of Assets), ad valorem
taxes, utility charges, insurance premiums, rent and lease payments, payroll
costs, accrued vacation and sick time for employees, normal operating expenses
(including payment of reasonable Trade Payables for Inventory or services
received or first ordered with the approval of Joe D. Jones as part of the
Business after June 29, 1998 and that are paid in the ordinary course of
business, but excluding principal, interest or other payments of Debt and
amounts for general and administrative expenses) and other expenses reasonably
allocable to the Business if the Business were to be accounted for as a separate
operating division of the Company, in each case incurred in the Business, shall
be prorated between Buyer and the Company as of June 29, 1998. All of such
prorated items shall be settled between Buyer and the Company as a net
adjustment to the Purchase Price on the Closing Date.
The Company shall pay $1.72 million to the Buyer at the Closing in
consideration for the assumption of and undertaking to pay, discharge and
perform (a) certain warranty repair liabilities of the Company for: (i)
manufacturing defects and normal wear and tear (but not for design defects or
failure of fitness for a particular purpose) for all Products sold prior to the
Closing Date and (ii) design defects for microprocessors (but not for systems or
Products) and failure of fitness for a particular purpose (other than for
Disagreed Uses), in each case for Products sold after June 29, 1998 and on or
prior to the Closing Date; (b) all obligations arising under certain Assumed
Contracts and Assumed Purchase Orders for events occurring after June 29, 1998,
except for knowing or bad faith violations by the Company that are not
attributable to Joe D. Jones or persons under his immediate supervision; and (c)
Trade Payables for Inventory or services received or first ordered with the
approval of Joe D. Jones or persons under his supervision as part of the
Business after June 29, 1998.
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ASSETS TO BE SOLD.
The Asset Purchase Agreement provides for the sale by the Company to the
Buyer of certain assets related to the Company's manufacturing, sale,
distribution and customer service (but not design) business for the 32-bit
hyper-SPARC(TM) families of microprocessors and the hyperSTATION(TM) and SPARC
plug(TM) families of 32-bit systems and products and the related assets (the
"Products"). The Company believes that this constitutes substantially all of the
Company's assets.
The assets to be sold, assigned, transferred and delivered by the Company
to the Buyer pursuant to the Asset Purchase Agreement (the "Acquired Assets")
include all of the assets of the Company relating to the Business (other than
the Excluded Assets), including: (i) the manufacturing, testing and quality
control Equipment and facilities for the production of microprocessors, (ii) the
software verification laboratories, facilities, materials and Equipment, and
(iii) the delivery, receipt and storage facilities, Equipment and materials for
wafers, gases, chemicals and other raw materials used in the Business. Without
limiting the generality of the foregoing, the Acquired Assets include: (a) the
Inventory; (b) the Leased Real Property (including certain leasehold interests);
(c) the Equipment (including certain Equipment leasehold interests); (d) the
Assumed Contracts; (e) certain Purchase Orders; (f) the revenue, cash, cash
equivalents, Accounts Receivable and other proceeds of any kind for Products
shipped, or sales of Products made, as part of the Business after June 29, 1998;
(g) the Software; (h) the Intellectual Property (other than Trademarks)
necessary to or used in the Business (other than Intellectual Property covered
by the Design License or included in the Software); (i) a non-exclusive, royalty
free, non-terminable, transferable license to use all Intellectual Property
(other than Trademarks) with respect to the Chip Designs throughout the world
solely for the purpose of conducting the Business (the "Design License"); (j) a
non-exclusive, royalty free, non-terminable, transferable license to use,
license, assign and sublicense all Trademarks in respect of the name "ROSS
Technology," and all derivative products and works resulting from such marks or
created by Buyer with respect to such marks throughout the world for the longer
of 12 months or until all Acquired Assets bearing such marks on the Closing Date
have been sold or distributed by Buyer (the "Ross License"); (k) all Trademarks
used in the Business (other than those covered by the Ross License), including
the Company's rights to market, sell, distribute and use the SPARC(TM) family of
Trademarks; (l) all Permits relating to the Business and the Acquired Assets
(including all international traffic licenses, fire department permits, air and
water pollution control permits, environmental permits and all other required
licenses); (m) the Personal Property (other than Equipment, Software and
Inventory); and (n) the books and records relating to the Business, including
all customer lists, marketing and leads lists, product lists and all other sales
or marketing, production or supply lists, in each case whether in the form of a
list or database, including the right to modify such lists and use and create
derivative products of such lists.
EXCLUDED ASSETS.
The assets being retained by the Company and which will not be purchased by
the Buyer (the "Excluded Assets") include: (a) the Company's books and records
relating to internal corporate matters and any other books and records not
necessary for or used primarily in the Business or the Acquired Assets; (b) the
Excluded Contracts; (c) the Chip Designs, except to the extent licensed to Buyer
pursuant to the Design License; (d) all assets, whether tangible or intangible,
of the Company not necessary for or used primarily in the Business, including
all design facilities and related assets not located at the Leased Real
Property; (e) certain Personal Property; (f) all cash and cash equivalents on
hand as of June 29, 1998; and (g) certain Accounts Receivable.
EXCLUDED CONTRACTS.
The following Contracts of the Company will not be purchased or assumed by
the Buyer: (a) all employment, change of control and severance Contracts; (b)
all Employee Benefit Plans and contracts associated with Employee Benefit Plans,
including all assets or funds held in trust, or otherwise, associated with or
used in connection with the Employee Benefit Plans or contracts associated with
Employee Benefit Plans; (c) all Contracts for Debt; (d) any collective
bargaining agreement; and (e) all Contracts that have terminated or expired
prior to the Closing Date.
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ASSUMED LIABILITIES.
Pursuant to the Asset Purchase Agreement, as of the Closing Date, the Buyer
will assume and undertake to pay, discharge and perform (a) the warranty repair
liabilities for (i) manufacturing defects and normal wear and tear (but not for
design defects or failure of fitness for a particular purpose) for all Products
sold prior to the Closing Date, and (ii) design defects for microprocessors (but
not systems or Products) and failure of fitness for a particular purpose (other
than for Disagreed Uses), in each case for Products sold between June 29, 1998
and on or prior to the Closing Date (the "Assumed Warranty Repairs"); (b) all
obligations arising under Assumed Contracts and Assumed Purchase Orders (other
than Assumed Contracts or Assumed Purchase Orders for which a Consent, if
required, has not been obtained (except to the extent assumed by the Buyer)) for
events occurring after June 29, 1998, except for knowing or bad faith violations
of the terms or conditions of such Contracts or Purchase Orders by the Company
that are not directly attributable to Joe D. Jones or other officers, directors
or employees of Buyer at the time of any such violation or persons under their
immediate supervision at such time; and (c) Trade Payables for Inventory or
services received or first ordered with approval of Joe D. Jones or persons
under his supervision or direction as part of the Business after June 29, 1998.
All of the Excluded Liabilities, whether reported by the Closing Date or
thereafter, shall remain and be the obligation and liability solely of the
Company. The Company shall pay to Buyer at the Closing, in consideration for the
assumption of the Assumed Warranty Repairs, an amount equal to $1.72 million
(the "Assumption Payment").
EXCLUDED LIABILITIES.
The liabilities of the Company which are not being assumed by the Buyer
(the "Excluded Liabilities") are all debts, obligations and liabilities of the
Company of any kind or character, whether known or unknown, absolute, accrued,
contingent or otherwise, including debts, obligations and liabilities arising
under Excluded Contracts and any Assumed Contracts for which a Consent, if
required, has not been obtained as of the Closing (except to the extent such
liability is assumed by Buyer), other than the Assumed Liabilities.
CLOSING.
If the conditions to the Sale of Assets are then satisfied or waived, the
Closing will take place on August 15, 1998 or at such other place and time
following satisfaction or waiver of the conditions to the parties' obligations
to the Closing as the Buyer and the Company may agree. See "The Asset Purchase
Agreement -- Conditions."
REPRESENTATIONS AND WARRANTIES.
The Asset Purchase Agreement contains various customary representations and
warranties of the Company and the Buyer. These include representations and
warranties by the Company as to (i) corporate organization, good standing and
the necessary corporate power and authority to execute and enter into the Asset
Purchase Agreement; (ii) required consents from any Governmental Entity or third
party, absence of conflicts with the Company's charter or bylaws or Applicable
Laws, absence of any breach or default under any Contract or Permit to which the
Company is a party or the Acquired Assets are subject and any liens arising from
the Sale of Assets; (iii) compliance with laws; (iv) absence of any judgment,
injunction, order, arbitration or litigation; (v) good and marketable title to
the Acquired Assets, absence of any material default under the Assumed Contracts
and the absence of any Liens on the Acquired Assets; (vi) no real property
included in the Acquired Assets other than Leased Real Property; (vii) adequacy
of insurance; (viii) absence of any collective bargaining agreements, unions or
other organizational campaigns; (ix) validity of intellectual property and
absence of any infringements or unlawful uses; (x) compliance with Environmental
Laws, absence of any Hazardous Substance, absence of any pending or threatened
claims, disposal of Hazardous Substance and environmental investigations; (xi)
tax matters; (xii) accuracy of representations and warranties and (xiii) ERISA
and certain other employee matters.
The Buyer's representations and warranties include those as to (i)
corporate organization, good standing and necessary corporate power and
authority to execute and enter into the Asset Purchase Agreement,
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(ii) absence of conflicts with the Buyer's charter or bylaws; (iii) required
consents from any Governmental Entity or third party, (iv) absence of any
knowledge of the Buyer of untrue representations and warranties of the Company
and (v) accuracy of lender commitment letters.
NEGATIVE COVENANTS.
Pursuant to the Asset Purchase Agreement, the Company and the Buyer have
made various customary covenants for transactions of this type. The Company has
agreed, among other things, that from the date of the Asset Purchase Agreement
through the Closing Date, except as otherwise consented to by the Buyer in
writing, the Company will not (i) conduct the Business in any manner except in
the ordinary course consistent with its present business plan; (ii) fail to use
commercially reasonable efforts to preserve intact the present business
organization of the Business and to keep available the services of its present
officers, managerial personnel and key employees or independent contractors and
preserve its relationships with customers, suppliers and others having business
dealings with it; (iii) fail to use commercially reasonable efforts to maintain
the Acquired Assets in their current condition, except for scheduled expiration
of any Assumed Contracts or ordinary wear and tear and damage by certain
casualty or fail to repair, maintain, or replace any of the Acquired Assets
consisting of Equipment in the ordinary course of business in accordance with
past practice; (iv) modify, terminate or renew any lease for Equipment; (v)
agree or offer to sell, license, sublicense, transfer or otherwise limit or
dispose of any Intellectual Property necessary for or used in the Business; (vi)
discontinue any Product line; (vii) incur any material Trade Payables or make
any material capital expenditure related to the Business; (viii) alter the
Company's processes, methods or procedures of manufacture, sale or marketing of
Products; (ix) except for amendments, terminations, renewals, or failures to
renew (without payment of penalty or damages) of employment agreements with
employees in the ordinary course of business and consistent with past practices
(subject to prior consultation with Buyer reasonably in advance thereof),
materially amend, terminate, or fail to use all commercially reasonable efforts
to renew any Assumed Contract (other than contracts for Leased Equipment), or
default in any material respect (or take or omit to take any action that, with
or without the giving of notice or passage of time, would constitute a material
default) under any Assumed Contract or enter into any new material Contract; (x)
adopt or amend any Employee Benefit Plan, or increase in any manner the
compensation or fringe benefits of any officer, director, or employee or other
personnel, except as required by law; (xi) terminate any officers, managerial
personnel or supervisory employees of the Company used in the Business, without
prior consultation of Buyer; (xii) acquire or sell (whether by merger,
consolidation, acquisition or the sale of an equity interest or assets), lease,
or dispose of any Acquired Assets except for fair value in the ordinary course
of business and consistent with past practice; provided, however, in no event,
whether in one or more transactions (other than with respect to Inventory) shall
the Company dispose of any Acquired Assets having an aggregate fair market value
in excess of $25,000; (xiii) mortgage, pledge, or subject to any Lien any of the
Acquired Assets; (xiv) change in any material respect its existing practices and
procedures with respect to the collection of Accounts Receivable (except with
respect to good faith attempts to obtain payment of a past due receivable or a
contested receivable) or cancel, settle, waive or otherwise compromise any right
or claim relating to the Acquired Assets; (xv) change in any material respect
its existing practices and procedures with respect to Accounts Payable or delay
or postpone (beyond the Company's ordinary practice) the payment of any Accounts
Payable or other liabilities relating to the Business; (xvi) change existing
practices and procedures for Inventory tracking, accounting and control; or
(xvii) agree to or make any commitment, orally or in writing, to take any
actions prohibited by the Asset Purchase Agreement. The Buyer has acknowledged
that certain actions taken by the Company in connection with the shutdown of its
operations will not be deemed to violate any of the foregoing covenants.
The Asset Purchase Agreement provides that neither the Company nor any of
its Affiliates, directors, officers, employees, investment bankers, attorneys or
other advisors or representatives will solicit, initiate or encourage the
submission of any Acquisition Proposal or enter into any agreement with respect
to such Acquisition Proposal, except to the extent required by the fiduciary
obligations of the Board of Directors.
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AFFIRMATIVE COVENANTS.
Until the Closing, the Company agrees to provide the Buyer and its
officers, directors and employees full access to the operation and management of
the Business and the right to participate, where commercially practicable, in
the operations, management and decision-making processes of the Business;
provided that the Company shall have the final decision making authority. Prior
to the Closing, the Company agrees to provide reasonable advance notice to Buyer
of any proposed sale of microprocessors and if Buyer disagrees with the
particular purpose intended for such Product, the Company agrees to either not
sell such Product for such use or sell such Product and retain the warranty
repair liabilities for failure of fitness for a particular purpose for such
Product.
Until the Closing, the Company shall provide to Buyer and its
representatives reasonable access to the properties, books, records, and Tax
Returns and all other information with respect to the Business.
Prior to the Closing, the Company shall use reasonable efforts to cause the
Business to be operated in accordance with all Applicable Laws, regulations,
rules, and orders. If the Company or its counsel receives an administrative or
other order or notification relating to any violation or claimed violation of
Applicable Laws or the rules and regulations of any Governmental Entity, the
Company agrees to promptly notify Buyer in writing and use reasonable efforts to
take such steps as may be necessary to cure such violation or contest such
claimed violation in good faith.
Each of Buyer and the Company agrees to give prompt written notice to the
other party of the occurrence, or failure to occur, of any event of which it
becomes aware that has caused or that would be likely to cause any
representation or warranty contained in the Asset Purchase Agreement to be
untrue or inaccurate in any material respect and the failure of such party, or
any officer, director, employee or agent of such party to comply with or satisfy
in any material respect any covenant, condition, or agreement to be complied
with or satisfied under the Asset Purchase Agreement.
The Company is obligated to use reasonable efforts to obtain the written
consent from any party to any Contract, agreement or instrument, including each
Assumed Contract, which is required to permit the consummation of the Sale of
Assets. Buyer agrees to provide all reasonable assistance to the Company in this
matter.
The Company shall use reasonable efforts to cause Fujitsu to enter into an
agreement with Buyer for the purchase of silicon and cell license rights on the
same or substantially the same terms as those set forth in the Silicon Wafer
Supply Agreement between the Company and Fujitsu.
To the extent practicable, the Company agrees to provide reasonable
assistance to the Buyer through July 31, 1998 to instruct Buyer and its
representative with respect to the testing procedures, processes and engineering
for the Business, and through the later of July 31, 1998 or the Closing Date,
for the orderly transfer of accounting and Inventory tracking processes and
procedures for the Business. To the extent practicable, the Company shall
provide Buyer the right to use, or a limited sublicense for, the enterprise
resource planning software system licensed to the Company by SAP for the period
necessary for Buyer to achieve an orderly transition of the Business.
The risk of any loss, damage, impairment, confiscation, or condemnation of
any of the Acquired Assets is to be borne by the Company at all times prior to
the Closing.
Subject to the terms and conditions of the Asset Purchase Agreement, each
of Buyer and the Company agrees to use its commercially reasonable efforts to
do, or cause to be taken all actions and to do, or cause to be done, all things
necessary, proper or advisable under Applicable Laws and regulations to
consummate and make effective the Sale of Assets.
EXPENSES.
The Asset Purchase Agreement provides that each party will bear its own
costs and expenses incurred in connection with the Sale of Assets.
Notwithstanding the foregoing, (a) the fee payable to the Escrow Agent shall be
borne as provided in the Indemnification Escrow Agreement, and (b) all sales
taxes, if any, arising out
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of the transactions contemplated by the Asset Purchase Agreement shall be paid
by the Company. If the transactions contemplated by the Asset Purchase Agreement
are not consummated as a result of the Company entering into any agreement or
letter of intent with respect to an Acquisition Proposal or any proposal,
agreement or letter of intent for the acquisition, merger or combination of the
Company as a whole, then the Company agrees to pay the reasonable and documented
costs and expenses incurred by Buyer in connection with the preparation,
negotiation and consummation of the transactions contemplated by the Asset
Purchase Agreement up to $100,000 within ten days after receipt of Buyer's
request for reimbursement. In the event of a dispute between the parties in
connection with the Asset Purchase Agreement and the transactions contemplated
thereby, the prevailing party shall be entitled to reimbursement by the other
party of reasonable legal fees and expenses incurred in connection with any
action or proceeding.
EMPLOYMENT AND EMPLOYEE BENEFIT PLANS.
The Company shall use commercially reasonable efforts, consistent with its
present business plan, to retain the employees presently employed in the
Business until the Closing. On or prior to the Closing Date, the Buyer shall
offer (and the Company shall permit Buyer to offer) employment with Buyer in
substantially similar jobs to enumerated employees of the Company currently
employed in the Business and who are employed in the Business on the Closing
Date. Buyer shall use commercially reasonable efforts to provide an initial
benefits package to each such employee who accepts Buyer's offer of employment
(the "Transferred Employees") substantially equivalent in the aggregate to the
benefits package presently provided to such Transferred Employees by the Company
(excluding any stock options or other equity and non-equity incentive or bonus
plans or agreements), provided that the Buyer will only be so obligated (i) to
the extent the Company has provided the Buyer a true and correct copy of each
Employee Benefit Plan and (ii) if the Company uses all commercially reasonable
efforts to assist Buyer in obtaining such benefits. Subject to the foregoing,
any offers so extended by Buyer shall be on terms and conditions that Buyer
shall determine in its sole discretion and shall include an initial bonus
package to each Transferred Employee comparable to the "Bridge Point business
unit" severance and retention package presently offered by the Company. Buyer
will give the Company notice prior to the Closing of the names of all employees
to whom Buyer has determined not to extend an offer of employment. Upon the
Closing, the Company waives any claims against Buyer and any of the employees
who are extended an offer of employment by Buyer arising from such employment by
Buyer, including any claims arising under the "BridgePoint business unit"
severance and retention package, and any employment agreement or non-competition
agreement between such employee and the Company.
The Company has also agreed, for a one year period following the Closing
Date, not to induce, entice, hire or attempt to hire or employ any Transferred
Employee on its own behalf or on behalf of any person who is engaged in the same
or a similar business as the Business, or induce or attempt to induce any
Employee to leave the employ or cease doing business with the Buyer or its
Affiliates. In addition, the Company has agreed to cause to be provided to all
employees and former employees of the Business sufficient medical, mental
health, vision, dental and other group health plan benefits to satisfy the
obligations, if any, of the Company, any Commonly Controlled Entity and (solely
for employees other than the Transferred Employees) Buyer under the continuation
of coverage provisions described in Section 4980B of the Code and Sections 601
through 608 of ERISA and any similar continuation of health coverage provisions
under applicable state law.
CONDITIONS.
The respective obligations of Buyer and the Company to effect the Sale of
Assets are subject to the satisfaction on or prior to the Closing Date of the
following conditions: (a) all authorizations, consents, orders, or approvals of,
or declarations or filings with, or expirations of waiting periods imposed by,
any Governmental Entity necessary for the consummation of the transactions shall
have been filed, occurred, or been obtained; (b) no temporary restraining order,
preliminary or permanent injunction, or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Sale of Assets shall be in effect; and (c) no action shall
have been taken nor any statute, rule, or regulation shall have been enacted by
any Governmental Entity that makes the consummation of the Sale of Assets
illegal.
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The obligation of Buyer to effect the Sale of Assets is subject to the
satisfaction of the following conditions unless waived, in whole or in part, by
Buyer: (a) the representations and warranties of the Company shall be true and
correct in all material respects (provided that any representation or warranty
of the Company that is qualified by a materiality standard or a Material Adverse
Effect qualification shall not be further qualified) as of the date of the Asset
Purchase Agreement and the Closing Date as though made on and as of the Closing
Date; (b) the Company shall have performed in all material respects (provided
that any covenant or agreement of the Company contained on the Asset Purchase
Agreement that is qualified by a materiality standard shall not be further
qualified) all obligations required to be performed by it prior to the Closing
Date; (c) no events or conditions shall have occurred since the date of the
Asset Purchase Agreement and neither the Company nor Buyer shall be aware of any
event or condition reasonably likely to occur after the Closing Date which,
individually or in the aggregate, have or are expected to have a Material
Adverse Effect on the Business or the Acquired Assets; (d) Buyer shall have been
furnished with evidence reasonably satisfactory to it of the consent or approval
of each person that is a party to a Key Assumed Contract (including evidence of
the payment of any required payments) whose consent or approval shall be
required in order to permit the consummation of the Sale of Assets and such
consent or approval shall be in form and substance reasonably satisfactory to
Buyer; (e) Buyer shall have entered into an agreement with Fujitsu for the
supply of silicon wafers and cell license rights on terms and conditions
reasonably acceptable to Buyer; (f) Buyer shall have received from Irell &
Manella LLP, counsel to the Company, an opinion with respect to certain matters;
(g) all documents, instruments, certificates or other items required to be
delivered by the Company shall have been delivered; (h) the Buyer shall have
entered into an intellectual property license agreement with the Company and
Fujitsu; and (i) Buyer shall have obtained debt and equity financing in at least
the amount of $9.0 million and upon terms and conditions reasonably satisfactory
to Buyer.
The obligation of the Company to effect the Sale of Assets is subject to
the satisfaction of the following conditions unless waived, in whole or in part,
by the Company: (a) the representations and warranties of Buyer shall be true
and correct in all material respects (provided that any representation or
warranty of Buyer contained in the Asset Purchase Agreement that is qualified by
a materiality standard shall not be further qualified) as of the date of the
Asset Purchase Agreement and the Closing Date as though made on and as of the
Closing Date; (b) Buyer shall have performed in all material respects (provided
that any covenant or agreement of Buyer contained in the Asset Purchase
Agreement that is qualified by a materiality standard shall not be further
qualified) the obligations required to be performed prior to the Closing Date;
(c) all documents, instruments, certificates or other items required to be
delivered by Buyer shall have been delivered; (d) the Company shall have
obtained a resolution of its Board of Directors and stockholders to approve the
Asset Purchase Agreement; (e) the Company shall have received from Vinson &
Elkins LLP, counsel to the Buyer, an opinion with respect to certain matters;
and (f) the Company shall have had a reasonable opportunity to review Buyer's
capitalization and terms of debt financing and the Company shall be reasonably
satisfied with Buyer's ability to perform its obligations under the Asset
Purchase Agreement.
INDEMNIFICATION AND ESCROW.
Pursuant to the terms of the Asset Purchase Agreement, Buyer is entitled to
withhold $250,000 of the Purchase Price and deposit such amount with an escrow
agent as a reserve to cover any Buyer Indemnified Costs arising from the Asset
Purchase Agreement, including from any breach of a representation, warranty,
covenant or agreement of the Company, for a period of twelve months after the
Closing, except for any claims based on fraudulent acts or omissions, which
shall survive until the expiration of the applicable statute of limitations.
At the Closing, Buyer is entitled to withhold from the Purchase Price and
deposit the amount shown on a Tax Certificate delivered by the Company to the
Buyer with an escrow agent, which is an estimate of sales taxes incurred prior
to the Closing and payable to the Texas comptroller of public accounts. If such
Tax Certificate is not delivered, Buyer is entitled to make a good faith
estimate (based on the recommendation of the Company's and Buyer's respective
independent accountants) of the amount sufficient to cover all Texas sales and
use taxes, interest and penalties that are due and unpaid by the Company for all
periods up to the Closing. Any excess Tax Holdback Amount shall be paid to the
Company if no such taxes are owed.
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TERMINATION.
The Asset Purchase Agreement may be terminated on or prior to the Closing
Date: (i) by the mutual consent of the Company and the Buyer; (ii) by either the
Company or the Buyer: (a) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement in the Asset Purchase
Agreement that would give rise to a failure of a condition to Closing and cannot
be or has not been cured within twenty (20) days following receipt by the
breaching party of notice of such breach; (b) if a court or other Governmental
Entity shall issue an order, decree, or ruling permanently restraining,
enjoining or otherwise prohibiting the Sale of Assets and such order, decree,
ruling or other action shall become final and nonappealable; or (c) if the
Closing shall not have occurred by the later of August 15, 1998 or fifteen (15)
days after the receipt of all required Consents of Governmental Entities or
fifteen (15) days after the date the Company is first permitted under Applicable
Law to act upon the vote of the Company's stockholders necessary to consummate
the Sale of Assets; (iii) by the Buyer in the event of material loss or damage
to any of the Acquired Assets; or (iv) if the Company enters into a binding
agreement for the acquisition, merger or combination of the Company as a whole
or the sale of all of the Company's assets as a whole. Notwithstanding the
foregoing, no party that is in material breach of the Asset Purchase Agreement
shall be entitled to terminate the Asset Purchase Agreement without the consent
of the other party. If the Asset Purchase Agreement is terminated under the
circumstance described in clause (iv), the Buyer will be entitled to receive
reimbursement of its reasonable and documented costs and expenses up to
$100,000.
THE PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
GENERAL.
The Plan was adopted by the Board of Directors on July 22, 1998 and
approved by Fujitsu as the holder of a majority of the outstanding shares of
Common Stock entitled to vote and all of the outstanding shares of Preferred
Stock pursuant to a written consent dated July 28, 1998. The material features
of the Plan are summarized below. A copy of the Plan is attached as Annex B to
this Information Statement. STOCKHOLDERS ARE URGED TO READ THE PLAN IN ITS
ENTIRETY.
APPROVAL OF THE BOARD OF DIRECTORS AND REASONS FOR ADOPTING THE PLAN.
The Board believes that it is in the best interests of the Company, its
creditors and stockholders to implement the Plan and provide for payment of the
Company's obligations. Regardless of whether the Sale of Assets is consummated,
the Plan represents, in the Board's opinion, the most prudent way for the
Company to discharge its known liabilities, to provide for contingent and
unknown liabilities and to limit its exposure as a result of future business
activities. The Board also believes that an orderly shutdown of its operations
and liquidation and dissolution will be more beneficial to the Company's
creditors than would any available alternative thereto, including bankruptcy.
Following dissolution, the Company will continue its corporate existence under
the DGCL solely for the purpose of engaging in activities appropriate to or
consistent with the winding up and liquidation of its business and affairs. This
will permit the Company to take the steps necessary to discharge its liabilities
and to provide for the distribution of its remaining funds or assets, if any, to
the preferred and the common stockholders. THE COMPANY DOES NOT BELIEVE IT WILL
HAVE ANY FUNDS OR ASSETS AVAILABLE FOR DISTRIBUTION TO PREFERRED OR COMMON
STOCKHOLDERS. Therefore, it is highly unlikely that any distributions will be
made to any stockholders. Moreover, the Preferred Stock has a $50.0 million
liquidation preference over the holders of Common Stock. Following dissolution,
the Company will not be authorized to engage in any business activities other
than those related to the winding-up of its affairs and preserving the value of
its remaining assets pending the sale thereof, thus limiting the Company's
exposure for business activities unrelated to the liquidation of the Company's
assets and the winding up of its business.
THE ANTICIPATED TAX TREATMENT OF THE PLAN IS SET FORTH UNDER "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES." NO RULING HAS BEEN REQUESTED FROM THE IRS WITH
RESPECT TO THE ANTICIPATED TAX TREATMENT OF THE PLAN AND THE
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COMPANY WILL NOT SEEK AN OPINION OF COUNSEL WITH RESPECT TO THE ANTICIPATED TAX
TREATMENT. THE FAILURE TO OBTAIN A RULING FROM THE IRS OR AN OPINION OF COUNSEL
RESULTS IN LESS CERTAINTY THAT THE ANTICIPATED TAX TREATMENT SUMMARIZED THEREIN
WILL BE OBTAINED. IF ANY OF THE CONCLUSIONS STATED UNDER "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES" PROVES TO BE INCORRECT, THE RESULT COULD BE INCREASED TAXATION
AT THE CORPORATE AND/OR STOCKHOLDER LEVEL, THUS REDUCING THE BENEFIT TO THE
CREDITORS AND POSSIBLY STOCKHOLDERS AND THE COMPANY FROM THE LIQUIDATION. IF IT
WERE TO BE DETERMINED THAT DISTRIBUTIONS, IF ANY, MADE PURSUANT TO THE PLAN WERE
NOT LIQUIDATING DISTRIBUTIONS, THE RESULT COULD BE TREATMENT OF DISTRIBUTIONS AS
DIVIDENDS TAXABLE AT ORDINARY RATES. IT IS ANTICIPATED THAT THERE WILL NOT BE
ANY MATERIAL TAX PAYABLE AT THE CORPORATE LEVEL BECAUSE OF NET OPERATING LOSSES
INCURRED BY THE COMPANY.
PLAN EXPENSES AND INDEMNIFICATION.
The Plan specifically contemplates that the Board of Directors may
authorize the payment of a retainer fee to a law firm or law firms selected by
the Board of Directors for legal fees and expenses of the Company, including,
among other things, to cover any costs payable pursuant to the indemnification
of the Company's officers or members of the Board of Directors provided by the
Company pursuant to its Restated Certificate of Incorporation and Bylaws or the
DGCL or otherwise.
In addition, in connection with and for the purpose of implementing and
assuring completion of the Plan, the Company may, in the absolute discretion of
the Board of Directors, pay any brokerage, agency and other fees and expenses of
persons rendering services to the Company in connection with the collection,
sale, exchange or other disposition of the Company's property and assets and the
implementation of the Plan.
The Company shall continue to indemnify its officers, directors, employees
and agents in accordance with its Restated Certificate of Incorporation and
Bylaws and any contractual arrangements, for actions taken in connection with
the Plan and the winding up of the affairs of the Company. The Board of
Directors, in its absolute discretion, is authorized to obtain and maintain
insurance as may be necessary, appropriate or advisable to cover such
obligations. See "-- Conduct of the Company following Adoption of the Plan."
PRINCIPAL PROVISIONS OF THE PLAN.
Once the Plan is effective, the steps below will be completed at such times
as the Board of Directors, in its absolute discretion, deems necessary,
appropriate or advisable. The Plan permits the Board of Directors to instruct
the officers of the Company to delay the taking of any of the following steps
until the Company has performed such actions as the Board of Directors or such
officers determine to be necessary, appropriate or advisable for the Company to
maximize the value of the Company's assets upon liquidation; provided that such
steps may not be delayed longer than is permitted by applicable law.
(a) A Certificate of Dissolution will be filed with the State of Delaware
pursuant to Section 275 of the DGCL. The dissolution of the Company will become
effective, in accordance with Section 275 of the DGCL, upon proper filing of the
Certificate of Dissolution with the Secretary of State or upon such later date
as may be specified in the Certificate of Dissolution (the "Dissolution Date"),
but in no event later than ninety (90) days after the filing. Pursuant to the
DGCL, the Company will continue to exist for three years after the Dissolution
Date or for such longer period as the Delaware Court of Chancery shall direct,
for the purpose of prosecuting and defending suits, whether civil, criminal or
administrative, by or against it, and enabling the Company gradually to settle
and close its business, to dispose of and convey its property, to discharge its
liabilities and to distribute to its stockholders any remaining assets, but not
for the purpose of continuing the business for which the Company was organized.
(b) From and after the Dissolution Date, the Company will cease all of its
business activities and shall withdraw from any jurisdiction in which it is
qualified to do business, except and insofar as necessary for the sale of its
assets and for the proper winding up of the Company pursuant to Section 278 of
the DGCL.
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(c) The officers of the Company will negotiate and consummate the sales of
all of the remaining assets and properties of the Company, including the
assumption by the purchaser or purchasers of any or all liabilities of the
Company, insofar as the Board of Directors deems such sales necessary,
appropriate or advisable. It is not anticipated that any further stockholder
votes will be solicited with respect to the approval of the specific terms of
any particular sales of assets approved by the Board of Directors. If either the
Sale of Assets or the Sale of RIL is not consummated for any reason, approval of
the Plan will also constitute approval of the sale of such assets by the Company
on such terms and conditions as the Board of Directors in its absolute
discretion may determine.
(d) The Plan provides that the Board of Directors will liquidate the
Company's assets in accordance with any applicable provision of the DGCL,
including Sections 280 and 281. Without limiting the flexibility of the Board of
Directors, the Board of Directors may, at its option, instruct the officers of
the Company to follow the procedures set forth in Sections 280 and 281 of the
DGCL which instruct such officers to: (i) give notice of the dissolution to all
persons having a claim against the Company and provide for the rejection of any
such claims in accordance with Section 280 of the DGCL; (ii) offer to any
claimant on a contract whose claim is contingent, conditional or unmatured
security in an amount sufficient to provide compensation to the claimant if the
claim matures, and petition the Delaware Court of Chancery to determine the
amount and form of security sufficient to provide compensation to any such
claimant who rejects such offer in accordance with Section 280 of the DGCL;
(iii) petition the Delaware Court of Chancery to determine the amount and form
of security which would be reasonably likely to be sufficient to provide
compensation for (A) claims that are the subject of pending litigation against
the Company, and (B) claims that have not been made known to the Company at the
time of dissolution, but are likely to arise or become known within five (5)
years (or longer in the discretion of the Delaware Court of Chancery), each in
accordance with Section 280 of the DGCL; (iv) pay, or make adequate provision
for payment, of all claims made against the Company and not rejected, including
all expenses of the sale of assets and of the liquidation and dissolution
provided for by the Plan in accordance with Section 280 of the DGCL; and (v)
post all security offered and not rejected and all security ordered by the
Delaware Court of Chancery in accordance with Section 280 of the DGCL.
(e) The Company may, from time to time, make liquidating distributions of
the remaining funds and unsold assets of the Company, if any, in cash or in
kind, to the holders of record of Preferred Stock and Common Stock at the close
of business on the Dissolution Date. Such liquidating distributions, if any,
will be made first to Fujitsu as the sole holder of all of the outstanding
shares of Preferred Stock until Fujitsu has received the full $50.0 million
liquidation preference for the outstanding shares of Preferred Stock, and then
to the holders of Common Stock on a pro rata basis; provided that in the opinion
of the Board of Directors adequate provision has been made for the payment,
satisfaction and discharge of all known, unascertained or contingent debts,
obligations and liabilities of the Company (including costs and expenses
incurred and anticipated to be incurred in connection with the sale of assets
and complete liquidation of the Company). All determinations as to the time for
and the amount and kind of liquidations will be made by the Board of Directors
in its absolute discretion and in accordance with Section 281 of the DGCL. No
assurances can be given that available cash and amounts received on the sale of
assets will be adequate to provide for the Company's obligations, liabilities,
expenses and claims, and to make any cash distributions to stockholders. THE
COMPANY DOES NOT BELIEVE THAT THERE WILL BE ANY FUNDS OR ASSETS AVAILABLE FOR
DISTRIBUTION TO ITS PREFERRED OR COMMON STOCKHOLDERS.
(f) If deemed necessary by the Board of Directors for any reason, the
Company may, from time to time, transfer any of its unsold assets to one or more
trusts established for the benefit of stockholders (subject to the claims of
creditors) which property would thereafter be sold or distributed on terms
approved by its trustees. If all of the Company's assets are not sold or
distributed prior to the third anniversary of the Dissolution Date, or such
longer period as the Delaware Court of Chancery may direct, the Company must
transfer in final distribution such remaining assets to a trust. The Board of
Directors may also elect in its discretion to transfer the Contingency Reserve
(as defined below), if any, to such a trust. Any of such trusts are referred to
herein as "liquidating trusts." Notwithstanding the foregoing, to the extent
that a distribution or transfer of any asset cannot be effected without the
consent of a governmental authority, no such distribution or transfer shall be
effected without such consent. In the event of a transfer of assets to a
liquidating trust, the Company would
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distribute, first to the holder of its Preferred Stock and then to holders of
its Common Stock, beneficial interests in any such liquidating trust or trusts.
It is anticipated that the interests in any such trusts will not be
transferable; hence, although the recipients of the interests would be treated
for tax purposes as having received their pro rata share of property transferred
to the liquidating trust or trusts and will thereafter take into account for tax
purposes their allocable portion of any income, gain or loss realized by such
liquidating trust or trusts, the recipients of the interests will not realize
the value thereof unless and until such liquidating trust or trusts distributes
cash or other assets to them. The Plan authorizes the Board of Directors to
appoint one or more individuals or entities to act as trustee or trustees of the
liquidating trust or trusts and to cause the Company to enter into a liquidating
trust agreement or agreements with such trustee or trustees on such terms and
conditions as may be approved by the Board of Directors. Approval of the Plan
also will constitute the approval by the Company's stockholders of any such
appointment and any liquidating trust agreement or agreements. For further
information relating to liquidating trusts, the appointment of trustees and the
liquidating trust agreements, reference is made to "Contingent Liabilities;
Contingency Reserve; Liquidating Trusts."
(g) The Company will close its stock transfer books and discontinue
recording transfers of shares of Preferred Stock and Common Stock on the
Dissolution Date, at which time the Company's capital stock and stock
certificates evidencing the Preferred Stock and the Common Stock will be treated
as no longer being outstanding.
SALES OF THE COMPANY'S ASSETS.
The Plan gives the Board of Directors the authority to sell all or
substantially all of the assets of the Company. Assuming that the Sale of Assets
is consummated, the only significant remaining assets of the Company to be sold
under the Plan or otherwise will be certain remaining intellectual property
rights, including certain intellectual property rights relating to the Company's
64-bit "Viper" development product. See "The Asset Purchase
Agreement -- Background Information." The Company is continuing to explore the
sale of these remaining assets. In the event that the Sale of Assets is not
consummated for any reason, then stockholder approval of the Plan will also
constitute, to the extent necessary, approval of the sale of any of such assets
by the Company on such terms and conditions as the Board of Directors in its
absolute discretion may determine.
Additional agreements for the sale of assets may be entered into prior to
the effectiveness of the Plan and, if entered into, may be contingent upon the
effectiveness of stockholder approval of the Plan. Approval of the Plan will
constitute approval of any such agreements (to the extent that such approval is
required). Sales of the Company's assets will be made on such terms as are
approved by the Board of Directors and may be conducted by competitive bidding
or privately negotiated sales. Any sales will only be made after the Board of
Directors has determined that any such sale is in the best interests of the
Company's creditors and stockholders. It is not anticipated that any future
stockholder consents will be executed with respect to the approval of the
specific terms of any particular sales of assets approved by the Board of
Directors. The Company does not anticipate amending or supplementing this
Information Statement to reflect any such agreement or sale. The prices at which
the Company will be able to sell its remaining various assets (including assets
relating to the Business if the Sale of Assets is not consummated) will depend
largely on factors beyond the Company's control, including, without limitation,
the compatibility of the Company's intellectual property rights with those of
other semiconductor manufacturers (who are the most likely purchasers of such
rights), the extent to which such intellectual property rights are viewed as
valuable by such manufacturers and the condition of financial markets and the
availability of financing to prospective purchasers of assets. In addition, the
Company may not obtain as high a price for its assets as it might secure if the
Company was not in liquidation.
At this stage, the Company anticipates that some of the Company's remaining
assets may be sold to one or more of the Company's affiliates. As noted above,
Fujitsu has expressed an interest in acquiring certain of the Company's other
intellectual property rights, although the terms of any such acquisition have
not been discussed. The Company will engage in a transaction with an affiliate
with respect to the sale or other
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<PAGE> 47
disposition of its remaining asserts only if the Board of Directors determines
that such transaction is in the best interests of the Company and its creditors
and stockholders.
CONDUCT OF THE COMPANY FOLLOWING ADOPTION OF THE PLAN.
As previously discussed, on June 1, 1998, the Company commenced steps to
undertake an orderly shutdown of its operations and, if the Sale of Assets is
not consummated, intends to continue its operations, at a scaled back level,
through the end of calendar 1998. As part of the preparation for the shutdown of
the Company's business, on June 1, 1998 the Company 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
138 employees, or 70% of the Company's work force (excluding employees at the
Company's Design Center in Israel) were laid off on July 31, 1998, including the
members of the Company's "Viper" development team. Since the adoption of the
Plan by the Board of Directors, management and the Board of Directors have
continued to seek buyers for the Company's remaining assets, including the
intellectual property related to the Company's 64-bit "Viper" development
project. In addition, the Company has continued its operations at a scaled-back
level and has begun to orient the Company's administrative structure towards
consummation of the Sale of Assets and the implementation of the Plan.
Following the Dissolution Date, the Company's activities will be limited to
winding up its affairs, taking such action as may be necessary to preserve the
value of its assets and distributing its assets in accordance with the Plan. The
Company will seek to distribute or liquidate all of its assets in such manner
and upon such terms as the Board of Directors determines to be in the best
interests of the Company's creditors and stockholders.
Pursuant to the Plan, the Company shall continue to indemnify its officers,
directors, employees and agents in accordance with its Restated Certificate of
Incorporation and Bylaws and any contractual arrangements, for actions taken in
connection with the Plan and the winding up of the affairs of the Company. The
Board of Directors, in its absolute discretion, is authorized to obtain and
maintain insurance as may be necessary, appropriate or advisable to cover the
Company's indemnification obligations under the Plan.
CONTINGENT LIABILITIES; CONTINGENCY RESERVE; LIQUIDATING TRUST.
Under the DGCL, the Company is required, in connection with its
dissolution, to pay or provide for payment of all of its liabilities and
obligations. Following the Dissolution Date, the Company will pay, to the extent
of its funds and assets available, all expenses and fixed and other known
liabilities, or set aside as a contingency reserve, assets which it believes to
be adequate for payment thereof (the "Contingency Reserve").
The DGCL sets forth specific procedures that may be used by a dissolved
corporation to dispose of known claims. A dissolved corporation may notify in
writing its known creditors of the dissolution at any time after the Dissolution
Date (as defined below). Such notice must state a deadline, which may not be
fewer than 120 days from the effective date of the notice, by which the
dissolved corporation must receive the claim. Any claim against the dissolved
corporation that is not tendered by the specified date is time barred and,
following such date, may not be asserted against the dissolved corporation. This
procedure applies only to known claims and specifically excludes a contingent
liability or a claim based upon an event occurring after the Dissolution Date.
The DGCL also provides that a corporate dissolution extinguishes claims against
the corporation, its directors, officers and stockholders for any right or claim
existing, or liability incurred, prior to such dissolution if action or other
proceeding related thereto is not commenced within three years after the
Dissolution Date. The Company may take advantage of these statutory provisions
to help minimize the Company's potential exposure for known and contingent
claims against the Company, thereby increasing the potential return to known
creditors and the potential, however remote, for a distribution to stockholders
following the discharge of, or provision for, the Company's liabilities.
The Company is currently unable to estimate with precision the amount of
any Contingency Reserve which may be required, but any such amount (in addition
to any cash contributed to a liquidating trust, if one is utilized) will be
deducted before the determination of amounts available for distribution to
stockholders.
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<PAGE> 48
BASED ON THE ANTICIPATED VALUE OF THE ASSETS TO BE SOLD BY THE COMPANY, THE
COMPANY DOES NOT BELIEVE THAT IT WILL HAVE ANY FUNDS OR ASSETS AVAILABLE FOR
DISTRIBUTION TO PREFERRED OR COMMON STOCKHOLDERS.
The actual amount of any Contingency Reserve will be based upon estimates
and opinions of management and the Board of Directors and derived from review of
the Company's estimated operating expenses, including, without limitation,
anticipated compensation payments, estimated legal and accounting fees, rent,
payroll and other taxes payable, miscellaneous office expenses and expenses
accrued in the Company's financial statements. There can be no assurance that
the Contingency Reserve in fact will be sufficient. After the liabilities,
expenses and obligations for which the Contingency Reserve had been established
have been satisfied in full, the Company will distribute to its stockholders any
remaining portion of the Contingency Reserve. The remaining portion of the
Contingency Reserve will first be paid to the holder of the Preferred Stock (to
the extent of the $50.0 million aggregate liquidation preference of the
Preferred Stock), then, if any funds remain, to the holders of Common Stock on a
pro rata basis. THE COMPANY DOES NOT BELIEVE THAT IT WILL HAVE ANY FUNDS OR
ASSETS AVAILABLE FOR DISTRIBUTION TO PREFERRED OR COMMON STOCKHOLDERS.
If deemed necessary, appropriate or desirable by the Board of Directors for
any reason, the Company may, from time to time, transfer any of its unsold
assets to one or more liquidating trusts established for the benefit of
stockholders (subject to the claims of creditors), which property would
thereafter be sold or distributed on terms approved by its trustees. The Board
of Directors and management may determine to transfer assets to a liquidating
trust in circumstances where the nature of an asset is not susceptible to
distribution (for example, interests in intangibles) or where it would not be in
the best interests of the Company and its creditors and stockholders for such
assets to be distributed directly to the creditors or stockholders at such time.
If all of the Company's assets (other than the Contingency Reserve) are not sold
or distributed prior to the third anniversary of the Dissolution Date, the
Company may transfer in final distribution such remaining assets to a
liquidating trust. The Board of Directors may also elect in its discretion to
transfer the Contingency Reserve, if any, to such a liquidating trust.
Notwithstanding the foregoing, to the extent that the distribution or transfer
of any asset cannot be effected without the consent of a governmental authority,
no such distribution or transfer shall be effected without such consent. The
purpose of a liquidating trust would be to distribute such property or to sell
such property on terms satisfactory to the liquidating trustees, and distribute
the proceeds of such sale after paying those liabilities of the Company, if any,
assumed by the trust, to the Company's stockholders. Any liquidating trust
acquiring all the unsold assets of the Company will assume all of the
liabilities and obligations of the Company and will be obligated to pay any
expenses and liabilities of the Company which remain unsatisfied. If the
Contingency Reserve transferred to the liquidating trust is exhausted, such
expenses and liabilities will be satisfied out of the liquidating trust's other
unsold assets.
The Plan authorizes the Board of Directors to appoint one or more
individuals or entities to act as trustee or trustees of the liquidating trust
or trusts and to cause the Company to enter into a liquidating trust agreement
or agreements with such trustee or trustees on such terms and conditions as may
be approved by the Board of Directors. It is anticipated that the Board of
Directors will select such trustee or trustees on the basis of the experience of
such individual or entity in administering and disposing of assets and
discharging liabilities of the kind to be held by the liquidating trust or
trusts and the ability of such individual or entity to serve the best interests
of the Company's creditors and stockholders. The Company has not determined
whether it would require that a majority of the trustees be independent of the
Company's management. Approval of the Plan by the stockholders will also
constitute the approval by the Company's stockholders of any such appointment
and any liquidating trust agreement or agreements.
The Company has no present plans to use a liquidating trust or trusts, but
the Board of Directors believes the flexibility provided by the Plan with
respect to the liquidating trusts to be advisable. Any trust would be evidenced
by a trust agreement between the Company and the trustees. The purpose of the
trust would be to serve as a temporary repository for the trust property prior
to its disposition or distribution first to the Company's creditors and to pay
the expenses associated with the liquidation and dissolution, then to the holder
of the Preferred Stock to the extent of the $50.0 million aggregate liquidation
preference of the Preferred Stock and finally to holders of the Common Stock, on
a pro rata basis. IT IS HIGHLY UNLIKELY THAT PREFERRED OR
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<PAGE> 49
COMMON STOCKHOLDERS WILL RECEIVE ANY DISTRIBUTIONS. The transfer to the trust
and distribution of interests therein to the Company's stockholders would enable
the Company to divest itself of the trust property. Pursuant to the trust
agreement, the trust property would be transferred to the trustees immediately
prior to the distribution of interests in the trust to the Company's
stockholders, to be held in trust for the benefit of the stockholder
beneficiaries subject to the terms of the trust agreement and claims of
creditors. It is anticipated that the interests would be evidenced only by the
records of the trust and there would be no certificates or other tangible
evidence of such interests and that no holder of Preferred Stock or Common Stock
would be required to pay any cash or other consideration for the interests to be
received in the distribution or to surrender or exchange shares of Preferred
Stock or Common Stock in order to receive the interests. It is further
anticipated, although not required, that pursuant to the trust agreements (i)
approval of a majority of the trustees would be required to take any action; and
(ii) the trust would be irrevocable and would terminate after the earlier of (x)
the trust property having been fully distributed, or (y) a majority of the
trustees having approved of such termination, or (z) a specified number of years
having elapsed after the creation of the trust.
ALTHOUGH A THEORETICAL POSSIBILITY, THE COMPANY DOES NOT BELIEVE IT WILL
HAVE ANY FUNDS OR ASSETS AVAILABLE TO MAKE DISTRIBUTIONS TO ITS PREFERRED OR
COMMON STOCKHOLDERS. ACCORDINGLY, THE COMPANY ALSO BELIEVES THAT IT IS HIGHLY
UNLIKELY THAT IT WILL MAKE ANY DISTRIBUTIONS TO A LIQUIDATING TRUST.
ABANDONMENT AND AMENDMENT.
Under the Plan, the Board of Directors may modify, amend or abandon the
Plan, notwithstanding stockholder approval, to the extent permitted by the DGCL.
The Company will not amend or modify the Plan under circumstances that would
require additional stockholder solicitations under the DGCL or the federal
securities laws without complying with the DGCL and the federal securities laws.
The Executive Committee of the Board of Directors may exercise
substantially all of the powers of the Board of Directors in implementing the
Plan. Accordingly, references to the Board of Directors herein should be deemed
also to refer to such committee.
ONGOING LIABILITIES; TIMING.
Claims, liabilities and expenses from operations (including operating
costs, salaries, income taxes, payroll and local taxes and miscellaneous office
expenses), will continue to occur following approval of the Plan, and the
Company anticipates that expenses for professional fees and other expenses of
liquidation will be significant. These expenses will reduce the amount of
assets, if any, available for ultimate distribution to stockholders. THE COMPANY
DOES NOT BELIEVE THAT THERE WILL BE ANY FUNDS OR ASSETS AVAILABLE FOR
DISTRIBUTION TO PREFERRED OR COMMON STOCKHOLDERS. The liquidation is expected to
be commenced after effectiveness of the Certificate of Dissolution and to be
concluded prior to the third anniversary thereof by a final liquidating
distribution either directly to the Company's creditors or to a liquidating
trust.
LISTING AND TRADING OF THE COMMON STOCK AND INTERESTS IN ANY LIQUIDATING TRUST
OR TRUSTS.
The Company currently intends to close its stock transfer books on the
Dissolution Date and at such time cease recording stock transfers and issuing
stock certificates (other than replacement certificates). Accordingly, it is
expected that trading in the Company's shares will cease on and after such date.
On May 18, 1998, the Company was informed by The Nasdaq Stock Market of the
Company's failure to maintain certain listing requirements for the Nasdaq
National Market - 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. On July 15, 1998, the Company received
another notice from The Nasdaq Stock Market informing the Company that it no
longer met the minimum net tangible assets requirement for continued listing on
the Nasdaq National Market. As a result of the Company's noncompliance with
these rules, the Company's Common Stock was delisted from the Nasdaq National
Market at the close of business on July 31,
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1998. The Company's Common Stock continues to trade on the over-the-counter
bulletin board market maintained by The Nasdaq Stock Market.
The interests in any liquidating trust or trusts for the benefit of
stockholders are not expected to be transferable.
REGULATORY APPROVALS.
No United States federal or state regulatory requirements must be complied
with or approvals obtained in connection with the liquidation. The Company may
have to make certain foreign filings in connection with the closing of the
Company's sales office in Belgium.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following unaudited pro forma condensed consolidated balance sheet of
the Company is based upon the Company's consolidated historical balance sheet,
as adjusted to give effect to the Sale of Assets. The unaudited pro forma
condensed consolidated balance sheet as of September 28, 1998 gives effect to
these transactions as if they occurred on September 28, 1998. The pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable. The pro forma balance sheet does not
purport to represent what the Company's financial position would actually have
been had such transactions in fact occurred at or on such date, or to project
the Company's financial position at any future date. The unaudited pro forma
financial information should be read in conjunction with the consolidated
financial statements and related notes thereto beginning at page F-1. The pro
forma adjustments are described in the footnotes below.
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<PAGE> 51
PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 28, 1998
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 28, PRO FORMA
1998 ADJUSTMENTS PRO FORMA
------------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash...................................... $ 7,048 $ 7,560(1) $ (11,664)(2) $ 2,944
Trade accounts receivable, net............ 1,668 -- (1,668) --
Receivable from Fujitsu................... 607 -- (607) --
Inventory................................. 1,930 -- (1,930) --
Other current assets...................... 2 -- (2) --
-------- ------- --------- --------
Total current assets.............. 11,255 7,560 (15,871) 2,944
Property and equipment.................... 696 -- (696) --
-------- ------- --------- --------
Total assets...................... $ 11,951 $ 7,560 $ (16,567) $ 2,944
======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY IN ASSETS
Current liabilities:
Trade accounts payable.................... $ 619 $ 619 $ -- $ --
Accrued shutdown costs.................... 3,200 3,200 -- --
Accrued severance costs................... 2,420 2,420 -- --
Accrued warranty and inventory costs...... 1,772 1,772 -- --
Payable to Fujitsu........................ 1,318 1,318 -- --
Accrued liabilities....................... 1,061 1,061 -- --
Notes payable............................. 20,000 -- -- 20,000
-------- ------- --------- --------
Total current liabilities......... 30,390 10,390 -- 20,000
-------- ------- --------- --------
Stockholders' deficiency in assets.......... (18,439) 8,280(3) (6,897)(4) (17,056)
-------- ------- --------- --------
Total liabilities and
stockholders' deficit in
assets.......................... $ 11,951 $18,670 $ (6,897) $ 2,944
======== ======= ========= ========
</TABLE>
- ---------------
(1) Reflects receipt of $5.66 million from the Sale of Assets and receipt of
$1.9 million from the Buyer relating to the Buyer's obligation under the
Asset Purchase Agreement to reimburse the Company for all costs incurred by
the Company on behalf of the Buyer from June 29, 1998 through the closing of
the Sale of Assets (assumed to be September 28, 1998).
(2) Reflects payment of all liabilities [, excluding $720,000 of severance
payments to employees who will be hired by Buyer,] and remittance of $1.9
million to the Buyer for accounts receivable collected in the second quarter
of Fiscal 1999 for revenues recorded by the Company in the same fiscal
quarter as required by the Asset Purchase Agreement.
(3) Reflects the cash inflows documented above at (1) and the reversal of the
"Accrued severance costs" associated with employees to be hired by Buyer
that the Company would owe in the event that the Sale of Assets is not
consummated.
(4) Comprised of the write-off of all assets excluding cash and the payment of
$1.9 million for accounts receivable collected in the second quarter of
Fiscal 1999 for revenues recorded by the Company in the same quarter.
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<PAGE> 52
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material Federal
income tax consequences of the IP Sale, the Sale of RIL, Sale of Assets and the
Plan to the Company and the Company's stockholders, respectively, but does not
purport to be a complete analysis of all the potential tax effects. The
discussion addresses neither the tax consequences that may be relevant to
particular categories of investors subject to special treatment under certain
Federal income tax laws (such as dealers in securities, banks, insurance
companies, tax-exempt organizations, and foreign individuals and entities) nor
any tax consequences arising under the laws of any state, local or foreign
jurisdiction. The discussion is based upon the Code, Treasury Regulations,
Internal Revenue Service (the "IRS") rulings, and judicial decisions now in
effect, all of which are subject to change at any time; any such changes may be
applied retroactively. The following discussion has no binding effect on the IRS
or the courts and assumes that the Company will liquidate substantially in
accordance with the Plan.
Distributions pursuant to the Plan, if any, may occur at various times and
in more than one tax year. No assurance can be given that the tax treatment
described herein will remain unchanged at the time of such distributions. The
following discussion presents the opinion of the Company. No ruling has been
requested from the IRS with respect to the anticipated tax treatment of the Plan
and the Company will not seek an opinion of counsel with respect to the
anticipated tax treatment. The failure to obtain a ruling from the IRS or an
opinion of counsel results in less certainty that the anticipated tax treatment
summarized herein will be obtained. If any of the conclusions stated herein
proves to be incorrect, the result could be increased taxation at the corporate
and/or stockholder level, thus reducing the benefit, if any, to the stockholders
and the Company from the liquidation.
BASED ON THE ANTICIPATED VALUE OF THE COMPANY'S ASSETS AND THE AMOUNTS OWED
TO CREDITORS, THE COMPANY DOES NOT BELIEVE THAT IT WILL HAVE ANY FUNDS OR ASSETS
AVAILABLE FOR DISTRIBUTION TO PREFERRED OR COMMON STOCKHOLDERS.
CONSEQUENCES TO THE COMPANY.
The IP Sale and the Sale of RIL were, and the Sale of Assets will be, a
taxable transaction to the Company for income tax purposes. It is anticipated
that there will not be any material tax at the corporate level because of the
net operating losses that have been incurred by the Company.
After the approval of the Plan and until the liquidation is completed, the
Company will continue to be subject to income tax on its taxable income. The
Company will recognize gain or loss on sales of its property pursuant to the
Plan. Upon distributions, if any, of property to stockholders pursuant to the
Plan, the Company will recognize gain or loss as if such property was sold to
the stockholders at its fair market value, unless certain exceptions to the
recognition of loss apply. As it is anticipated that no such exception will
apply, the Company should recognize gain or loss on any distribution of property
to stockholders pursuant to the Plan. It is possible that the sale or
distribution of all of the Company's holdings may result in the realization of
net gain and the generation of tax obligations exceeding the amount of cash
currently available. In addition, liabilities of the Company not assumed by the
Buyer may be discharged by the Company at less than the face amount of such
liabilities. The discharge of liabilities by the Company at less than face
amount will result in a realization of income to the Company to the extent of
the excess of the face amount of the liabilities over the amount paid in
satisfaction thereof. However, it is anticipated that there will not be any
material tax payable at the corporate level because of net operating losses
previously incurred by the Company.
CONSEQUENCES TO STOCKHOLDERS.
As a result of the liquidation of the Company, stockholders will recognize
gain or loss equal to the difference between (i) the sum of the amount of cash
distributed to them and the fair market value (at the time of distribution) of
property distributed to them, and (ii) their tax basis for their shares of
stock. The Company does not believe that any distributions of cash or property
will be made to stockholders. A
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stockholder's tax basis in his or her shares will depend upon various factors,
including the stockholder's cost and the amount and nature of any distributions
received with respect thereto.
A stockholder's gain or loss will be computed on a "per share" basis. If a
stockholder receives no distributions pursuant to the Plan, such stockholder
should be entitled to claim a worthless stock deduction equal to the tax basis
of the shares held by such stockholder, in the taxable year in which the
liquidation is completed (or in a prior year if it became clear in such year
that the stock was worthless). Such deduction should be treated as a capital
loss, as if the stock were sold on the last day of the taxable year of the
deduction. If the stockholder's holding period for the stock is more than 12
months on such date, the capital loss will be long-term; otherwise, it will be
short-term.
In the unlikely event that the Company makes any liquidating distributions,
each would be allocated proportionately to each share of Preferred Stock or
Common Stock owned by a stockholder. The value of each liquidating distribution
would be applied against and reduce a stockholder's tax basis in his or her
shares of stock. Gain would be recognized by reason of a liquidating
distribution only to the extent that the aggregate value of such distributions
received by a stockholder with respect to a share exceeds his or her tax basis
for that share. Subject to the preceding paragraph, any loss will generally be
recognized only when the final distribution from the Company has been received
and then only if the aggregate value of the liquidating distributions with
respect to a share is less than the stockholder's tax basis for that share. Gain
or loss recognized by a stockholder will be capital gain or loss provided the
shares are held as capital assets. Gain resulting from distributions of cash or
assets from a corporation pursuant to a plan of liquidation is therefore
generally capital gain rather than ordinary income; ordinary income would be the
result in the event of the receipt of a distribution, not in liquidation, that
is characterized as a dividend for tax purposes, subject, in the case of
corporate holders, to a dividends-received deduction. If it were to be
determined that any distributions made pursuant to the Plan were not liquidating
distributions, the result could be treatment of distributions as dividends
taxable at ordinary income rates.
Upon any distribution of property, the stockholder's tax basis in such
property immediately after the distribution will be the fair market value of
such property at the time of distribution. The gain or loss realized upon the
stockholder's future sale of that property will be measured by the difference
between the stockholder's tax basis in the property at the time of such sale and
the sales proceeds.
After the close of its taxable year, the Company will provide stockholders
and the IRS with a statement of the amount of cash, if any, distributed to the
stockholders and its best estimate as to the value of the property, if any,
distributed to them during that year. In the case of property which consists of
stock or other securities which are traded in a public market, the fair market
value will be determined by the Company based on the prices at which such stocks
or securities are so traded. In the case of other property, the fair market
value will be determined by the Company based upon reports by independent
appraisers or such other evidence as the Company shall elect. There is no
assurance that the IRS will not challenge such valuation. As a result of such a
challenge, the amount of gain or loss recognized by stockholders might be
changed. Distributions to stockholders could result in tax liability to any
given stockholder exceeding the amount of cash received, requiring the
stockholder to meet the tax obligations from other sources or by setting all or
a portion of the assets received. Such sales, or the prospect of such sales,
could reduce the market price of the securities received.
TAXATION OF NON-UNITED STATES STOCKHOLDERS.
Foreign corporations or persons who are not citizens or residents of the
United States should consult their tax advisors with respect to the U.S. and
non-U.S. tax consequences of the Plan.
Stockholders may also be subject to state or local taxes, and should
consult their tax advisors with respect to the state and local tax consequences
of the Plan.
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<PAGE> 54
THE FOREGOING SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
INCLUDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO
ANY STOCKHOLDER. THE TAX CONSEQUENCES OF THE PLAN MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF THE STOCKHOLDER. THE COMPANY RECOMMENDS THAT EACH
STOCKHOLDER CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
THE PLAN.
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<PAGE> 55
BUSINESS
RECENT DEVELOPMENTS
The description of the Company's business contained below is qualified in
its entirety by the information contained above under "Special
Factors -- General Background" and "-- Transactions with Fujitsu -- The IP
Sale; -- The Sale of RIL".
GENERAL
The Company has historically designed, manufactured and marketed
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 has
historically targeted 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, the Company intends to shutdown its operations
by early 1999.
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
September 28, 1998, Fujitsu and Sun owned approximately 60.0% and 4.5%,
respectively, of the outstanding Common Stock and Fujitsu owned 100% of the
Preferred Stock.
"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 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.
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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.
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
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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 discontinued offering all system-level products.
Dependence on SPARC Architecture
All of the Company's products 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. In addition, the Company will not
complete development of the Company's 64-bit SPARC development product.
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 since 1996. 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 would accept
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. The Company has received
approximately $6.9 million in orders under its EOL program. Under the terms of
the Asset Purchase Agreement, if the Sale of Assets is consummated, all product
sales by the Company after June 29, 1998 will be for the benefit of the Buyer,
which will also be responsible for all costs associated therewith.
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 Fiscal
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1998, Fiscal 1997 and 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. This customer base has been
declining due to customer migration to UltraSPARC(TM) and "Wintel" based
systems. Given the Company's EOL program and termination of substantially all of
its sales force, the Company does not expect significant future sales to upgrade
customers.
SALES, MARKETING AND SUPPORT
Sales and Marketing
The Company has historically employed various channels of sales and
distribution for its hyperSPARC(TM) product family. OEM and upgrade sales were
conducted through a direct sales force and through manufacturer representatives.
Upgrade sales were 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 whom were 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
was mailed to customers, prospective customers and others.
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
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specifications, and such a recall could have a material adverse effect on the
Company's business and operating results. Substantially all of the Company's
warranty obligations will be assumed by the Buyer if the Sale of Assets is
consummated. If the Sale of Assets is not consummated, the Company will seek to
outsource those obligations to a third party manufacturer. For 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 September 28, 1998, the Company's total backlog was approximately
$5.7 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.
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,
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.
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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 early
1999. See "Special Factors -- General Background."
Wafer Fabrication
Wafers for the semiconductor chips utilized by the Company in its products
are fabricated by outside manufacturers. 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
or the consummation of the Sale of Assets, as applicable.
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.
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
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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.
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,
the 32-bit Colorado 5 product, and will not complete its 64-bit Viper
microprocessor development project.
RESEARCH AND DEVELOPMENT
Until July 31, 1998, the Company's research and development efforts were
focused on the Viper development project, a 64-bit microprocessor. The Company
terminated the employment of the members of the Viper development team on July
31, 1998 and will not complete development of this product. In addition, the
Company and Fujitsu have terminated the development agreement relating to the
Viper project. The Company will not engage in further research and development
efforts.
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. Prior to
consummation of the IP Sale, the Company owned several issued United States
patents. Of the issued patents, one covers the Company's technology concerning
the fast registering of data in a microprocessor, another covers certain
techniques for automated circuit design, and a third covers the Company's
proprietary RISC superscalar microprocessor architecture.
An assessment of the Company's patent position, as with that of any
technology company, involves complex issues of law and fact that render such an
assessment uncertain. There can be no guarantee that any of the Company's patent
applications will issue (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.
Pursuant to the Asset Purchase and License Agreement, the Company has sold
to Fujitsu certain intellectual property rights, including four patents (with a
royalty-free license back to the Company for some of those rights). See "Special
Factors -- Transactions with Fujitsu -- The Asset Purchase and License
Agreement."
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
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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, RIL, had a workforce consisting of
30 full-time and part-time employees (as of July 31, 1998, such workforce
consisted of 17 full-time and part-time employees). The Company has sold RIL to
Fujitsu for $2.5 million. See "Special Factors -- Transactions with
Fujitsu -- The Sale of RIL."
As previously discussed, the Company has begun an orderly shutdown of its
operations and, as part of the preparation for the shutdown of the Company's
business, on June 1, 1998 the Company issued notices to all its U.S.-based
employees under the federal Workers Adjustment and Retraining Notification Act
to provide advance notice to all employees of the scheduled termination of their
employment in connection with the Company's shutdown. Pursuant to the shutdown
plan, approximately 138 employees, or 70% of the Company's work force (excluding
employees at the Company's Design Center in Israel) were laid off on July 31,
1998, including the members of the Company's "Viper" development team. As part
of the shutdown process, the Company established an Employee Retention and
Severance Plan for the Viper development team, BridgePoint business unit and an
administrative team. 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.
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 33,600 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. This lease will be assigned to the
Buyer upon consummation of the Sale of Assets. The second building, in which the
Company occupies 600 square feet, provides facilities for all administration
personnel. The Company has entered into an agreement with the lessor of its
previous
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headquarters facility pursuant to which the Company's obligations under that
lease for 62,200 square feet of office space, including obligations for $2.6
million of future lease payments, was terminated in return for a $1.0 million
payment by the Company.
LITIGATION
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 and the plaintiffs have reached an agreement in principle to
settle the Action for $40,000, although the parties have not entered into a
definitive settlement agreement. The Company believes that the plaintiffs'
claims against it are without merit and, if the parties do not reach agreement
on a definitive settlement agreement, 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, in
the absence of a settlement, 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 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 this matter has
been set for trial on November 16, 1998. The Company and the plaintiff have
reached an agreement in principle to settle the Vorm Action for $190,000,
although the parties have not entered into a definitive settlement agreement.
The Company believes that it has meritorious defenses to the Vorm Action and, if
the parties do not reach agreement on a definitive settlement agreement, intends
to defend it vigorously. Given the stage of the proceedings, the fact that, in
the absence of a settlement, 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.
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Hummingbird Communications, Ltd. v. ROSS Technology, Inc., Cause No.
9810439 (District Court of Travis County, Texas). On October 7, 1998, the
above-referenced action was filed against the Company in the 261st Judicial
District Court of Travis County, Austin, Texas (the "Hummingbird Action"). The
Hummingbird Action was brought by Hummingbird Communications, Ltd.
("Hummingbird"), a vendor of computer software to the Company, alleging that the
Company had not paid amounts due to Hummingbird pursuant to an agreement between
Hummingbird and the Company. Hummingbird seeks damages of $750,000, plus $50,000
per year from the inception of the agreement (August 19, 1996), plus reasonable
attorneys' fees.
The Company has filed an answer to the complaint and has denied liability.
The Company believes that it has meritorious defenses to the Hummingbird Action
and intends to defend it vigorously. Given the early 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 operation 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.
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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 "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 THREE
DECEMBER 29, PERIOD FROM MONTHS
1992 TO JULY 28, 1993 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED
JULY 27, TO APRIL 4, APRIL 3, APRIL 1, MARCH 31, MARCH 30, SEPTEMBER 29,
1993 1994 1995 1996 1997 1998 1997
------------ -------------- ----------- ----------- ----------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............ $ 7,023 $10,373 $ 39,021 $100,805 $ 83,104 $ 42,057 $11,472
Gross profit
(loss)............. 301 1,605 12,293 46,884 (24,847) (1,181) 1,409
Income (loss) from
operations......... (9,202) (21,222) (8,939) 19,317 (84,280) (36,195) (1,974)
Income (loss) before
income taxes....... (9,223) (21,515) (10,581) 17,843 (85,752) (38,271) (2,907)
Net income (loss).... $(7,641) (21,515) (10,669) 18,160 (86,705) (38,271) $(2,907)
Basic net income
(loss) per common
share(3)........... $ (2.92) $ (1.47) $ 1.23 $ (3.71) $ (1.63) $ (0.12)
Weighted average
shares
outstanding(3) --
Basic.............. 7,356 7,356 14,067 23,396 23,450 23,547
Diluted net income
(loss) per common
share.............. $ (2.92) $ (1.47) .82 (3.71) (1.63) $ (0.12)
Weighted average
common and common
equivalent shares
outstanding
Diluted............ 7,356 7,356 21,033 23,396 23,450 23,547
<CAPTION>
COMPANY(2)
---------------------------------------------
THREE
MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28,
1998 1997 1998
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIO
Net sales............ $ 4,396 $23,285 $12,229
Gross profit
(loss)............. (6) 2,047 12,347
Income (loss) from
operations......... 1,274 (6,482) (8,851)
Income (loss) before
income taxes....... 978 (8,066) (9,459)
Net income (loss).... $ 978 $(8,066) $(9,459)
Basic net income
(loss) per common
share(3)........... $ 0.04 $ (0.34) $ (0.40)
Weighted average
shares
outstanding(3) --
Basic.............. 23,477 23,542 23,477
Diluted net income
(loss) per common
share.............. $ 0.02 $ (0.34) $ (0.40)
Weighted average
common and common
equivalent shares
outstanding
Diluted............ 43,477 23,542 23,477
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
----------- ----------------------------------------------------------------------
JULY 27, APRIL 4, APRIL 3, APRIL 1, MARCH 31, MARCH 30, SEPTEMBER 28,
1993 1994 1995 1996 1997 1998 1998
----------- -------- -------- -------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 457 $ 2,458 $ 1,936 $ 17,941 $ 2,811 $ 787 $ 7,048
Working capital (deficit)................. (1,791) (15,581) (25,932) 44,336 (37,977) (12,305) (19,135)
Total assets.............................. 9,363 24,069 39,489 97,893 54,819 18,487 11,951
Notes payable............................. 4,000 20,500 36,344 -- 43,500 15,000 20,000
Accumulated deficit....................... (9,119) (21,515) (32,184) (14,856) (101,561) (139,832) (149,291)
Total stockholders' equity (deficit)...... $ 1,638 $ (3,615) $(14,284) $ 66,274 $(20,225) $ (8,980) $ (18,439)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, MARCH 30, SEPTEMBER 28,
1997 1998 1998
--------- --------- -------------
<S> <C> <C> <C>
BOOK VALUE PER SHARE:
Stockholders' deficit....................................... $(20,225) $(8,980) $(18,439)
Outstanding common stock.................................... 23,426 23,477 23,477
Book value per share........................................ $ (0.86) $ (0.38) $ (0.79)
</TABLE>
- ---------------
(1) References to the "Predecessor Company" refer to ROSS prior to its
acquisition by Fujitsu.
(2) Effective July 28, 1993, the Company's fiscal year was changed to end on the
Monday closest to March 31 to coincide with the fiscal year of its parent,
Fujitsu. As used in this Annual Report, "Fiscal 1995," "Fiscal 1996,"
"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
63
<PAGE> 66
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.
(4) For the fiscal years ended March 31, 1997 and March 30, 1998, and for the
six month period ended September 28, 1998, the Company incurred fixed
charges in excess of earnings totalling $2.0 million, $1.5 million and $.6
million, respectively.
64
<PAGE> 67
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"), the three months ended
September 29, 1997, the three months ended September 28, 1998, the six months
ended September 29, 1997 and the six months ended September 28, 1998.
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
FISCAL FISCAL FISCAL SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28,
1996 1997 1998 1997 1998 1997 1998
-------- -------- -------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $100,805 $ 83,104 $ 42,057 $11,472 $4,396 $23,285 $12,229
Cost of sales.................... 53,921 107,951 43,238 10,063 4,402 21,238 10,992
-------- -------- -------- ------- ------ ------- -------
Gross profit (loss).............. 46,884 (24,847) (1,181) 1,409 (6) 2,047 1,237
Operating expenses:
Research and development,
net.......................... 15,906 24,659 5,842 (152) 765 1,394 3,811
Selling, general and
administrative............... 10,495 31,137 16,889 3,535 3,880 7,135 6,954
Write-down of property and
equipment.................... -- -- 11,203 -- -- -- --
Write-down of investment in
subsidiary................... -- -- 1,080 -- -- -- --
Amortization of goodwill....... 1,166 3,637 --
Severance cost................. -- -- -- -- -- -- 5,248
Shutdown costs................. 0 0 0 -- 4,125 -- 4,125
-------- -------- -------- ------- ------ ------- -------
Total operating
expenses.............. 27,567 59,433 35,014 3,383 8,770 8,529 20,138
-------- -------- -------- ------- ------ ------- -------
Gain on sale of subsidiary....... -- -- -- -- 2,500 -- 2,500
Gain on sale of intellectual
property....................... -- -- -- -- 7,550 -- 7,550
-------- -------- -------- ------- ------ ------- -------
Income (loss) from operations.... 19,317 (84,280) (36,195) (1,974) 1,274 (6,482) (8,851)
Interest expense, net............ (1,474) (1,472) (2,076) (933) (296) (1,584) (608)
-------- -------- -------- ------- ------ ------- -------
Income (loss) before income
taxes.......................... 17,843 (85,752) (38,271) (2,907) 978 (8,066) (9,459)
Income tax provision (benefit)... (317) 953 -- -- -- -- --
-------- -------- -------- ------- ------ ------- -------
Net income (loss)................ $ 18,160 $(86,705) $(38,271) $(2,907) $ 978 $(8,066) $(9,459)
======== ======== ======== ======= ====== ======= =======
(As a percentage of net sales)
Net sales........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................... 53.5 129.9 102.8 87.7 100.1 91.2 89.9
-------- -------- -------- ------- ------ ------- -------
Gross profit (loss).............. 46.5 (29.9) (2.8) 12.3 (0.1) 8.8 10.1
-------- -------- -------- ------- ------ ------- -------
Operating expenses:
Research and development,
net.......................... 15.8 29.7 13.9 (1.3) 17.4 6.0 31.2
Selling, general and
administrative............... 10.4 37.5 40.2 30.8 88.3 30.6 56.9
Write-down of property and
equipment.................... -- -- 26.6 0.0 0.0 0.0 0.0
Write-down of investment in
subsidiary................... -- -- 2.6 0.0 0.0 0.0 0.0
Amortization of goodwill....... 1.2 4.3 -- 0.0 0.0 0.0 0.0
Severance cost................. -- -- -- 0.0 0.0 0.0 42.9
Shutdown costs................. 0 0 0 0.0 93.8 0.0 33.7
-------- -------- -------- ------- ------ ------- -------
Total operating
expenses.............. 27.4 71.5 83.3 29.5 199.5 36.6 164.7
-------- -------- -------- ------- ------ ------- -------
Gain on sale of subsidiary....... 0 0 0 0.0 56.9 0.0 20.4
Gain on sale of intellectual
property....................... 0 0 0 0.0 171.7 0.0 61.7
-------- -------- -------- ------- ------ ------- -------
Income (loss) from operations.... 19.1 (101.4) (86.1) (17.2) 29.0 (27.8) (72.4)
Interest expense, net............ (1.5) (1.8) (4.9) (8.1) (6.7) (6.8) (5.0)
-------- -------- -------- ------- ------ ------- -------
Income (loss) before income
taxes.......................... 17.6 (103.2) (91.0) (25.3) 22.2 (34.6) (77.3)
Income tax expense (benefit)..... (0.3) 1.1 0 0.0 0.0 0.0 0.0
-------- -------- -------- ------- ------ ------- -------
Net income (loss)................ 17.9% (104.3)% (91.0)% (25.3)% 22.2% (34.6)% (77.3)%
======== ======== ======== ======= ====== ======= =======
</TABLE>
65
<PAGE> 68
GENERAL OVERVIEW -- FISCAL 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 primarily 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 its operations. As part of the preparation for
the shutdown of the Company's business, the Company issued notices to its
employees under the Federal Workers Adjustment and Retraining Notification Act.
Approximately 70% of the Company's domestic work force was laid off on July 31,
1998, including the members of the Company's Viper design operations. 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.
SECOND QUARTER OF FISCAL 1999 AND THE SIX MONTHS ENDED SEPTEMBER 28, 1998
COMPARED TO THE CORRESPONDING PERIODS OF FISCAL 1998
Net Sales. Net sales in the three month period ended September 28, 1998
(the "second quarter") of the fiscal year ending March 29, 1999 ("Fiscal 1999")
decreased 61.7% to $4.4 million from $11.5 million in the corresponding period
of Fiscal 1998. This reduction in sales reflects the continued decline in demand
for the Company's 32-bit products and the previously reported migration of the
Company's primary customers to 64-bit products sold by the Company's
competitors, primarily Sun. A similar decline in sales is also reflected in the
47.5% decrease in net sales during the first six months of Fiscal 1999 as
compared to the corresponding period in Fiscal 1998. This reduction was
mitigated by a $5.0 million end of life ("EOL") order from Fujitsu. This order
was placed and shipped during the first quarter of Fiscal 1999 in connection
with Company's previously announced EOL program, which provided the Company's
customers the opportunity to place EOL orders until July 31, 1998, with all such
orders to be shipped on or before November 28, 1998.
Gross Profit. Gross profit as a percentage of net sales for the quarter
ended September 29, 1998 decreased to (.1)% as compared to 12.3% of net sales
for the comparable period in Fiscal 1998. This decrease reflected a sharp
decrease in sales without a decrease of equal magnitude in the Company's
manufacturing overhead. In contrast, for the six month period ended September
28, 1998, gross profit as a percentage of net sales increased to 10.1% as
compared to 8.8% for the corresponding period in Fiscal 1999. This increase was
primarily attributable to the Company's ability to ship orders from stock which
allowed the Company to reduce its manufacturing overhead during the first
quarter of Fiscal 1999. This reduction in manufacturing overhead in the first
quarter of Fiscal 1999 coupled with an equal level of such costs in the second
quarter of Fiscal 1999 provided the Company with a slight percentage increase in
gross profit for the first six months of Fiscal 1999 versus the same period of
Fiscal 1998.
Research and Development Expense. Research and development ("R&D") expense
includes costs associated with the definition, design and development of new
products. Net R&D expenses were 6.0% of net sales for the quarter ended
September 28, 1998, compared with (1.3)% of net sales for the comparable period
in Fiscal 1998. Absolute R&D expenses increased $.9 million in the quarter ended
September 28, 1998 from the comparable period in the prior fiscal year. This
increase was primarily attributable to reimbursement by
66
<PAGE> 69
Fujitsu of $4.5 million in expenses in the second quarter of Fiscal 1998
relating to the development of the Company's 64-bit Viper project pursuant to
the Viper Development Agreement. No such reimbursements occurred during the
second quarter of Fiscal 1999. As previously reported, the Company will not
complete development of the "Viper" project and the Company and Fujitsu have
terminated the Viper Development Agreement. For the same reasons, net R&D
expenses were 31.2% of net sales for the six month period ended September 28,
1998 as compared to 6.0% for the corresponding period in Fiscal 1998. During the
first six months of Fiscal 1998, the Company received $9.0 from Fujitsu for
expense reimbursement. No such payment was received during the first six months
of Fiscal 1999.
For the second quarter of Fiscal 1999, gross R&D expense was significantly
lower than the level experienced in the corresponding period of Fiscal 1998
reflecting that on July 31, 1998, the Company laid off approximately 70% of its
domestic work force, including all members of the Company's R&D operations.
Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expenses were 88.3% of net sales for the quarter ended
September 28, 1998, compared with 30.8% of net sales for the comparable period
in Fiscal 1998. Absolute SG&A expenses increased $.3 million in the quarter
ended September 28, 1998 from the comparable period in the prior fiscal year.
The increase in SG&A expense is primarily attributable to an increase in legal
and related expenses associated with the Company's planned shutdown of its
operations, particularly expenses related to the Company's obligations under the
federal Workers Adjustment and Retraining Notification Act (the "WARN Act").
For similar reasons, SG&A expenses for the six months ended September 28,
1998 increased to 56.9% of net sales as compared to 30.6% for the comparable
period in Fiscal 1998.
Severance Cost. 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"). The Company provided
severance packages to all eligible terminated employees as required by its
general severance policy, and substantially all of the executive officers were
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 incentives 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 were 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 June 29, 1998, these
severance costs met the criteria as stated in Emerging Issues Task Force issue
No. 94-3 and, therefore, these severance costs have been accrued in the first
quarter of Fiscal 1999.
As part of the preparation for the shutdown of the Company's business, on
June 1, 1998, the Company issued notices to its employees under the WARN Act.
These notices provided advance notice to all employees of the scheduled
termination of their employment in connection with the shutdown. Approximately
138 employees, or 70% of the Company's work force (excluding employees at the
Company's Design Center in Israel), were laid off on July 31, 1998, including
the members of the Company's "Viper" development team.
Gain on Sale of Subsidiary. On August 10, 1998, the Company sold all of the
issued and outstanding shares of capital stock of RIL to Fujitsu for $2.5
million. See "Special Factors -- Transactions with Fujitsu -- Sale of RIL." In
Fiscal 1998, the Company recorded a $1.1 million charge to write-down its
investment in RIL to $0. Accordingly, the sale of RIL resulted in a gain of $2.5
million.
Gain on Sale of Intellectual Property. On July 27, 1998, the Company sold
the Acquired IP to Fujitsu for $7.6 million. See "Special
Factors -- Transactions with Fujitsu -- The IP Sale." The Acquired IP had a book
value of $0. Accordingly, the sale of the Acquired IP resulted in a gain of $7.6
million.
Net Interest Expense. The Company had net interest expense of $.3 million
for the quarter ended September 28, 1998, versus interest expense of $.9 million
in the quarter ended September 29, 1997, reflecting a lower level of debt during
the first quarter of Fiscal 1999 as compared to the corresponding period in
Fiscal
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<PAGE> 70
1998. For similar reasons, interest expense decreased to $.6 million for the six
months ended September 28, 1998 as compared to $1.6 million for the comparable
period in Fiscal 1998.
Income Tax Expense. The Company has established a 100% reserve against its
deferred income tax asset and will not record income tax expense or benefit
until such time as the Company achieves profitability. Although it is
anticipated that the Company will not generate any future tax obligations as a
result of any future transactions, it is possible that such tax obligations may
occur.
FISCAL YEAR COMPARISONS
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, primarily as a result of Fujitsu's
migration to 64-bit products away from the Company's 32-bit products. 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
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<PAGE> 71
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 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 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. 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
69
<PAGE> 72
benefit in subsequent years. The Company also determined that it could not
reasonably forecast the amount of such benefit it could use due to the
significant changes being made with respect to its management and products.
Accordingly, the Company applied a reserve of approximately $27.9 million
against its deferred income tax asset. As of April 1, 1996, the Company had
completely utilized its net operating loss carryforwards to that point for
federal income tax purposes and, as a result, began accruing and paying regular
federal income taxes. Current income tax expense for Fiscal 1996 was $1.9
million. Due to timing differences between book income and tax income, the
Company recognized a deferred tax benefit of $2.2 million for book purposes
during Fiscal 1996.
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 its 32-bit products. The Company intends to cease all of its
operations by early 1999. See "Special Factors -- General Background."
Historically, the Company has depended solely upon its majority
stockholder, Fujitsu, for its capital requirements. 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 to the Company to pay 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 with the recapitalization transaction, Fujitsu provided a
guaranty for a $20 million line of credit from DKB, which expired on March 31,
1998. The credit facility and the guaranty have been extended to November 30,
1998 and December 31, 1998, respectively. 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 the Viper
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 would be co-owned by
the Company and Fujitsu, and each company would have the right to exploit the
technology into its own derivative products and to grant sublicenses on a
limited basis. Payments were to be made periodically through March 31, 1999,
upon the attainment of certain milestones, and were subject to reduction, and
the contract is subject to cancellation under certain conditions, if milestones
are not met. The Company failed to timely meet certain of the milestones set
forth in the Viper Development Agreement in each of the fiscal quarters ended
September 29, 1997, December 29, 1997 and March 30, 1998. The Company was unable
to meet the specified milestones primarily because of the overall risks inherent
in the completion of complex developments such as that undertaken by the Company
pursuant to the Viper Development Agreement. Fujitsu and the Company amended the
Viper Development Agreement to provide for a redefinition of the deliverables
associated with such milestones. The Company and Fujitsu have entered into an
agreement pursuant to which the Viper Development Agreement has been terminated
and Fujitsu has waived any penalty payments otherwise due from the Company to
Fujitsu for failing to meet the development schedule. See "Special Factors --
Transactions with Fujitsu -- The Termination Agreement."
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
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<PAGE> 73
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 to the Company to pay 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 recapitalization was intended to and did
permit the Company to maintain the listing of its Common Stock on The Nasdaq
Stock Market's National Market. As noted above under "Future Operating Results",
the line of credit and guaranty were scheduled to expire on March 31, 1998, but
have been extended to November 30, 1998 and December 31, 1998, respectively. As
of September 28, 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 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 Stock Market of the
Company's failure to maintain certain listing requirements for the Nasdaq
National Market -- 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. On July 15, 1998, the Company received
another notice from The Nasdaq Stock Market informing the Company that it no
longer met the minimum net tangible assets requirement for continued listing on
the Nasdaq National Market. As a result of the Company's noncompliance with
these rules, the Company's Common Stock was delisted from the Nasdaq National
Market at the close of business on July 31, 1998. The Company's Common Stock
continues to trade on the over-the-counter bulletin board market maintained by
The Nasdaq Stock Market.
The Company's principal source of liquidity as of September 28, 1998
consisted of $7.0 million of cash. The Company has no availability under any
credit facility. As of September 28, 1998, the Company had negative working
capital of $19.1 million, an accumulated deficit of $149.3 million and
stockholders' deficit of $18.4 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.
Similarly, the Company's payable to Fujitsu decreased by $2.8 million.
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.
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<PAGE> 74
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 $0.6 million and $0.9 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 by early 1999.
The Company does not intend to incur any significant additional capital
expenditures during the next 12 months.
The Company's audited 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 raises substantial doubt about the Company's ability to
continue as a going concern. The audited consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties; however, the Company's unaudited financial statements have been
prepared on a liquidation basis.
As previously stated, the Company has begun an orderly shutdown of its
operations. As part of the shutdown 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.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
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<PAGE> 75
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of September 28, 1998 information as to
the beneficial ownership of the Company's Common Stock, by each person who is
known by the Company to own beneficially more than five percent of its
outstanding shares of Common Stock (for whom addresses are also provided), each
director, and each named officer and by 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 AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP CLASS(2)
------------------- -------------------- ----------
<S> <C> <C>
Fujitsu Limited(3).......................................... 14,078,571 60.0%
1-1, Kamikodanaka 4-Chome
Nakahara-ku
Kawasaki 211-88, Japan
Roger D. Ross(3)(4)......................................... 1,209,260 5.2%
One Highland Center
Marble Falls, Texas 78645
Mitchell K. Alsup........................................... 320,001 1.4%
Trevor S. Smith............................................. 400,001 1.7%
Fred T. May(5).............................................. 113,126 *
Jack W. Simpson, Sr.(6)..................................... 237,250 1.0%
Francis S. (Kit) Webster III................................ -- *
Edward F. Thompson(7)....................................... 40,000 *
Ryusuke Hoshikawa(8)(9)..................................... 8,125 *
Masahiro Saida(9)(10)....................................... 8,125 *
Yasushi Tajiri(9)........................................... -- *
Seiichi Yoshikawa(9)(11).................................... 7,083 *
All Directors and Executive Officers as a group (12
persons).................................................. 1,228,713 5.2%
</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 September 28, 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 Stockholders
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 Preferred Stock. Assuming conversion of all of the Preferred
Stock into Common Stock, Fujitsu has beneficial ownership of 64,078,571
shares of Common Stock, or approximately 87.2% of the Company's outstanding
shares of Common Stock (including, for this purpose, the shares of Common
Stock into which the Preferred Stock may be converted).
(4) Includes options exercisable for 59,259 shares of Common Stock which have
vested or will vest within 60 days of September 28, 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 113,125 shares of Common Stock which have
vested or will vest within 60 days of September 28, 1998.
(6) Includes options exercisable for 206,250 shares of Common Stock which have
vested or will vest within 60 days of September 28, 1998.
(7) Includes options exercisable for 40,000 shares of Common Stock which have
vested or will vest within 60 days of September 28, 1998.
(8) Includes options exercisable for 8,125 shares of Common Stock which have
vested or will vest within 60 days of September 28, 1998.
(9) Beneficial ownership of shares held by Fujitsu is not attributed to
Directors who are employees of Fujitsu.
(10) Includes options exercisable for 8,125 shares of Common Stock which have
vested or will vest within 60 days of September 28, 1998.
(11) Includes options exercisable for 7,083 shares of Common Stock which have
vested or will vest within 60 days of September 28, 1998.
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CERTAIN ADDITIONAL INFORMATION CONCERNING THE COMPANY
The name, address, principal occupation or employment, five-year employment
history and citizenship of each director and executive officer of the Company as
of the date hereof is set forth in Schedule I to this Information Statement.
Except as described in this Information Statement, (i) none of the Company,
nor to the best of the Company's knowledge, any of the persons listed in
Schedule I to this Information Statement, or any associate or majority-owned
subsidiary of the Company or any of the persons so listed, beneficially owns or
has any right to acquire directly or indirectly any shares of Common Stock or
Preferred Stock or has any contract, arrangement, understanding or relationship
with any other person with respect to any shares of Common Stock or Preferred
Stock, including, but not limited to, any contract, arrangement, understanding
or relationship concerning the transfer or the voting of any shares, joint
ventures, loan or option arrangements, puts or calls, guaranties of loans,
guaranties against loss, or the giving or withholding of proxies, and (ii) none
of the Company nor to the best of the Company's knowledge, any of the other
persons referred to above, or any of the respective directors, executive
officers or subsidiaries of any of the foregoing, has effected any transactions
in the Common Stock or Preferred Stock during the past 60 days, except that Mr.
Thompson sold 5,000 shares of Common Stock on September 18, 1998.
Except as set forth in this Information Statement, since April 1, 1996,
neither the Company nor, to the best knowledge of the Company, any of the
persons listed on Schedule I hereto, has had any transaction with the Company,
Fujitsu or the Buyer or any of their respective executive officers, directors or
affiliates that is required to be reported under the rules and regulations of
the SEC applicable to the IP Sale, the Sale of RIL or the Sale of Assets
(collectively, the "Transactions"). Except as set forth in this Information
Statement, since April 1, 1996, there have been no contacts, negotiations or
transactions between the Company, or any of its subsidiaries or, to the best
knowledge of the Company, any of the persons listed in Schedule I to this
Information Statement, on the one hand, and Fujitsu, the Buyer or their
respective affiliates, on the other hand, concerning a merger, consolidation or
acquisition; a tender offer for or other acquisition of securities of any class
of the Company; an election of directors of the Company; or a sale or other
transfer of a material amount of assets of the Company or any of its
subsidiaries (provided that the contacts and negotiations described herein
constitute a summary of the material contacts and negotiations between such
persons with respect to such matters).
CERTAIN INFORMATION CONCERNING FUJITSU
Fujitsu is a corporation organized under the laws of Japan and is engaged
in operations throughout the world. Its information technology business includes
the development and manufacture of global servers, high performance computers
(supercomputers), workstations, personal computers, peripherals and software,
including networking, multimedia and internet software. Fujitsu's
telecommunication business develops networking infrastructures, high-speed lines
employing optical transmission, base station switching equipment for cellular
phones, corporate information network systems, digital microwave products, and
cellular phones. Fujitsu's electronic devices business develops and manufactures
memory chips, including DRAMs and flash memory, custom logic integrated
circuits, including CMOS and GaAs products, and flat panel displays. Fujitsu and
its subsidiaries currently comprise the second largest computer maker and
solution provider in the world. Fujitsu's world headquarters is located at:
Marunouchi Center Building, 6-1, Marunouchi 1-Chome, Chiyoda-ku, Tokyo 100,
Japan.
The name, address, principal occupation or employment, five-year employment
history and citizenship of each director and executive officer of Fujitsu and
each person carrying out functions in Fujitsu similar to that of a director
and/or executive officer in a United States corporation as of the date hereof is
set forth in Schedule II to this Information Statement.
Except as described in this Information Statement, (i) none of Fujitsu, nor
to the best of Fujitsu's knowledge, any of the persons listed in Schedule II to
this Information Statement, or any associate or majority-owned subsidiary of
Fujitsu or any of the persons so listed, beneficially owns or has any right to
acquire directly or indirectly any shares of Common Stock or Preferred Stock or
has any contract,
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<PAGE> 77
arrangement, understanding or relationship with any other person with respect to
any shares of Common Stock or Preferred Stock, including, but not limited to,
any contract, arrangement, understanding or relationship concerning the transfer
or the voting of any shares, joint ventures, loan or option arrangements, puts
or calls, guaranties of loans, guaranties against loss, or the giving or
withholding of proxies, and (ii) none of Fujitsu nor to the best of Fujitsu's
knowledge, any of the other persons referred to above, or any of the respective
directors, executive officers or subsidiaries of any of the foregoing, has
effected any transactions in the Common Stock or Preferred Stock during the past
60 days.
Except as set forth in this Information Statement, since April 1, 1996,
neither Fujitsu nor, to the best knowledge of Fujitsu, any of the persons listed
on Schedule II hereto, has had any transaction with the Company or any of its
executive officers, directors or affiliates that is required to be reported
under the rules and regulations of the SEC applicable to the IP Sale or the Sale
of RIL. Except as set forth in this Information Statement, since April 1, 1996,
there have been no contacts, negotiations or transactions between Fujitsu, or
any of its subsidiaries or, to the best knowledge of Fujitsu, any of the persons
listed in Schedule II to this Information Statement, on the one hand, and the
Company or its affiliates, on the other hand, concerning a merger, consolidation
or acquisition; a tender offer for or other acquisition of securities of any
class of the Company; an election of directors of the Company; or a sale or
other transfer of a material amount of assets of the Company or any of its
subsidiaries (provided that the contacts and negotiations described herein
constitute a summary of the material contacts and negotiations between such
persons with respect to such matters).
CERTAIN INFORMATION CONCERNING BUYER
The Buyer is a newly-formed Texas corporation formed for the purpose of
acquiring the Acquired Assets. After the consummation of the Sale of Assets,
Buyer will be an outsource provider of test and other microprocessor
manufacturing services and a manufacturer of 32-bit SPARC(TM) microprocessors
and systems, with its principal executive offices located at 4007 Commercial
Center Drive, Austin, Texas 78744.
The name, address, principal occupation or employment, five-year employment
history and citizenship of each person expected to be an executive officer and
director of Buyer as of the closing of the Sale of Assets is set forth in
Schedule III to this Information Statement. Mr. Jones, who is currently the Vice
President of Operations of the Company, is currently the only executive officer
and director of Buyer, although certain other employees of the Company are
expected to become officers and stockholders of the Buyer prior to or at the
Closing.
Except as described in this Information Statement, (i) none of Buyer, nor
to the best of Buyer's knowledge, any of the persons listed in Schedule III to
this Information Statement, or any associate or majority-owned subsidiary of
Buyer or any of the persons so listed, beneficially owns or has any right to
acquire directly or indirectly any shares of Common Stock or Preferred Stock or
has any contract, arrangement, understanding or relationship with any other
person with respect to any shares of Common Stock or Preferred Stock, including,
but not limited to, any contract, arrangement, understanding or relationship
concerning the transfer or the voting of any shares, joint ventures, loan or
option arrangements, puts or calls, guaranties of loans, guaranties against
loss, or the giving or withholding of proxies, and (ii) none of Buyer nor to the
best of Buyer's knowledge, any of the other persons referred to above, or any of
the respective directors, executive officers or subsidiaries of any of the
foregoing, has effected any transactions in the Common Stock or Preferred Stock
during the past 60 days.
Except as set forth in this Information Statement, since April 1, 1996,
neither Buyer nor, to the best knowledge of Buyer, any of the persons listed on
Schedule III hereto, has had any transaction with the Company or any of its
executive officers, directors or affiliates that is required to be reported
under the rules and regulations of the SEC applicable to the Sale of Assets.
Except as set forth in this Information Statement, since April 1, 1996, there
have been no contacts, negotiations or transactions between Buyer, or any of its
subsidiaries or, to the best knowledge of Buyer, any of the persons listed in
Schedule III to this Information Statement, on the one hand, and the Company or
its affiliates, on the other hand, concerning a merger, consolidation or
acquisition; a tender offer for or other acquisition of securities of any class
of the Company; an
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<PAGE> 78
election of directors of the Company; or a sale or other transfer of a material
amount of assets of the Company or any of its subsidiaries (provided that the
contacts and negotiations described herein constitute a summary of the material
contacts and negotiations between such persons with respect to such matters).
MARKET PRICE DATA
Until July 31, 1998, the Common Stock was listed and traded on the Nasdaq
National Market under the symbol "RTEC." The following information sets forth
for the periods indicated the high and low sale prices for the Common Stock as
reported by the National Market (or, in the case of the quarter ended September
30, 1998, the high and low bid prices on the over-the-counter bulletin board
maintained by The Nasdaq Stock Market).
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ---- ---
<S> <C> <C>
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
June 30, 1998............................................... 1 1/16 0 1/16
September 30, 1998.......................................... 0 3/16 0 1/64
</TABLE>
On July 23, 1998, the last trading day preceding the public announcement of
the execution and delivery of the Asset Purchase Agreement and adoption of the
Plan, the high and low sales price per share of the Common Stock were $0 1/8 and
$0 1/16, respectively. Since its delisting from the Nasdaq National Market, the
Company's Common Stock continues to trade on the over-the-counter bulletin board
market maintained by The Nasdaq Stock Market. On November , 1998, the most
recent practicable date prior to the printing of this Information Statement, the
range of bid and asked prices per share of the Common Stock on the
over-the-counter bulletin board were $ and $ , respectively.
As of July 28, 1998, there were 212 holders of record of the Company's
23,456,965 shares of Common Stock. The Company has never paid 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 and to pay its creditors.
On November 10, 1995, the Company completed its initial public offering of
Common Stock. The Company sold 3,500,000 shares of Common Stock at a price of
$14.00 per share. In addition, the Company sold 1,057,143 shares of Common Stock
to Sun in a concurrent, non-underwritten registered offering at a price of
$13.02 per share. The Company received net aggregate proceeds from the initial
public offering and the sale of shares to Sun of approximately $57.9 million
(net of underwriting discounts and commissions and estimated offering expenses).
ABSENCE OF APPRAISAL RIGHTS
Under the applicable provisions of the DGCL, the Company's Restated
Certificate of Incorporation and the Certificate of Designation relating to the
Preferred Stock, the Company's stockholders are not entitled to dissenter's
appraisal rights with respect to the Asset Purchase Agreement, the Sale of
Assets or the Plan. Under the DGCL, the Company's Board of Directors, Fujitsu
and Mr. Jones have fiduciary obligations to the Company and its stockholders,
and the Company's stockholders, either directly or in a derivative action, may
bring claims against any or all of the foregoing for breaches of such fiduciary
obligations, like any other transaction approved by a board of directors, in
connection therewith.
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FEES AND EXPENSES
The following is an estimate of the expenses incurred or to be incurred in
connection with the Transactions:
<TABLE>
<S> <C>
EXPENSES TO BE PAID BY FUJITSU(1):
Legal Fees................................................ $135,000
--------
Accounting Fees........................................... $ 16,500
--------
Total............................................. $151,500
--------
EXPENSES TO BE PAID BY THE BUYER(2):
Accounting Fees........................................... $ 10,000
Legal Fees................................................ 78,000
Referral Fees............................................. 50,000
Advisory Fees............................................. 250,000
Debt Fees and Expenses.................................... 85,000
--------
Total............................................. $473,000
--------
EXPENSES TO BE PAID BY THE COMPANY(3):
Accounting Fees........................................... $ 65,000
Legal Fees(4)............................................. 200,000
Filing Fees............................................... 3,150
Ad Hoc Committee Fees(5).................................. 50,000
Printing and Mailing Costs................................ 110,000
--------
Total............................................. $428,150
========
</TABLE>
- ---------------
(1) In connection with the IP Sale and the Sale of RIL.
(2) In connection with the Sale of Assets.
(3) In connection with the Transactions. Does not include expenses anticipated
to be incurred in connection with dissolution and liquidation pursuant to
the Plan. See "The Sale of Assets -- Use of Proceeds; Liquidation and
Dissolution."
(4) Includes the estimated fees and expenses of counsel to the Company and
special Delaware counsel to the Company. Does not include fees and expenses
in connection with ongoing services performed by counsel to the Company as
its general outside counsel.
(5) Includes the fee of $25,000 paid to each member of the Ad Hoc Committee
(other than Mr. Simpson) for his services as such (See "Special
Factors -- General Background").
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<PAGE> 80
MISCELLANEOUS
The Company, Fujitsu and Buyer have filed with the SEC a Rule 13e-3
Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3"), together with
exhibits, pursuant to Rule 13e-3 under the Exchange Act, furnishing certain
additional information with respect to the Transactions. Such Schedule and any
amendments thereto, including exhibits, may be inspected and copies may be
obtained from the SEC in the manner set forth above under "Additional
Information" (except that they will not be available at the regional offices of
the Commission).
The Schedule 13E-3 is being filed by the Company, Fujitsu and the Buyer
because the staff of the SEC has taken the position that Mr. Jones is an
affiliate of the Company (as that term is defined in Rule 13e-3(a)(1)
promulgated under the Exchange Act) and that the Transactions constitute a
series of transactions requiring the filing of a Schedule 13E-3. The filing of
the Schedule 13E-3 should not be construed as an admission by the Company,
Fujitsu or Buyer that Mr. Jones is an affiliate for the purposes of Rule 13E-3,
that the Transactions are part of a series of transactions, or that the
Transactions are subject to Rule 13e-3.
By Order of the Board of Directors
/s/ FRED T. MAY
--------------------------------------
Fred T. May
Chairman of the Board
November , 1998
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<PAGE> 81
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditors' Report................................ F-2
Audited Financial Statements
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
Unaudited Condensed Financial Statements
Condensed Consolidated Balance Sheets as of September 28,
1998 and March 30, 1998................................ F-20
Condensed Consolidated Statements of Operations for the
three and six months ended September 28, 1998 and
September 29, 1997..................................... F-21
Condensed Consolidated Statements of Cash Flows for the
three and six months ended September 28, 1998 and
September 29, 1997..................................... F-22
Notes to Condensed Consolidated Financial Statements...... F-23
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts........... F-26
</TABLE>
F-1
<PAGE> 82
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
Austin, Texas
July 7, 1998
F-2
<PAGE> 83
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
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> 84
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 (note 14)........... 11,203 -- --
Write-down of investment in subsidiary (note 14)......... 1,080 -- --
Amortization of intangibles (note 5)..................... -- 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> 85
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A SERIES B TOTAL
PREFERRED PREFERRED COMMON STOCK ADDITIONAL STOCKHOLDERS'
STOCK STOCK ---------------- PAID-IN ACCUMULATED TREASURY EQUITY
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> 86
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> 87
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 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.
F-7
<PAGE> 88
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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,
F-8
<PAGE> 89
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"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> 90
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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.
F-10
<PAGE> 91
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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
------ --------
3,325 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.
(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.
F-11
<PAGE> 92
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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. 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.
F-12
<PAGE> 93
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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>
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 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.
F-13
<PAGE> 94
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 to the Company to pay 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 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"
F-14
<PAGE> 95
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-15
<PAGE> 96
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-16
<PAGE> 97
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
$ .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.
F-17
<PAGE> 98
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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.
(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,
F-18
<PAGE> 99
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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-19
<PAGE> 100
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 28, MARCH 30,
1998 1998
------------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,048 $ 787
Trade accounts receivable................................. 1,668 2,712
Receivable from Fujitsu................................... 607 3,343
Inventory................................................. 1,930 7,808
Prepaid expenses and other assets......................... 2 512
-------- -------
Total current assets.............................. 11,255 15,162
Property and equipment, net................................. 696 3,325
-------- -------
Total assets................................................ $ 11,951 $18,487
======== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable.................................... $ 619 $ 6,091
Accrued shutdown costs.................................... 3,200 --
Accrued severance costs................................... 2,420 --
Accrued warranty and production costs..................... 1,772 --
Accrued liabilities....................................... 1,061 5,083
Payable to Fujitsu........................................ 1,318 1,293
Notes payable............................................. 20,000 15,000
-------- -------
Total current liabilities......................... 30,390 27,467
-------- -------
Total stockholders' deficit....................... (18,439) (8,980)
-------- -------
Total liabilities and stockholders' deficit................. $ 11,951 $18,487
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-20
<PAGE> 101
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28,
1997 1998 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales................................. $11,472 $ 4,396 $23,285 $12,229
Cost of sales............................. 10,063 4,402 21,238 10,992
------- ------- ------- -------
Gross profit............................ 1,409 (6) 2,047 1,237
------- ------- ------- -------
Operating expenses:
Research and development, net........... (152) 765 1,394 3,811
Selling, general and administrative..... 3,535 3,880 7,135 6,954
Severance costs......................... -- -- -- 5,248
Shutdown costs.......................... -- 4,125 -- 4,125
------- ------- ------- -------
Total operating expenses........ 3,383 8,770 8,529 20,138
------- ------- ------- -------
Gain on sale of subsidiary.............. -- 2,500 -- 2,500
Gain on sale of intellectual property... -- 7,550 -- 7,550
------- ------- ------- -------
Income (loss) from operations... (1,974) 1,274 (6,482) (8,851)
Interest expense, net..................... (933) (296) (1,584) (608)
------- ------- ------- -------
Income (loss) before income
taxes......................... (2,907) 978 (8,066) (9,459)
Income tax provision (benefit)............ -- -- -- --
------- ------- ------- -------
Net income (loss)............... $(2,907) $ 978 $(8,066) $(9,459)
======= ======= ======= =======
Net income (loss) applicable to common
shareholders............................ $(2,907) $ 978 $(8,066) $(9,459)
======= ======= ======= =======
Basic net income (loss) per share......... $ (0.12) $ .04 $ (0.34) $ (0.40)
======= ======= ======= =======
Weighted average common shares
outstanding -- Basic.................... 23,547 23,477 23,542 23,477
======= ======= ======= =======
Diluted net income (loss) per share....... $ (0.12) $ 0.02 $ (0.34) $ (0.40)
======= ======= ======= =======
Weighted average common shares
outstanding -- Diluted.................. 23,547 43,477 23,542 23,477
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-21
<PAGE> 102
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 28, SEPTEMBER 29,
1998 1997
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(9,459) $(8,066)
Adjustments to reconcile net income (loss) to cash used in
operating activities:
Depreciation and amortization.......................... 1,642 2,822
Write-down of property and equipment................... 1,089 --
Change in assets and liabilities:
Trade accounts receivable............................ 1,044 5,041
Receivable from Fujitsu.............................. 2,736 (4,758)
Inventory............................................ 5,878 1,850
Prepaid expenses..................................... 510 539
Trade accounts payable............................... (5,472) (7,224)
Accrued shutdown costs............................... 3,200 --
Accrued severance costs.............................. 2,420 --
Accrued warranty and production costs................ 1,772 --
Payable to Fujitsu................................... 25 4,946
Accrued liabilities.................................. (4,022) (5,117)
------- -------
Net cash provided by (used in) operating
activities...................................... 1,363 (9,967)
------- -------
Cash flows from investing activities:
Capital expenditures...................................... (102) (1,419)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... -- 11
Proceeds from borrowings on notes payable................. 5,000 12,500
------- -------
Net cash provided by financing activities............ 5,000 12,511
------- -------
Net increase in cash and cash equivalents............ 6,261 1,125
Cash and cash equivalents at beginning of period............ 787 2,811
------- -------
Cash and cash equivalents at end of period.................. $ 7,048 $ 3,936
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-22
<PAGE> 103
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) FINANCIAL STATEMENT PRESENTATION
The preceding financial statements of ROSS Technology, Inc. and subsidiary
(the "Company") have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC") and, in the
opinion of management, reflect all adjustments necessary, such adjustments being
of a normal recurring nature, to present fairly the financial condition and the
results of operations for such interim periods. As a result of the Company's
continued financial deterioration, in July 1998, the Company's Board of
Directors adopted and Fujitsu Limited ("Fujitsu"), as the holder of a majority
of the outstanding shares of Common Stock entitled to vote and all outstanding
shares of Preferred Stock, approved the Plan of Complete Liquidation and
Dissolution. As a result of this action, the Company changed its basis of
accounting from a going concern basis to a liquidation basis. Accordingly, the
carrying values of assets as of September 28, 1998 are presented at estimated
net realizable values and liabilities are presented at estimated amounts
required to liquidate and dissolve the Company. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations; however, management believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
audited financial statements and notes thereto for the fiscal year ended March
30, 1998. The results for interim periods are not necessarily indicative of the
results for the respective fiscal years.
(2) INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 28, MARCH 30,
1998 1998
------------- ---------
<S> <C> <C>
Die bank.................................................... $ 475 $ 694
Work-in-process............................................. 724 5,297
Finished goods.............................................. 731 1,817
------ ------
$1,930 $7,808
====== ======
</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-process 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.
(3) NOTES PAYABLE
The notes payable to a bank at September 28, 1998, were outstanding under a
$20,000,000 revolving credit facility with a bank, due November 30, 1998.
Interest accrues at the bank's quoted rate (6.3% at September 28, 1998). The
notes payable are guaranteed by Fujitsu. The credit facility and Fujitsu's
guaranty expire on November 30 and December 31, 1998, respectively.
(4) NET INCOME (LOSS) PER COMMON SHARE
Basic earnings (loss) per share is based on the weighted average of all
common shares issued and outstanding, and is calculated by dividing net income
(loss) available to common stockholders by the weighted average shares
outstanding during the period. Diluted earnings per share is calculated by
dividing net income (loss) available to common stockholders by the weighted
average number of common shares used in
F-23
<PAGE> 104
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the basic calculation plus the number of common shares that would be issued
assuming conversion of all potentially dilutive common shares outstanding.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28,
1997 1998 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) applicable to
common stockholders............. $(2,907) $ 978 $(8,066) $(9,459)
======= ======= ======= =======
Weighted average shares
outstanding -- Basic............ 23,547 23,477 23,542 23,477
======= ======= ======= =======
Basic income (loss) per share..... $ (.12) $ .04 $ (.34) $ (0.40)
======= ======= ======= =======
Weighted average shares
outstanding -- Diluted.......... 23,547 43,477 23,542 23,477
======= ======= ======= =======
Diluted income (loss) per share... $ (.12) $ .02 $ (.34) $ (0.40)
======= ======= ======= =======
</TABLE>
For the quarter ended September 28, 1998 options totaling 2,361,483 shares
of common stock were excluded from the computation of diluted earnings per share
because they would have been antidilutive for this period. For the quarter ended
September 29, 1997, options totaling 739,468 were excluded from the computation
of diluted earnings per share because they would have been antidilutive for that
period. For the six month period ended September 28, 1998, options totaling
3,033,684 and the conversion of Series B Convertible Preferred Stock to
20,000,000 shares of common stock were excluded from the computation of dilutive
earnings per share because they would have been antidilutive for this period.
For the six month period ended September 29, 1997, options totaling 717,130 were
excluded from the computation of diluted earnings per share because they would
have been antidilutive for that period.
(5) SEVERANCE COST
As previously reported, the Company has commenced an orderly shutdown of
its operations. 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"). The Company provided
severance packages to all eligible terminated employees as required by its
general severance policy, and substantially all of the executive officers were
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 incentives 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 were 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 June 29, 1998, these
severance costs met the criteria as stated in Emerging Issues Task Force issue
No. 94-3 and, therefore, these severance costs have been accrued in the first
quarter of Fiscal 1999. These severance costs are not of a normal recurring
nature.
As part of the preparation for the shutdown of the Company's business, on
June 1, 1998, the Company issued notices to its employees under the Federal
Workers Adjustment and Retraining Notification Act (the "WARN Act"). These
notices provided advance notice to all employees of the scheduled termination of
their employment in connection with the shutdown. Approximately 138 employees,
or 70% of the Company's work force (excluding employees at the Company's Design
Center in Israel), were laid off on July 31, 1998, including the members of the
Company's "Viper" development team.
F-24
<PAGE> 105
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) GAIN ON SALE OF SUBSIDIARY
On August 10, 1998, the Company sold all of the issued and outstanding
shares of capital stock of ROSS Semiconductors (Israel) Ltd. ("RIL") to Fujitsu
for $2.5 million. In Fiscal 1998, the Company recorded a $1.1 million charge to
write-down its investment in RIL to $0. Accordingly, the sale of RIL resulted in
a gain of $2.5 million.
(7) GAIN ON SALE OF INTELLECTUAL PROPERTY
On July 27, 1998, the Company sold certain intellectual property rights
(the "Acquired IP") to Fujitsu (subject to a license back of certain of those
rights) for $7.6 million. The Acquired IP had a book value of $0. Accordingly,
the sale of the Acquired IP resulted in a gain of $7.6 million.
(8) OTHER
The Company has entered into an Asset Purchase Agreement (the "Asset
Purchase Agreement") to sell its manufacturing, sales and service operations and
certain assets related to the Company's 32-bit hyper-SPARC(TM) business (the
"BridgePoint Sale") to a newly-formed Texas corporation ("Buyer"), of which Joe
D. Jones (currently Vice President of Operations of the Company) is president
and sole stockholder. The Asset Purchase Agreement provides for an aggregate
consideration of $5.66 million, of which $250,000 will be deposited by Buyer
into an escrow account for a holdback amount to cover possible indemnification
claims. Also, the Company will pay $1.72 million to the Buyer at the closing in
consideration for the Buyer's assumption of and undertaking to pay, discharge
and perform certain warranty repair liabilities of the Company.
In furtherance of the Company's previously announced plans to commence an
orderly shutdown of its operations, on July 22, 1998 the Company adopted a Plan
of Complete Liquidation and Dissolution (the "Plan of Liquidation") pursuant to
which the Company will be liquidated by the sale of all or substantially all of
its remaining assets and payment of claims, obligations and expenses owing to
the Company's creditors. The Company does not believe that it will have any
funds or assets available for distribution to either preferred or common
stockholders.
The BridgePoint Sale and the Plan of Liquidation have been approved by
Fujitsu, as holder of a majority of the outstanding shares of the Company's
common stock and all of the outstanding shares of the Company's Series B
Convertible Preferred Stock. The Company has filed a preliminary information
statement with respect to the BridgePoint Sale and the Plan of Liquidation with
the SEC and will mail the information statement to its stockholders following
the SEC's review and clearance of the preliminary information statement. The
BridgePoint Sale will not be effective until at least twenty days after the
mailing of the information statement and following satisfaction or waiver of the
other conditions to that sale. The Plan of Liquidation will not be effective
until at least twenty days after the mailing of the information statement. The
Company intends to proceed with liquidation and dissolution regardless of
whether the BridgePoint Sale is consummated.
The Company estimates total future obligations and commitments associated
with the Company's planned shutdown of its operations, including employee
related costs, at approximately $10.4 million (excluding the Company's
obligations under its revolving credit facility guaranteed by Fujitsu). The
Company has received gross proceeds of $10.1 million from the IP Sale and the
sale of RIL, and will receive approximately $3.9 million of proceeds (net of
payment for warranty liability assumption) and will receive approximately $1.9
million for cost reimbursements if the BridgePoint Sale is consummated.
F-25
<PAGE> 106
SCHEDULE II
ROSS TECHNOLOGY, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
BEGINNING CHARGED TO FROM END OF
DESCRIPTION OF PERIOD EXPENSE ACCOUNTS PERIOD
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended April 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-26
<PAGE> 107
ANNEX A
ASSET PURCHASE AGREEMENT
BETWEEN
ROSS TECHNOLOGY, INC.
AND
BRIDGEPOINT TECHNICAL MANUFACTURING CORPORATION
DATED AS OF JULY 23, 1998
<PAGE> 108
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 DEFINED TERMS............................................ 1
1.1 Defined Terms............................................... 1
1.2 Additional Defined Terms.................................... 6
1.3 References and Titles....................................... 6
ARTICLE 2 SALE AND PURCHASE OF ASSETS.............................. 7
2.1 Agreement to Sell and Buy................................... 7
2.2 Excluded Assets............................................. 8
2.3 Purchase Price.............................................. 8
2.4 Indemnification Holdback Amount; Tax Holdback............... 8
2.5 Payments at Closing......................................... 8
2.6 Proration................................................... 8
2.7 Assumption of Liabilities and Obligations; Assumption
Payment..................................................... 9
2.8 Allocation.................................................. 9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES........................... 10
3.1 Representations and Warranties of Seller.................... 10
3.2 Representations and Warranties of Buyer..................... 12
3.3 Employee Matters............................................ 12
ARTICLE 4 COVENANTS................................................ 14
4.1 Conduct of Business......................................... 14
4.2 No Solicitation of Transactions............................. 15
4.3 Access and Information...................................... 16
4.4 Compliance With Laws........................................ 16
4.5 Notification of Certain Matters............................. 16
4.6 Third Party Consents........................................ 16
4.7 Supply Agreement............................................ 17
4.8 Interim Assistance.......................................... 17
4.9 Risk of Loss................................................ 17
4.10 Additional Agreements....................................... 18
ARTICLE 5 CONDITIONS PRECEDENT..................................... 18
5.1 Conditions to Each Party's Obligation....................... 18
5.2 Conditions to Obligation of Buyer........................... 18
5.3 Conditions to Obligations of the Seller..................... 19
ARTICLE 6 CLOSING.................................................. 20
6.1 Closing..................................................... 20
6.2 Actions to Occur at Closing................................. 20
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER........................ 21
7.1 Termination................................................. 21
7.2 Effect of Termination....................................... 21
ARTICLE 8 INDEMNIFICATION.......................................... 22
8.1 Indemnification of Buyer.................................... 22
8.2 Indemnification of Seller................................... 22
8.3 Defense of Third-Party Claims............................... 22
8.4 Direct Claims............................................... 23
8.5 Limitation as to Time....................................... 23
8.6 Dispute Resolution.......................................... 23
8.7 Instructions to Escrow Agent................................ 23
</TABLE>
i
<PAGE> 109
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 9 GENERAL PROVISIONS....................................... 23
9.1 Survival of Representations, Warranties, and Covenants;
Limitation of Liability..................................... 23
9.2 Further Actions............................................. 24
9.3 Amendment and Modification.................................. 24
9.4 Waiver of Compliance........................................ 24
9.5 Specific Performance........................................ 24
9.6 Severability................................................ 24
9.7 Expenses and Obligations.................................... 24
9.8 Parties in Interest......................................... 25
9.9 Notices..................................................... 25
9.10 Counterparts................................................ 26
9.11 Entire Agreement............................................ 26
9.12 Governing Law............................................... 26
9.13 Public Announcements........................................ 26
9.14 Assignment.................................................. 26
</TABLE>
<TABLE>
<S> <C>
Exhibits:
Exhibit A Assumption Agreement
Exhibit B Bill of Sale and Assignment
Exhibit C Indemnification Escrow Agreement
Exhibit D Seller's Legal Opinions
Exhibit E Buyer's Legal Opinions
Exhibit 1 Assumed Contracts
Exhibit 2 Equipment
Exhibit 3 Inventory
Exhibit 4 Software
Exhibit 5 Leased Real Property
Exhibit 6 Leased Equipment
Exhibit 7 Assumed Purchase Orders
Exhibit 8 Employees Offered Employment with Buyer
Exhibit 9 Key Assumed Contracts
</TABLE>
<TABLE>
<S> <C>
Schedules:
Schedule 2.2(e) Personal Property
Schedule 3.1(b) Required Filings and Consents
Schedule 3.1(d) Litigation
Schedule 3.1(e) Interests of Third Parties in the Acquired Assets
Schedule 3.1(i) Intellectual Property
Schedule 3.1(j) Environmental
Schedule 3.1(k) Taxes
</TABLE>
ii
<PAGE> 110
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into
as of July 23, 1998, by and among Ross Technology, Inc., a Delaware corporation
("SELLER"), and BridgePoint Technical Manufacturing Corporation, a Texas
corporation ("BUYER").
RECITALS
A. Seller owns and operates a manufacturing (including failure analysis and
reliability testing), sale, distribution and customer service business for the
32-bit hyperSPARC(TM) families of microprocessors and the hyperSTATION(TM) and
SPARCplug(TM) families of 32-bit systems and products (the "BUSINESS");
provided, that the term "Business" does not include Seller's design facilities
or design business.
B. Seller desires to sell and Buyer desires to buy the assets used or held
for use in the operation of the Business, both tangible and intangible,
excluding the Excluded Assets (as hereinafter defined), upon the terms and
conditions hereinafter set forth.
AGREEMENTS
NOW, THEREFORE, in consideration of the respective representations,
warranties, agreements, and conditions hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINED TERMS
1.1 Defined Terms. The following terms shall have the following meanings
in this Agreement:
"ACCOUNTS RECEIVABLE" means the rights of Seller to cash payment for the
sale of microprocessors, systems, products and other Inventory and Products and
all other amounts that would be classified as an account receivable in
accordance with GAAP.
"AFFILIATE" means, with respect to any person, any other person
controlling, controlled by or under common control with such person. For
purposes of this definition and this Agreement, the term "control" (and
correlative terms) means the power, whether by contract, equity ownership or
otherwise, to direct the policies or management of a person.
"APPLICABLE LAWS" means all laws, statutes, rules, regulations, ordinances,
judgments, orders, decrees, injunctions, and writs of any Governmental Entity
having jurisdiction over the Acquired Assets or the Business, as may be in
effect on or prior to the Closing.
"ASSUMED CONTRACTS" means all Contracts for hardware or technical support,
the Contract for the Leased Real Property, the Software licenses, those
Contracts set forth on Exhibit 1 and any other contracts of Seller entered into
in the ordinary course of the Business with the approval of Joe David Jones
during the period after June 29, 1998 through the Closing Date, in each case
that relate to the Acquired Assets or the Business or any part thereof, but
specifically excluding the Excluded Contracts.
"ASSUMPTION AGREEMENT" means the Assumption Agreement between Buyer and
Seller substantially in the form of Exhibit A.
"BILL OF SALE AND ASSIGNMENT" means the Bill of Sale and Assignment by
Seller to Buyer substantially in the form of Exhibit B.
"BUSINESS DAY" means any other day than (i) a Saturday or Sunday or (ii) a
day on which commercial banks in Austin, Texas, are authorized or required to be
closed.
1
<PAGE> 111
"BUYER" has the meaning set forth in the first paragraph of this Agreement
and includes its permitted successors and assigns.
"BUYER INDEMNIFIED COSTS" means all damages, losses, claims, liabilities,
demands, charges, suits, settlements, penalties, costs, and expenses (including
court costs, reasonable attorneys' fees and other expenses incurred in
investigating and preparing for, or otherwise in connection with, any litigation
or proceeding) that any of the Buyer Indemnified Parties incurs (a) resulting
from Seller's operation or control of any of the Acquired Assets or the Business
prior to the Closing Date (other than Assumed Liabilities), including violation
of any Environmental Laws or offsite disposal, transportation or arrangement for
disposal or transportation of any Hazardous Substances; (b) relating to or
arising out of any breach or default by Seller of any of the representations,
warranties, covenants or agreements under this Agreement or any other agreement
or document executed in connection herewith; (c) under any Excluded Contract,
any Assumed Contract for which a Consent, if required, has not been obtained, or
any other contract or agreement not expressly assumed by Buyer pursuant to the
terms hereof; (d) with respect to warranty repair liabilities or obligations for
Products sold prior to the Closing Date, other than the Assumed Warranty
Repairs; and (e) relating to or arising out of any law or contract with respect
to each (i) Employee Benefit Plan and all associated contracts and documents,
(ii) employee benefit plan (as such term is described in Section 3(3) of ERISA),
which is or was sponsored, maintained, or contributed to by any member of
Seller's ERISA Group either presently or at any time since 1974 and all
associated contracts and documents, and (iii) employee and former employee of
Seller or any ERISA Group, in connection with any event commencing, occurring,
or failing to occur on or prior to the Closing Date.
"BUYER INDEMNIFIED PARTIES" means Buyer, each affiliate of Buyer, each
member of an ERISA Group in which Buyer is a member and each of their officers,
directors, employees, consultants, and stockholders.
"CERCLA" has the meaning set forth in the definition of Environmental Laws
contained in this Section 1.1.
"CHIP DESIGNS" means the designs for Products and the related materials and
documentation of any kind relating to the designs for Products, and the
Intellectual Property rights therein, including all architectural designs and
diagrams, logic designs and diagrams, chip layouts and mask works, flow
diagrams, patents, inventions, copyrights and know-how relating to the designs
for Products.
"CLOSING" means the consummation of the transactions contemplated by this
Agreement in accordance with the provisions of Article 6.
"CODE" shall mean the United States Internal Revenue Code of 1986, as
amended. All references to the Code, U.S. Treasury regulations or other
governmental pronouncements shall be deemed to include references to any
applicable successor regulations or amending pronouncement.
"CONSENTS" means all governmental consents and approvals, and all consents
and approvals of third parties, in each case that are necessary in order to
transfer record and beneficial ownership in the Acquired Assets to Buyer and
otherwise to consummate the transactions contemplated hereby.
"CONTRACTS" means all agreements, contracts, or other binding commitments
or arrangements, written or oral (including any amendments and other
modifications thereto), to which Seller is a party or is otherwise bound and
which affect or relate to the Acquired Assets or the Business.
"DEBT," without duplication, means (a) all indebtedness (including the
principal amount thereof or, if applicable, the accreted amount thereof and the
amount of accrued and unpaid interest thereon) of Seller, whether or not
represented by bonds, debentures, notes or other securities, for the repayment
of money borrowed, (b) all deferred indebtedness of Seller for the payment of
the purchase price of property or assets purchased, other than Trade Payables
not more than 90 days past due, (c) all obligations of Seller to pay rent or
other payment amounts under a lease of real or personal property which is
required to be classified as a capital lease or a liability on the face of a
balance sheet prepared in accordance with GAAP, (d) any outstanding
reimbursement obligation of Seller with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of Seller, (e) any
payment obligation of Seller under any interest rate swap
2
<PAGE> 112
agreement, forward rate agreement, interest rate cap or collar agreement or
other financial agreement or arrangement entered into for the purpose of
limiting or managing interest rate risks, (f) all indebtedness for borrowed
money secured by any Lien existing on property owned by Seller, whether or not
indebtedness secured thereby shall have been assumed, (g) all guaranties,
endorsements, assumptions and other contingent obligations of Seller in respect
of, or to purchase or to otherwise acquire, indebtedness for borrowed money of
others, and (h) all premiums, penalties and change of control payments required
to be paid or offered in respect of any of the foregoing as a result of the
consummation of the transactions contemplated by this Agreement regardless if
any of such are actually paid.
"EMPLOYEE BENEFIT PLAN" means each (i) "employee benefit plan" within the
meaning of Section 3(3) of ERISA, (ii) employment agreement, and (iii) personnel
policy, stock option plan, collective bargaining agreement, bonus plan or
arrangement, incentive award plan or arrangement, vacation policy, severance pay
plan, policy, or agreement, deferred compensation agreement or arrangement,
executive compensation or supplemental income arrangement, consulting agreement,
workers' compensation and other employee benefit plan, agreement, arrangement,
program, practice, or understanding, which is sponsored, maintained, or
contributed to by the Seller or any member of Seller's ERISA Group for the
benefit of the employees, former employees, independent contractors, or agents
of the Seller, or has been so sponsored, maintained, or contributed to at any
time since 1974.
"ENVIRONMENTAL LAWS" means all Applicable Laws and rules of common law
pertaining to the protection, conservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety, or the exposure to, or
the use, storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of Hazardous Substances, in
each case as amended and as in effect on or prior to the Closing. The term
Environmental Law includes, without limitation, the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA"), the Emergency Planning and
Community Right to Know Act and the Superfund Amendments and Reauthorization Act
of 1986, the Resource Conservation and Recovery Act, the Hazardous and Solid
Waste Amendments Act of 1984, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Safe Drinking Water Act, the Occupational Safety and
Health Act of 1970, the Oil Pollution Act of 1990, the Hazardous Materials
Transportation Act, and any similar or analogous statutes, regulations and
decisional law of any Governmental Entity, as each of the foregoing may be
amended and in effect on or prior to the Closing.
"EQUIPMENT" means Seller's right, title and interests in the material items
of equipment, equipment structures, machinery, tools, motor vehicles, fixtures,
leasehold improvements, computer hardware, systems, infrastructure and
communications systems or devices necessary for or used primarily in the
Business, including those listed on Exhibit 2, and all non-material items of
equipment, equipment structures, fixtures, computer hardware, systems,
infrastructure and communications systems or devices necessary for or used
primarily in the Business, including all such items located at the Leased Real
Property.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA GROUP" means any corporation, trade, business, or entity under
common control within the meaning of Section 414(b), (c), (m), or (o) of the
Code.
"ESCROW AGENT" means Silicon Valley Bank, or any other nationally
recognized banking institution agreed to by Buyer and Seller, and includes its
successors and assigns.
"EXCLUDED CONTRACTS" means (a) all employment, change of control and
severance Contracts; (b) all Employee Benefit Plans and contracts associated
with Employee Benefit Plans, including all assets or funds held in trust, or
otherwise, associated with or used in connection with the Employee Benefit Plans
or contracts associated with Employee Benefit Plans; (c) all Contracts for Debt;
(d) any collective bargaining agreement; and (e) all Contracts that have
terminated or expired prior to the Closing Date; in each case other than
Contracts specifically enumerated on Exhibit 1.
3
<PAGE> 113
"EXCLUDED LIABILITIES" means all debts, obligations and liabilities of
Seller of any kind or character, whether known or unknown, absolute, accrued,
contingent or otherwise, including debts, obligations and liabilities arising
under the Excluded Contracts and any Assumed Contracts for which a Consent, if
required, has not been obtained as of the Closing (except to the extent such
liability is assumed by Buyer pursuant to Section 4.6), other than the Assumed
Liabilities.
"GAAP" means generally accepted accounting principles in the United States.
"GOVERNMENTAL ENTITY" means any governmental department, commission, board,
bureau, agency, court or other instrumentality of the United States or any
state, county, parish or municipality, jurisdiction, or other political
subdivision thereof.
"HAZARDOUS SUBSTANCE" means any substance presently or hereafter listed,
defined, designated or classified as hazardous, toxic, radioactive, or
dangerous, or otherwise regulated under any Environmental Law or by any
Governmental Entity including, without limitation, any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste, industrial substance, petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos, urea formaldehyde foam insulation, lead
or polychlorinated biphenyls.
"INDEMNIFICATION ESCROW AGREEMENT" means the Indemnification Escrow
Agreement among Seller, Buyer, and Escrow Agent substantially in the form
attached hereto as Exhibit C.
"INDEMNIFIED COSTS" means the Buyer Indemnified Costs or the Seller
Indemnified Costs, as the case may be.
"INDEMNIFIED PARTIES" means the Buyer Indemnified Parties or the Seller
Indemnified Parties, as the case may be.
"INTELLECTUAL PROPERTY" means all Trademarks, Know-how, mask work,
copyrights, copyright registrations and applications for registration, Patents
and all other intellectual property rights (including internet domain names),
whether registered or not, licensed to or owned by Seller, including all
tradenames and the goodwill related to the foregoing.
"INTELLECTUAL PROPERTY LICENSE AGREEMENT" means the agreement by and among
Buyer, Seller and Fujitsu Limited in such form as is mutually acceptable to
Buyer and Seller (provided, that such agreement shall be completed prior to
August 6, 1998).
"INVENTORY" means all work-in-progress, raw materials and finished goods of
Seller purchased for or used in the Business as of the Closing Date, including
all finished, unfinished, consigned and contracted inventory, as more
specifically described on Exhibit 3.
"KNOW-HOW" means all trade secrets, plans, ideas, concepts and data,
research records, all promotional literature, customer and supplier lists and
similar data and information and all other confidential or proprietary technical
and business information.
"KNOWLEDGE" means, with respect to a specified party hereto, the actual
knowledge of such party, including the actual knowledge of such party's
officers, directors and executive officers (after due inquiry of their direct
subordinates), but excluding, in the case of Seller, Joe David Jones and the
persons under his direct supervision or direction.
"LEASED REAL PROPERTY" means Seller's leasehold interests, easements,
licenses, rights to access and rights-of-way for the property located at 4007
Commercial Center Drive, Austin, Texas, 78744.
"LIENS" means all liens, pledges, claims, security interests, restrictions,
mortgages, deeds of trust, tenancies, possessory interests, conditional sale or
other title retention agreements, assessments, easements, covenants,
restrictions, rights of first refusal, burdens, options or encumbrances of any
kind, other than the Assumed Liabilities.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the business,
operations, properties, condition (financial or otherwise), results of
operations, Acquired Assets (taken as a whole), liabilities, or
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prospects (taking into account the declining nature of the Business for the 12
month period ended June 29, 1998) of the Business.
"PATENTS" means all foreign and domestic patents and patent applications
(including all reissues, divisions, continuations, continuations-in-part,
renewals, and extensions of the foregoing) owned by Seller.
"PERMITS" means all permits, registrations, licenses, authorizations and
the like issued or required to be issued by any Governmental Entity to Seller
relating to the Acquired Assets or used or held for use in the Business.
"PERSON" means an individual, corporation, partnership, limited liability
company, association, trust, unincorporated organization, or other entity.
"PERSONAL PROPERTY" means all of the Equipment, Software, Products,
furniture, furnishings, office equipment, supplies, plants, spare parts, and
other tangible personal property (including the URL site maintained by Seller
and the 1-800 telephone number used therein) which are owned or leased by Seller
and which are necessary for, used primarily or held for use primarily in the
Business, including all such personal property located at the Leased Real
Property. The term Personal Property shall not include any of the Excluded
Assets.
"PRODUCTS" means all Inventory, microprocessors, systems and other products
sold, held for sale, provided to customers or held for provision to customers in
the ordinary course of the Business.
"PURCHASE ORDERS" means orders or requests for sales of Products, Inventory
or services of Seller in the ordinary course of the Business, whether or not
evidenced by a Contract.
"SELLER INDEMNIFIED COSTS" means any and all damages, losses, claims,
liabilities, demands, charges, suits, settlements, penalties, costs, and
expenses (including court costs, reasonable attorneys' fees and other expenses
incurred in investigating and preparing for, or otherwise in connection with,
any litigation or proceeding) that any of the Seller Indemnified Parties incurs
(a) resulting from Buyer's operation or control of the Acquired Assets on and
after the Closing Date (including the Assumed Liabilities and liabilities
arising from Buyer's employment or termination of the Transferred Employees,
other than liabilities waived or assumed by Seller pursuant to Section 3.3), and
(b) that relate to or arise out of any breach or default by Buyer of any
representation, warranty, covenant or agreement under this Agreement or any
agreement or document executed in connection herewith.
"SELLER INDEMNIFIED PARTIES" means Seller and each officer, director,
employee, consultant, stockholder, and Affiliate of Seller.
"SOFTWARE" means all computer programs, software, electronic data files,
source codes, documentation, user manuals, technical manuals and other similar
documents, each in any media or format, and all revisions, modifications,
enhancements or additions thereto, owned by or licensed to Seller and used
primarily in or necessary for the Business, including all test programs,
software verification programs and Inventory tracking programs and those listed
on Exhibit 4, in each case including all related Intellectual Property.
"TAXES" means taxes, charges, fees, imposts, levies, interest, penalties,
additions to tax or other assessments or fees of any kind, including, but not
limited to, income, corporate, capital, employment, excise, property, sales,
use, turnover, value added and franchise taxes, deductions, withholdings and
customs duties, imposed by any Governmental Entity and any payments with respect
thereto required under any tax-sharing agreement.
"TAX RETURNS" means any return, report, information return or other
document (including any related or supporting information) filed or required to
be filed with any Governmental Entity in connection with the determination,
assessment, collection or administration of any Taxes or the administration of
any laws, regulations or administrative requirements relating to any Taxes.
"TRADE PAYABLES" means accounts payable of Seller arising in the ordinary
course of the Business for Inventory and services purchased for or used in the
Business, but excluding any principal, interest, service or fees for Debt.
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"TRADEMARKS" means (a) trademarks, service marks, trade names, trade dress,
labels, logos, and all other names and slogans associated with any products or
embodying the goodwill of the Business, whether or not registered, and any
applications or registrations therefor and (b) any associated goodwill incident
thereto owned by Seller.
1.2 Additional Defined Terms. The following terms are defined in the
section indicated:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Acquired Assets............................................. 2.1
Acquisition Proposal........................................ 4.2
Assumed Liabilities......................................... 2.7
Assumed Purchase Orders..................................... 2.1(c)
Assumed Warranty Repairs.................................... 2.7(a)
Assumption Payment.......................................... 2.7
Buyer's Agreements.......................................... 3.2(a)
Closing Date................................................ 6.1
Design License.............................................. 2.1(i)
Employees................................................... 3.3(b)
Excluded Assets............................................. 2.2
Indemnification Holdback Amount............................. 2.4
Indemnifying Party.......................................... 8.3
Purchase Price.............................................. 2.3
Ross License................................................ 2.1(j)
Seller's Agreements......................................... 3.1(a)
Tax Certificate............................................. 6.2(b)
Tax Holdback Amount......................................... 2.4(b)
Transferred Employees....................................... 3.3(b)
</TABLE>
1.3 References and Titles. All references in this Agreement to Exhibits,
Schedules, Articles, Sections, subsections, and other subdivisions refer to the
corresponding Exhibits, Schedules, Articles, Sections, subsections, and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any Articles, Sections, subsections, or other
subdivisions of this Agreement are for convenience only, do not constitute any
part of such Articles, Sections, subsections or other subdivisions, and shall be
disregarded in construing the language contained therein. The words "this
Agreement," "herein," "hereby," "hereunder," and "hereof," and words of similar
import, refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. The words "this Section," "this subsection," and
words of similar import, refer only to the Sections or subsections hereof in
which such words occur. The word "or" is not exclusive, and the word "including"
(in its various forms) means "including without limitation." Pronouns in
masculine, feminine, or neuter genders shall be construed to state and include
any other gender and words, terms, and titles (including terms defined herein)
in the singular form shall be construed to include the plural and vice versa,
unless the context otherwise requires. Unless the context otherwise requires,
all defined terms contained herein shall include the singular and plural and the
conjunctive and disjunctive forms of such defined terms.
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ARTICLE 2
SALE AND PURCHASE OF ASSETS
2.1 Agreement to Sell and Buy. Subject to the terms and conditions set
forth in this Agreement and except for the Excluded Assets, Seller shall sell,
assign, transfer and deliver to Buyer on the Closing Date, and Buyer shall
purchase on the Closing Date, all of the Acquired Assets, free and clear of any
Liens or liabilities (except for liabilities assumed by Buyer in accordance with
Section 2.7). The assets (the "Acquired Assets") to be assigned, transferred and
delivered by Seller hereunder shall include (i) the manufacturing, testing and
quality control Equipment and facilities for the production of microprocessors,
(ii) the software verification laboratories, facilities, materials and
Equipment, and (iii) the delivery, receipt and storage facilities, Equipment and
materials for wafers, gases, chemicals and other raw materials used in the
Business, including:
(a) the Inventory;
(b) the Leased Real Property (including the leasehold interests
described on Exhibit 5 hereto);
(c) the Equipment (including the Equipment leasehold interests
described on Exhibit 6 hereto);
(d) the Assumed Contracts;
(e) the Purchase Orders set forth on Exhibit 7 and any Purchase Orders
entered into by Seller after June 29, 1998 and prior to the Closing Date
that are executed or consented to in writing by Joe David Jones or persons
under Joe David Jones' supervision or direction (the "ASSUMED PURCHASE
ORDERS");
(f) the revenue, cash, cash equivalents, Accounts Receivable and other
proceeds of any kind for Products shipped, or sales of Products made, as
part of the Business after June 29, 1998;
(g) the Software;
(h) the Intellectual Property (other than Trademarks) necessary to or
used primarily in the Business (other than Intellectual Property covered by
the Design License or included in the Software);
(i) a non-exclusive, royalty free, non-terminable, transferable
license to use all Intellectual Property (other than Trademarks) with
respect to the Chip Designs (including designs, diagrams, layouts and mask
works and related materials and documentation) throughout the world solely
for the purpose of conducting the Business, including testing and quality
control and software verification (the "DESIGN LICENSE"), as more fully
described in the Intellectual Property License Agreement;
(j) a non-exclusive, royalty free, non-terminable, transferable
license to use, license, assign and sublicense all Trademarks in respect of
the name "ROSS Technology," and all derivative products and works resulting
from such marks or created by Buyer with respect to such marks throughout
the world for the longer of 12 months or until all Acquired Assets bearing
such marks on the Closing Date have been sold or distributed by Buyer (the
"ROSS LICENSE");
(k) all Trademarks used in the Business (other than those covered by
the Ross License), including Seller's rights to market, sell, distribute
and use the SPARC(TM) family of Trademarks;
(l) all Permits relating to the Business and the Assets (including all
international traffic licenses, fire department permits, air and water
pollution control permits, environmental permits and all other required
licenses);
(m) the Personal Property (other than Equipment, Software and
Inventory); and
(n) the books and records relating to the Business, including all
customer lists, marketing and leads lists, product lists and all other
sales or marketing, production or supply lists, in each case whether in the
form of a list or database, including the right to modify such lists and
use and create derivative products of such lists.
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2.2 Excluded Assets. The Excluded Assets shall consist of the following:
(a) Seller's books and records relating to internal corporate matters
and any other books and records not necessary for or used primarily in the
Business or the Acquired Assets;
(b) the Excluded Contracts;
(c) the Chip Designs, except to the extent licensed to Buyer pursuant
to the Design License;
(d) all assets, whether tangible or intangible, of Seller not
necessary for or used primarily in the Business, including all design
facilities and related assets not located at the Leased Real Property;
(e) the Personal Property, if any, identified on Schedule 2.2(e);
(f) all cash and cash equivalents on hand as of June 29, 1998; and
(g) all Accounts Receivable not described in Section 2.1(f).
2.3 Purchase Price. The aggregate purchase price payable by Buyer to
Seller in consideration for the sale of the Acquired Assets and the Business
shall be an amount equal to $5,660,000 (the "PURCHASE PRICE") (subject to the
Indemnification Holdback Amount, the Tax Holdback Amount, and any prorations
pursuant to Section 2.8).
2.4 Indemnification Holdback Amount; Tax Holdback.
(a) At the Closing, Buyer shall withhold $250,000 of the Purchase
Price and shall deposit such amount (the "INDEMNIFICATION HOLDBACK AMOUNT")
with the Escrow Agent.
(b) At the Closing, Buyer shall withhold from the Purchase Price the
amount shown on the Tax Certificate as owed by Seller to the Texas
comptroller of public accounts (the "Tax Holdback Amount") and shall
deposit such amount with the Escrow Agent pursuant to the Escrow Agreement.
If a Tax Certificate is not delivered to Buyer at Closing, or if the Tax
Certificate delivered at Closing does not cover all periods up to and
including the Closing Date, Buyer shall make a good faith estimate (based
on the recommendations of Seller's and Buyer's respective independent
accountants) of an amount sufficient to cover all Texas Taxes that are due
and unpaid by Seller for all periods up to and including the Closing Date,
and this amount shall be deemed to be the Tax Holdback Amount. Buyer shall,
and shall instruct the Escrow Agent to, release the Tax Holdback Amount to
Seller if and when Seller delivers to Buyer a Tax Certificate stating that
no Texas Taxes are due for any period up to and including the Closing Date;
provided that Buyer shall be entitled, and Seller shall instruct the Escrow
Agent, to release and deduct from the Tax Holdback Amount any Texas Taxes
of Seller paid or required to be paid by Buyer. Buyer shall consult with
Seller prior to paying any such Taxes and shall not pay any such Taxes so
long as Seller is reasonably contesting such Taxes.
2.5 Payments at Closing. At the Closing, subject to the satisfaction of
the other terms and conditions of this Agreement, Buyer shall:
(a) pay or cause to be paid to Seller cash, via wire transfer of
immediately available funds to an account designated by Seller, in an
amount equal to the Purchase Price minus the Indemnification Holdback
Amount and the Tax Holdback Amount; and
(b) deposit or cause to be deposited the Indemnification Holdback
Amount with the Escrow Agent.
At the Closing, subject to the satisfaction of other terms and conditions
of this Agreement, Seller shall pay or cause to be paid to Buyer cash, via wire
transfer of immediately available funds to an account designated by Buyer, in an
amount equal to the Assumption Payment.
2.6 Proration. All sales taxes (other than any sales taxes arising as a
result of the transactions contemplated by this Agreement), ad valorem taxes,
utility charges, insurance premiums, rent and lease payments, payroll costs,
accrued vacation and sick time for Employees, and normal operating expenses
(including the payment of reasonable Trade Payables for Inventory or services
received or first ordered with
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the approval of Joe David Jones or persons under Joe David Jones' direction or
supervision as part of the Business after June 29, 1998 and that are paid in the
ordinary course of business, but excluding principal and interest payments on
Debt, Debt service or fees and amounts that have been or should be set forth as
general and administrative expenses of Seller in accordance with GAAP) and other
expenses reasonably allocable to the Business if the Business were to be
accounted for as a separate operating division of Seller, in each case incurred
in the Business shall be prorated between Buyer and Seller as of 11:59 p.m. on
June 29, 1998. All of such prorated items shall be settled between Buyer and
Seller as a net adjustment to the Purchase Price on the Closing Date. To the
extent that the parties are not able to determine the actual amounts of such
prorations as of the Closing Date, such amounts shall be determined based upon
the parties' reasonable estimates thereof. The parties shall adjust the
proration based on actual taxes and charges within a reasonable time after such
actual numbers become first available (but in no event later than three months
after the Closing Date) and shall settle such amounts in cash.
2.7 Assumption of Liabilities and Obligations; Assumption Payment. As of
the Closing Date, Buyer shall assume and undertake to pay, discharge and perform
the following (the "Assumed Liabilities"):
(a) the warranty repair liabilities for (i) manufacturing defects and
normal wear and tear (but not for design defects or failure of fitness for
a particular purpose) for all Products sold prior to the Closing Date, and
(ii) design defects for microprocessors (but not systems or products) and
failure of fitness for a particular purpose (other than for Disagreed
Uses), in each case for Products sold after June 29, 1998 and on or prior
to the Closing Date (the "ASSUMED WARRANTY REPAIRS");
(b) all obligations arising under Assumed Contracts and Assumed
Purchase Orders (other than Assumed Contracts or Assumed Purchase Orders
for which a Consent, if required, has not been obtained (except to the
extent assumed by Buyer pursuant to Section 4.6)) for events occurring
after June 29, 1998, except for knowing or bad faith violations of the
terms or conditions of such Contracts or Purchase Orders by Seller that are
not directly attributable to Joe David Jones or other officers, directors
or employees of Buyer at the time of any such violation or to persons under
their immediate supervision at such time;
(c) Trade Payables for Inventory or services received or first ordered
with the approval of Joe David Jones or persons under Joe David Jones'
supervision or direction as part of the Business after June 29, 1998.
All of the Excluded Liabilities, whether reported by the Closing Date or
thereafter, shall remain and be the obligation and liability solely of Seller.
Seller shall pay to Buyer at the Closing, in consideration for the assumption of
the Assumed Warranty Repairs, an amount equal to $1,720,000 (the "ASSUMPTION
PAYMENT").
2.8 Allocation. On or before the Closing Date, Seller and Buyer shall
negotiate in good faith an allocation of the Purchase Price among the Acquired
Assets (as well as the Assumed Liabilities) that complies with Section 1060 of
the Code with respect to the allocation of the Purchase Price. If the allocation
is not agreed upon on or before the Closing Date, then Buyer and Seller agree
that the allocation shall be made and consistently reported by Buyer and Seller
in compliance with Section 1060 based upon an asset valuation supplied by Ernst
& Young L.L.P. The cost of such appraisal shall be shared equally by Buyer and
Seller. Buyer will order such appraisal as soon as practicable after such date
as Buyer and Seller fail to agree on such allocation. The appraisal, if
required, shall be provided to Seller within 45 days after the date of such
order. Seller and Buyer shall not take any position on their respective Tax
Returns that is inconsistent with the allocation of the Purchase Price among the
Acquired Assets and Assumed Liabilities as determined in accordance with this
Section 2.8. Buyer and Seller shall duly prepare and timely file such reports
and information returns as may be required under section 1060 of the Code and
any Treasury regulations thereunder and any corresponding provisions of
applicable state income tax laws to report such allocation of the Purchase
Price.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Seller. Seller represents and
warrants to Buyer as follows (with the understanding that Buyer is relying on
such representations and warranties in entering into and performing this
Agreement).
(a) Organization, Authority. Seller is a Delaware corporation, duly
organized, validly existing and in good standing in the state of its
incorporation and has all necessary corporate power and authority to
execute this Agreement and the other documents to be executed by it in
connection herewith (collectively with this Agreement, "SELLER'S
AGREEMENTS") and to consummate the transactions contemplated hereby and
thereby. Seller's execution, delivery and (subject to Seller obtaining the
approval of its stockholders, which shall have been duly obtained by all
necessary action prior to the Closing Date) performance of Seller's
Agreements and the transactions contemplated hereby and thereby have been
duly and validly authorized by all necessary action on its part and,
assuming the due execution and delivery of Buyer's Agreements by Buyer,
will constitute the valid and binding obligations of Seller, enforceable
against Seller in accordance with their respective terms, except as limited
by bankruptcy, insolvency, fraudulent conveyance or other laws affecting
creditors' rights or equitable principles generally.
(b) No Conflict; Required Filings and Consents. Except as set forth on
Schedule 3.1(b) or as would not, either singly or in aggregate, have a
Material Adverse Effect, the execution, delivery and performance of
Seller's Agreements by Seller does not require the consent of any
Governmental Entity or third party (other than Consents required to assign
the Acquired Assets to Buyer, each of which is listed on Schedule 3.1(b)),
will not conflict with or violate the provisions of Seller's certificate of
incorporation or bylaws or any Applicable Law or any judgment, order or
ruling of any government authority having jurisdiction over Seller, will
not, directly or indirectly, conflict with or constitute a breach or
default under any Contract or Permit to which Seller is a party or to which
Seller or the Acquired Assets are subject, and will not result in the
creation of any Lien on the Acquired Assets.
(c) Compliance with Applicable Law. To Seller's Knowledge, (i) Seller
is in compliance with all Applicable Laws applicable to the Business and
the Acquired Assets and has not violated such Applicable Laws in the
ownership, use or operation of the Business, and (ii) no such violations
have occurred which would affect Seller's ability to perform its
obligations hereunder.
(d) Absence of Litigation. Except as set forth on Schedule 3.1(d),
Seller is not subject to any judgment, settlement, injunction, order or
arbitration decision relating to the Acquired Assets or ownership, use or
operations of the Business, and there is no litigation or administrative
proceeding pending or, to Seller's Knowledge, threatened against Seller
relating to the Acquired Assets or the Business or which would affect
Seller's ability to perform its obligations hereunder.
(e) Liens; Assumed Contracts. Seller owns and has, and following the
Closing Buyer will have, good and marketable title to the Acquired Assets,
which Acquired Assets include all real and personal property necessary to
conduct the Business as currently conducted. Except as would not, either
singly or in the aggregate, have a Material Adverse Effect, (i) each of the
Assumed Contracts (including each lease or sublease) is a valid and binding
obligation of Seller and is in full force and effect, and Seller is not,
and (ii) to the Knowledge of Seller, no other party is, in default in any
material respect under such Assumed Contracts (including each lease or
sublease). Except as set forth on Schedule 3.1(e), no person other than
Seller has any interest in any of the Acquired Assets, other than Seller's
landlord with respect to Leased Real Property. The Acquired Assets shall be
free and clear of all Liens as of the Closing Date.
(f) Real Property. The Acquired Assets do not include any real
property other than Leased Real Property. Seller has a valid leasehold
interest in the Leased Real Property.
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(g) Insurance. Seller has held insurance issued by sound and reputable
insurers against such risks as companies engaged in the Business, in
accordance with reasonable business practice, would customarily be insured.
(h) Labor. Seller is not a party to any collective bargaining
agreement and has not agreed to recognize any union or other collective
bargaining representative, nor has any union or collective bargaining
representative been certified as the exclusive bargaining representative of
any of its employees. To Seller's Knowledge, no union organizational
campaign or representation petition is currently pending with respect to
any employees of Seller.
(i) Intellectual Property. All Intellectual Property used in the
Business is listed on Schedule 3.1(i). The Intellectual Property used by
Seller in the Business is licensed to or owned by Seller, and Seller's
rights to Intellectual Property included in the Acquired Assets will be
assignable to Buyer on the Closing Date, subject to the receipt of any
Consents required to assign such Intellectual Property to Buyer, each of
which is listed on Schedule 3.1(b). Except as set forth on Schedule 3.1(i),
all licenses of Intellectual Property are, to Seller's Knowledge, valid and
uncontested, and Seller has received no notice of infringements or unlawful
use of such property in connection with the operations of the Business.
(j) Environmental Matters. Except as set forth in Schedule 3.1(j)
attached hereto and as would not, either singly or in the aggregate, have a
Material Adverse Effect, (i) Seller has conducted the Business in
compliance with all applicable Environmental Laws, including, without
limitation, having all environmental permits, registrations, licenses and
other approvals and authorizations necessary for the operation of the
Business as presently conducted; (ii) none of the Leased Real Property and
other real property owned, operated or used in the Business by Seller
contain any Hazardous Substance as a result of any activity of Seller in
amounts exceeding the levels permitted by applicable Environmental Laws;
(iii) there are no civil, criminal or administrative actions, suits,
demands, claims, hearings, investigations or proceedings pending or, to the
Knowledge of Seller, threatened, against Seller relating to any violation,
or alleged violation, of any Environmental Law; (iv) no Hazardous Substance
has been disposed of, released or transported or arranged for transport or
disposal in violation of any applicable Environmental Law from any Leased
Real Property or other real property used in the Business by Seller as a
result of any activity prior to Closing; and (v) there have been no
environmental investigations, studies, audits, tests, reviews or other
analysis regarding compliance or non-compliance with any applicable
Environmental Law conducted by or which are in the possession of Seller
relating to the activities of Seller which are not listed on Schedule
3.1(j) attached hereto prior to the date hereof.
(k) Taxes. Seller has timely filed or caused to be timely filed all
Tax Returns affecting the Business or the Acquired Assets which are
required to be filed by Seller, all such Tax Returns which have been filed
are accurate and complete in all material respects, and Seller has timely
paid all Taxes shown on such Tax Returns or on any Tax assessment received
by Seller to the extent that such Taxes have become due. Seller is not
currently the beneficiary of any extension of time within which to file any
Tax Return. There are no Liens for Taxes upon the Business or the Acquired
Assets. Seller has not received notice of any Tax deficiency or
delinquency. Except as set forth on Schedule 3.1(k), (i) no Internal
Revenue Service audit of Seller is pending or, to the Knowledge of Seller,
threatened, and the results of any completed audits are properly reflected
in the Financial Statements and (ii) Seller has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to any Tax assessment or deficiency. All monies required to be
withheld by Seller from employees or collected from customers for Taxes and
the portion of any Taxes to be paid by Seller to any Governmental Entity or
set aside in accounts for such purposes have been so paid or set aside.
There are no legal, administrative, or tax proceedings pursuant to which
Seller is or, to Seller's Knowledge, could be made liable for any Taxes,
penalties, interest, or other charges, the liability for which could extend
to Buyer as transferee of the Business or the Acquired Assets. None of the
Acquired Assets directly or indirectly secures any debt the interest on
which is exempt from tax under sec. 103(a) of the Code, and none of the
Acquired Assets is "tax-exempt use property" within the meaning of
sec. 168(h) of the Code. Seller is not a party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes.
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(l) Texas Sales Tax. Seller represents and warrants that the Acquired
Assets constitute the entire operating assets of a separate branch,
division, or identifiable segment of a business as such phrase is used in
sec. 151.304(b)(2) of the Texas Tax Code and sec. 3.316(d) of Title 34 of
the Texas Administrative Code.
(m) Disclosure. No representation or warranty made by Seller and
contained in this Agreement contains any untrue statement of a material
fact or omits any material fact required to make any statement contained
herein not misleading. Seller is not aware of any impending or contemplated
event or occurrence that would cause any of the foregoing representations
not to be true and complete on the date of such event or occurrence as if
made on that date.
3.2 Representations and Warranties of Buyer. Buyer represents and warrants
to Seller as follows (with the understanding that Seller is relying on such
representations and warranties in entering into and performing this Agreement):
(a) Organization; Authority. Buyer is a Texas corporation, duly
organized, validly existing and in good standing in the state of its
incorporation and has all necessary corporate power and authority to
execute this Agreement and the other documents to be executed by it in
connection herewith (collectively with this Agreement, "BUYER'S
AGREEMENTS") and to consummate the transactions contemplated hereby and
thereby. Buyer's execution, delivery and performance of Buyer's Agreements
and the transactions contemplated hereby and thereby have been duly and
validly authorized by all necessary action on its part and, assuming the
due execution and delivery of Seller's Agreements (as hereinafter defined)
by Seller, will constitute the valid and binding obligation of Buyer,
enforceable against Buyer in accordance with their respective terms, except
as limited by bankruptcy, insolvency, fraudulent conveyance or other laws
affecting creditors' rights or equitable principles generally.
(b) No Conflict. The execution and delivery of the Buyer's Agreements
by Buyer do not, and the performance by Buyer of the transactions
contemplated hereby or thereby will not, violate, conflict with, or result
in any breach of any provision of Buyer's Articles of Incorporation or
Bylaws, violate, conflict with, or result in a violation or breach of, or
constitute a default (with or without due notice or lapse of time or both)
under, or permit the termination of, or result in the acceleration of, or
entitle any party to accelerate any obligation under any of the terms,
conditions, or provisions of any Contract to which Buyer is a party, or
violate any order, writ, judgment, injunction, decree, statute, law, rule,
or regulation, of any Governmental Entity applicable to Buyer. No Consent
of any Governmental Entity is required by or with respect to Buyer in
connection with the execution and delivery of any Buyer's Agreements by
Buyer or the consummation of the transactions contemplated hereby or
thereby.
(c) Required Filings and Consents. The execution, delivery and
performance of Buyer's Agreements by Buyer does not require the consent of
a Governmental Entity or a third party not affiliated with Buyer.
(d) Sellers' Representations and Warranties. No facts have come to the
attention of Buyer or its officers, directors or employees that cause such
persons to believe that any representation or warranty made by Seller, as
of the dates such representations and warranties are made, contains any
untrue statement.
(e) Financing. Buyer has delivered to Seller true and correct copies
of the non-binding summaries of terms and conditions from its prospective
lenders in connection with Buyer's financing of the transactions
contemplated hereby, and such documents have not been materially modified,
superseded, rescinded or revoked as of the date hereof.
3.3 Employee Matters.
(a) Representations and Warranties.
(i) Neither the Seller nor any corporation, trade, business, or
entity under common control with the Seller, within the meaning of
Section 414(b), (c), (m), or (o) of the Internal Revenue Code of 1986,
as amended ("CODE"), or Section 4001 of ERISA, ("COMMONLY CONTROLLED
ENTITY")
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contributes to or has an obligation to contribute to, nor has the Seller
or any Commonly Controlled Entity at any time contributed to or had an
obligation to contribute to, either (A) a multiemployer plan within the
meaning of Section 3(37) of ERISA or (B) a plan subject to Title IV of
ERISA.
(ii) All obligations of Seller arising under the continuation of
health coverage provisions of Section 4980B of the Code and Sections 601
through 608 of ERISA or similar state law have been performed.
(iii) Seller shall retain or assume each Employee Benefit Plan, and
Buyer shall not assume or be liable for any obligations under any
Employee Benefit Plan or portion of any Employee Benefit Plan or under
any employee benefit plan maintained by a Commonly Controlled Entity.
(b) Offers of Employment. Seller shall use commercially reasonable
efforts, consistent with its present business plan, to retain the employees
presently employed in the Business (the "EMPLOYEES") until the Closing
Date. On or prior to the Closing Date, Buyer shall offer (and Seller shall
permit Buyer to offer) employment with Buyer in substantially similar jobs
(as defined in the retention and severance package for the "BridgePoint
business unit," a true and correct copy of which has been provided to Buyer
and Buyer's counsel), effective as of the Closing Date, to the Employees
listed on Exhibit 8 hereto and who are employed in the Business on the
Closing Date. Subject to the foregoing, such offer shall otherwise be on
terms and conditions determined by Buyer and shall include an initial bonus
package to each such Employee who accepts Buyer's offer of employment
effective as of the Closing Date (the "TRANSFERRED EMPLOYEES") comparable
to the "BridgePoint business unit" severance and retention package
presently offered by Seller.
Upon the Closing, Seller waives any claims against Buyer and any of
Seller's employees who are extended an offer of employment by Buyer to the
extent such claims arise from such employment or offer of Employment by
Buyer, including any claims arising under the "BridgePoint business unit"
severance and retention package, and any employment agreement or
non-competition agreement between such person and Seller.
(c) Benefits. Buyer shall use commercially reasonable efforts to
provide the Transferred Employees with a benefits package substantially
equivalent in the aggregate to the benefits package presently provided to
such Transferred Employees by Seller (excluding any stock option or other
equity and non-equity incentive or bonus plans or agreements); provided,
that Buyer shall be so obligated only (i) to the extent Seller has provided
Buyer and Buyer's counsel, at least 30 days prior to the Closing Date, a
true and correct copy of each Employee Benefit Plan in effect on such date
and (ii) if Seller uses all commercially reasonable efforts to assist Buyer
in obtaining such benefits for the Transferred Employees.
(d) Non-Solicitation. Seller shall not, for a one year period
following the Closing Date, induce, entice, hire or attempt to hire or
employ any Transferred Employee on its own behalf or on behalf of any
person who is engaged in the same or a similar business as the Business, or
induce or attempt to induce any Employee to leave the employ or cease doing
business with Buyer or its Affiliates.
(e) COBRA. With respect to each "qualifying event" (within the meaning
of Section 603 of ERISA and Section 4980B(f)(3) of the Code) that occurred
on or prior to the Closing Date, Seller shall cause to be provided to all
employees and former employees of the Business sufficient medical, mental
health, vision, dental, and other group health plan benefits to satisfy the
obligations, if any, of Seller, any Commonly Controlled Entity (as defined
in Section 3.1(l)), and (solely for employees other than the Transferred
Employees) Buyer under the continuation of coverage provisions described in
Section 4980B of the Code and Sections 601 through 608 of ERISA and any
similar continuation of health coverage provisions under applicable state
law to the extent not preempted by applicable federal law. Nothing in this
Section 3.1(e)shall be construed to impose on Seller any obligation to
maintain medical, mental health, vision, dental or other group health
benefits not mandated by applicable law.
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ARTICLE 4
COVENANTS
4.1 Conduct of Business.
(a) Except as contemplated by this Agreement or to the extent that
Buyer shall otherwise consent in writing, from the date of this Agreement
until the Closing, Seller covenants and agrees that Seller shall not:
(i) conduct the Business in any manner except in the ordinary
course consistent with its present business plan; or
(ii) fail to use commercially reasonable efforts to preserve intact
the present business organization of the Business and to keep available
the services of its present officers, managerial personnel and key
employees or independent contractors (provided, that Seller shall not be
required to pay any such persons more than their present compensation
and existing benefits and severance packages) and preserve its
relationships with customers, suppliers and others having Business
dealings with it; or
(iii) fail to use commercially reasonable efforts to maintain the
Acquired Assets in their current condition, except for scheduled
expiration of any Assumed Contracts or ordinary wear and tear and damage
by casualty governed by Section 4.9 or fail to repair, maintain, or
replace any of the Acquired Assets consisting of equipment in the
ordinary course of business in accordance with past practice; or
(iv) modify, terminate or renew any lease for Equipment; or
(v) agree or offer to sell, license, sublicense, transfer or
otherwise limit or dispose of any Intellectual Property necessary for or
used in the Business; or
(vi) discontinue any Product line; or
(vii) incur any material Trade Payables or make any material
capital expenditure related to the Business; or
(viii) alter Seller's processes, methods or procedures of
manufacture, sale or marketing of Products; or
(ix) except for amendments, terminations (without payment of
penalty or damages), renewals, or failures to renew (without payment of
penalty or damages) of employment agreements with employees in the
ordinary course of business and consistent with past practice (subject
to prior consultation with Buyer reasonably in advance thereof),
materially amend, terminate, or fail to use all commercially reasonable
efforts to renew any Assumed Contract (other than Contracts for leased
Equipment), or default in any material respect (or take or omit to take
any action that, with or without the giving of notice or passage of
time, would constitute a material default) under any Assumed Contract or
enter into any new material Contract; or
(x) adopt any new employee benefit plan or amend any Employee
Benefit Plan, or increase in any manner the compensation or fringe
benefits of any officer, director, or employee or other personnel
(whether employees or independent contractors), except as required by
law; or
(xi) terminate any officers, managerial personnel or supervisory
employees of Seller used in the Business without prior consultation with
Buyer regarding the basis for such termination; or
(xii) acquire (including, without limitation, by merger,
consolidation, or the acquisition of any equity interest or assets) or
sell (whether by merger, consolidation, or the sale of an equity
interest or assets), lease, or dispose of any Acquired Assets except for
fair value in the ordinary course of business and consistent with past
practice or, even if in the ordinary course of business and consistent
with past practices (other than with respect to Inventory), whether in
one or more transactions, in no
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event involving an Acquired Asset or Acquired Assets having an aggregate
fair market value in excess of $25,000; or
(xiii) mortgage, pledge, or subject to any Lien any of the Acquired
Assets; or
(xiv) change in any material respect its existing practices and
procedures with respect to the collection of Accounts Receivable (except
with respect to good faith attempts to obtain payment of a past due
receivable or a contested receivable) or cancel, settle, waive or
otherwise compromise any right or claim relating to the Acquired Assets;
or
(xv) change in any material respect its existing practices and
procedures with respect to Accounts Payable or delay or postpone (beyond
Seller's ordinary practice) the payment of any Accounts Payable or other
liabilities relating to the Business; or
(xvi) change existing practices and procedures for Inventory
tracking, accounting and control; or
(xvii) agree to or make any commitment, orally or in writing, to
take any actions prohibited by this Agreement.
(b) Buyer understands and acknowledges that Seller is currently in the
process of disposing of its saleable assets (other than the Acquired
Assets, except as sold to Buyer under this Agreement), shutting down its
operations (other than the Business, except as sold to Buyer under this
Agreement) and preparing for a subsequent dissolution and liquidation.
Accordingly, no action or inaction of Seller relating to the foregoing
shall be considered a breach of this Agreement solely to the extent that
such actions or inactions do not relate to the Business or affect the
Acquired Assets. Without limiting the foregoing, neither (i) the mailing of
"End of Life" letters in form and substance substantially as sent prior to
the date hereof to its customers and suppliers notifying them of the
foregoing or (ii) the sale of certain assets of Seller to Fujitsu Limited
pursuant to the Asset Purchase Agreement, dated as of July 7, 1998, between
Seller and Fujitsu Limited, in the form provided to Buyer and Buyer's
counsel shall be considered a breach of this Agreement. In addition, no
action of Seller shall be deemed a breach of this Agreement if it is taken
at the direction of Joe David Jones or by any person under Joe David Jones'
supervision or direction.
(c) During the period after June 29, 1998 through the Closing Date,
Seller shall provide Buyer and Buyer's officers, directors and employees
full access to the operation and management of the Business and the right
to participate, where commercially practicable, in the operations,
management and decision-making processes of the Business; provided, that
Seller shall have the final decision making authority. In addition, during
such period Seller shall provide reasonable advance notice to Buyer of any
proposed sales of microprocessors (including the proposed use for such
microprocessors) and Buyer shall, as soon as is reasonably practicable (but
in any event within two (2) business days of receipt by Buyer), notify
Seller as to whether Buyer agrees or disagrees with the fitness of such
Product for the intended purpose. If Buyer fails to respond to such notice
within two (2) business days of receipt thereof, Buyer shall be deemed to
have agreed to the intended purpose set forth in such notice. If Buyer
timely disagrees with the fitness for the particular purpose intended for
such Product (each, a "DISAGREED USE"), then Seller shall either (i) not
sell such Product for such use, or (ii) sell such Product and retain the
warranty repair liabilities for failure of fitness for a particular purpose
for such Products.
4.2 No Solicitation of Transactions. Seller shall not, nor shall it permit
any of its Affiliates to, nor shall it authorize or permit any officer, director
or employee of or any investment banker, attorney or other advisor or
representative of Seller or any of its Affiliates to, (i) solicit, initiate or
encourage the submission of any Acquisition Proposal, or (ii) enter into any
agreement (other than confidentiality and standstill agreements in accordance
with the immediately following proviso) with respect to any such proposal;
provided, however, that to the extent required by the fiduciary obligations of
the Board of Directors of Seller, determined in good faith by a majority of the
disinterested members thereof based on the advice of Seller's counsel, Seller
may, in response to an unsolicited request therefor, participate in discussions
or negotiations with, or furnish
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information to, any person or "group" (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) pursuant to a confidentiality
and standstill agreement with respect to an Acquisition Proposal. Buyer
acknowledges that Seller's Board of Directors may in good faith determine that
its fiduciary obligations may require Seller to so respond to an Acquisition
Proposal which the Board of Directors deems to be superior in light of all of
the relevant terms. For purposes hereof an "ACQUISITION PROPOSAL" means any
proposal, other than a proposal by Buyer, for the sale of all or any portion of
the Business (other than Products in the normal course of business), and does
not include a proposal for the acquisition, merger or combination of Seller as a
whole or the sale of any assets of Seller other than the Acquired Assets.
Notwithstanding the above, Seller may continue discussions currently in progress
regarding an acquisition proposal.
4.3 Access and Information. Until the Closing, Seller shall afford to
Buyer and its representatives (including accountants and counsel) reasonable
access, during normal business hours, upon reasonable notice and in such manner
as will not unreasonably interfere with the conduct of the business of Seller,
to all properties, books, records, and Tax Returns of Seller and all other
information with respect to the Business, together with the opportunity to make
copies of such books, records, and other documents and to discuss the Business
of Seller with such officers, directors, managerial personnel, accountants,
consultants, and counsel for Seller as Buyer deems reasonably necessary or
appropriate for the purposes of familiarizing itself with Seller and the
Business, including the right to visit Seller's facilities; provided, that
Seller shall not be obligated to provide any documents which Seller determines
in good faith would result in a loss of a legal privilege for the disclosure of
such documents, including the attorney-client privilege. Buyer shall maintain
the confidentiality of all materials reviewed by Buyer or its representatives,
and shall return any copies of such materials to Seller after the termination of
this Agreement, all in accordance with the confidentiality letter, dated as of
June 24, 1998, between Buyer and Seller.
4.4 Compliance With Laws. Prior to the Closing, Seller shall use
reasonable efforts to cause the Business to be operated in accordance with all
Applicable Laws, regulations, rules, and orders. If Seller (or its counsel)
receives an administrative or other order or notification relating to any
violation or claimed violation of the Applicable Laws or the rules and
regulations of any Governmental Entity, Seller shall promptly notify Buyer in
writing and use reasonable efforts to take such steps as may be necessary to
cure such violation or contest such claimed violation in good faith.
4.5 Notification of Certain Matters. Each party hereto shall give prompt
written notice to the other party of (a) the occurrence, or failure to occur, of
any event of which it becomes aware that has caused or that would be likely to
cause any representation or warranty of such party contained in this Agreement
to be untrue or inaccurate in any material respect at any time from the date
hereof to the Closing Date, and (b) the failure of such party, or any officer,
director, employee, or agent of such party, to comply with or satisfy in any
material respect any covenant, condition, or agreement to be complied with or
satisfied by it hereunder. No such notification shall affect the representations
or warranties of the parties or the conditions to their respective obligations
hereunder.
4.6 Third Party Consents. After the date hereof and prior to the Closing,
Seller shall use all commercially reasonable efforts to obtain the written
consent from any party to any Contract, agreement or instrument, including each
Assumed Contract, Permit, Software license, Intellectual Property license or
Lease which is required to permit the consummation of the transactions
contemplated hereby. Buyer shall provide all reasonable assistance to Seller to
obtain such consents, including by providing financial information about Buyer
to Seller and such other parties to a Contract, to the extent that such
assistance does not conflict with or violate any confidentiality or
non-disclosure restrictions applicable to Buyer. No Consent required for the
assignment of the Acquired Assets set forth on Schedule 3.1(b), except as
specifically set forth in Section 5.2(d), shall be a condition to Buyer's
obligation to consummate the transactions contemplated by this Agreement. Except
for any breach of the covenants set forth in Article 4, Seller shall have no
liability to Buyer for the failure to obtain any such Consents. Notwithstanding
anything to the contrary contained in this Agreement, Seller will not assign to
Buyer at the Closing any Acquired Assets which require, prior to its assignment,
the Consent of any third party unless such Consent has been obtained prior to or
on the Closing Date. With respect to each such Acquired Asset not assigned at
the Closing, Seller shall maintain its interest in such Acquired Asset and Buyer
and Seller shall use all commercially reasonable efforts to obtain such
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Consents. Such Acquired Assets shall be promptly assigned and transferred to
Buyer immediately upon receipt of such Consent. Notwithstanding the absence of
any Consent to the assignment of an Acquired Asset, Seller shall maintain its
interests in such Acquired Asset for the benefit of Buyer and, to the extent
that Seller may provide Buyer with such benefits without violating the terms of
any Contract affecting such Acquired Asset, Buyer shall be entitled to all
benefits in and under such Acquired Asset from and after the Closing Date. To
the extent the benefits (net of any related expenses, which shall be prorated in
accordance with Section 2.6), under an Assumed Contract are provided to Buyer,
Buyer shall perform at its sole expense the obligations of Seller to be
performed under the Assumed Contracts and shall indemnify Seller for all
obligations arising under such Assumed Contracts for events occurring after June
29, 1998 (except for knowing or bad faith violations of the terms or conditions
of such Assumed Contracts by Seller that are not directly attributable to Joe
David Jones or other officers, directors or employees of Buyer at the time of
any such violation or persons under their immediate supervision at such time).
4.7 Supply Agreement. Seller will use all reasonable efforts to cause
Fujitsu Limited to enter into an agreement with Buyer for the purchase of
silicon and cell license rights upon the same or substantially similar terms and
conditions as those set forth in the unsigned Silicon Wafer Supply Agreement
between Seller and Fujitsu Limited.
4.8 Interim Assistance. To the extent practicable, Seller will provide
reasonable assistance to Buyer (i) through July 31, 1998 to instruct Buyer and
its representatives with respect to the testing procedures, processes and
engineering for the Business, including making reasonably available to Buyer a
team of up to three (3) of Seller's employees (specifically including Phil
Rostron), and (ii) through the later of July 31, 1998 or the Closing Date for
the orderly transfer of accounting and Inventory tracking processes and
procedures for the Business, including making reasonably available a team of up
to four (4) of Seller's employees (specifically including Carter Godwin). To the
extent practicable, Seller shall provide Buyer the right to use, or a limited
sublicense for, the enterprise resource planning software system licensed to
Seller by SAP for the period necessary for Buyer to achieve an orderly
transition of the Business.
4.9 Risk of Loss.
(a) The risk of any loss, damage, impairment, confiscation, or
condemnation of any of the Acquired Assets from any cause whatsoever shall
be borne by Seller at all times prior to the Closing. In the event of any
such loss, damage, impairment, confiscation, or condemnation, whether or
not covered by insurance, Seller shall promptly notify Buyer of such loss,
damage, impairment, confiscation, or condemnation, which notice shall
provide an estimate of the costs to repair, restore or replace such
Acquired Assets and shall state whether Seller intends to repair, restore
or replace such assets.
(b) If Seller, at its expense, repairs, replaces, or restores such
Acquired Assets to their prior condition to the satisfaction of Buyer
before the Closing, Seller shall be entitled to all insurance proceeds and
condemnation awards, if any, by reason of such award or loss.
(c) If Seller does not or cannot restore or replace lost, damaged,
impaired, confiscated or condemned Acquired Assets, Buyer may at its
option:
(i) terminate this Agreement by notice forthwith without any
further obligation hereunder if the replacement cost of such Acquired
Assets exceeds $500,000 in the aggregate; or
(ii) proceed to the Closing of this Agreement without Seller
completing the restoration and replacement of such Acquired Assets,
provided that Seller shall assign all rights under applicable insurance
policies and condemnation awards, if any, to Buyer and that the Purchase
Price shall be reduced by the repair or replacement costs of any
Acquired Asset to the extent not covered by such insurance proceeds or
condemnation award, and in such event, Seller shall have no further
liability with respect to the condition of the Acquired Assets directly
attributable to the loss, damage, impairment, confiscation, or
condemnation; provided, that the Purchase Price may not be reduced by
more than $1,000,000 without Seller's consent.
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(d) Buyer will notify Seller of a decision under the options described
in Section 4.9(c) above within ten business days after Seller's notice to
Buyer of the damage or destruction of Acquired Assets; provided, however,
that if Seller states that it intends to restore the damaged Acquired
Assets and if Seller has not restored such damaged Acquired Assets
immediately prior to the Closing Date, notwithstanding Buyer's prior
delivery of a notice to proceed pursuant to this Section 4.9(d), Buyer
shall have the right to either postpone the Closing or terminate this
Agreement by notice forthwith.
4.10 Additional Agreements. Subject to the terms and conditions of this
Agreement, each of the parties hereto will use all commercially reasonable
efforts to do, or cause to be taken all action and to do, or cause to be done,
all things necessary, proper, or advisable under Applicable Laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement. If at any time after the Closing Date, any further action is
necessary or desirable to carry out the purposes of this Agreement, the parties
to this Agreement and their duly authorized representatives shall take all such
action. Without limiting the generality of the foregoing, if, after the Closing
Date, Buyer seeks indemnification or recovery from one or more other parties to
an Assumed Contract or otherwise seeks to enforce such Assumed Contract and, in
order to obtain such indemnification, recovery or enforcement, it is necessary
for Seller to initiate a suit, participate in any enforcement proceeding or
otherwise provide assistance to Buyer, then, at the request and the sole expense
of Buyer, and at no cost, expense or liability to Seller, Seller shall take such
action as Buyer may reasonably request in connection with Buyer's efforts to
obtain such indemnification, recovery or enforcement. Seller agrees to assist
Buyer in establishing any facts regarding the Acquired Assets or Seller that
would provide an exemption from sales and/or use taxes for the Acquired Assets.
ARTICLE 5
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligation. The respective obligations of
Buyer and Seller to effect the transactions contemplated hereby are subject to
the satisfaction on or prior to the Closing Date of the following conditions:
(a) Consents and Approvals. All authorizations, consents, orders, or
approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any Governmental Entity necessary for the consummation
of the transactions contemplated by this Agreement shall have been filed,
occurred, or been obtained.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction, or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the transactions contemplated hereby shall be in
effect.
(c) No Action. No action shall have been taken nor any statute, rule,
or regulation shall have been enacted by any Governmental Entity that makes
the consummation of the transactions contemplated hereby illegal.
5.2 Conditions to Obligation of Buyer. The obligation of Buyer to effect
the transactions contemplated hereby is subject to the satisfaction of the
following conditions unless waived, in whole or in part, by Buyer:
(a) Representations and Warranties. The representations and warranties
of Seller set forth in this Agreement shall be true and correct in all
material respects (provided that any representation or warranty of Seller
contained herein that is qualified by a materiality standard or a Material
Adverse Effect qualification shall not be further qualified hereby) as of
the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date.
(b) Performance of Obligations. Seller shall have performed in all
material respects (provided that any covenant or agreement of Seller
contained herein that is qualified by a materiality standard shall not
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be further qualified hereby) all obligations required to be performed by it
under this Agreement prior to the Closing Date.
(c) Material Adverse Effect. No events or conditions shall have
occurred since the date hereof and neither Seller nor Buyer shall be aware
of any event or condition reasonably likely to occur after the Closing Date
which, individually or in the aggregate, have or are expected to have a
Material Adverse Effect on the Business or the Acquired Assets.
(d) Consents Under Agreements. Buyer shall have been furnished with
evidence reasonably satisfactory to it of the consent or approval of each
person that is a party to each Assumed Contract listed on Exhibit 9 (the
"KEY ASSUMED CONTRACTS") (including evidence of the payment of any required
payments) whose consent or approval shall be required in order to permit
the consummation of the transactions contemplated hereby and such consent
or approval shall be in form and substance reasonably satisfactory to
Buyer.
(e) Wafer Supply Agreement. Buyer shall have entered into an agreement
with Fujitsu Limited for the supply of silicon wafers and cell license
rights on terms and conditions reasonably acceptable to Buyer.
(f) Legal Opinions. Buyer shall have received from Irell & Manella
LLP, counsel to Seller, an opinion dated the Closing Date, in substantially
the form attached as Exhibit D hereto, which opinion, if requested by
Buyer, shall expressly provide that it may be relied upon by Buyer's
lenders or other sources of financing with respect to the transactions
contemplated hereby.
(g) Closing Deliveries. All documents, instruments, certificates or
other items required to be delivered by Seller pursuant to Section 6.2(b)
shall have been delivered.
(h) Financing. Buyer shall have obtained debt and equity financing in
at least the amount of $9,000,000 and upon terms and conditions reasonably
satisfactory to Buyer in light of the collateral provided, the interest,
fees and other costs charged, and the resulting leverage of Buyer.
5.3 Conditions to Obligations of the Seller. The obligation of Seller to
effect the transactions contemplated hereby is subject to the satisfaction of
the following conditions unless waived, in whole or in part, by Seller.
(a) Representations and Warranties. The representations and warranties
of Buyer set forth in this Agreement shall be true and correct in all
material respects (provided that any representation or warranty of Buyer
contained herein that is qualified by a materiality standard shall not be
further qualified hereby) as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date.
(b) Performance of Obligations of Buyer. Buyer shall have performed in
all material respects (provided that any covenant or agreement of Buyer
contained herein that is qualified by a materiality standard shall not be
further qualified hereby) the obligations required to be performed by it
under this Agreement prior to the Closing Date.
(c) Closing, Deliveries. All documents and instruments required to be
delivered by Buyer pursuant to Section 6.2(a) shall have been delivered.
(d) Approval. Seller shall have obtained a resolution of Seller's
board of directors and, if required by Applicable Law, of Seller's
shareholders approving this Agreement.
(e) Legal Opinion. Seller shall have received from Vinson & Elkins
L.L.P., counsel to Buyer, an opinion dated as of the Closing Date, in
substantially the form attached hereto as Exhibit E.
(f) Buyer's Capitalization. Seller shall have had a reasonable
opportunity to review Buyer's capitalization and the terms of its debt
financing, and Seller shall be reasonably satisfied with Buyer's ability to
perform its obligations hereunder (including the assumption by Buyer of the
Assumed Liabilities).
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ARTICLE 6
CLOSING
6.1 Closing. Subject to the satisfaction or waiver of the conditions set
forth in Article 5, the Closing will take place at the offices of Vinson &
Elkins L.L.P., Austin, Texas, at 10:00 a.m., local time, on August 15, 1998, or
as soon thereafter as the satisfaction or waiver of all conditions to the
obligations of the parties hereto to consummate the transactions contemplated
hereby shall have occurred (other than with respect to actions to be taken at
the Closing) or at such other place and time as Buyer and Seller may agree (the
"CLOSING DATE").
6.2 Actions to Occur at Closing.
(a) At the Closing, Buyer shall deliver to Seller (or to the Escrow
Agent, as indicated), unless delivery thereof has been waived by Buyer, the
following:
(i) Purchase Price. The Purchase Price (less the Indemnification
Holdback Amount, the Tax Holdback Amount and subject to any proration
pursuant to Section 2.6) by wire transfer of immediately available
funds;
(ii) Holdback Amount. The Indemnification Holdback Amount to the
Escrow Agent by wire transfer of immediately available funds;
(iii) Assumption Agreement. A counterpart of the Assumption
Agreement executed by Buyer;
(iv) Indemnification Escrow Agreement. A counterpart of the
Indemnification Escrow Agreement executed by Buyer; and
(v) Legal Opinions. The opinions of counsel referred to in Section
5.3.
(vi) Intellectual Property License Agreement. A counterpart of the
Intellectual Property License Agreement executed by Buyer.
(b) At the Closing, Seller shall deliver to Buyer the following:
(i) Assumption Payment. The Assumption Payment by wire transfer of
immediately available funds.
(ii) Assumption Agreement. A counterpart of the Assumption
Agreement executed by Seller;
(iii) Bill of Sale and Assignment. A counterpart of the Bill of
Sale and Assignment executed by Seller, together with any other
assignments and other transfer documents as requested by Buyer;
(iv) Indemnification Escrow Agreement. A counterpart of the
Indemnification Escrow Agreement executed by Seller;
(v) Legal Opinions. The opinions of counsel referred to in Section
5.2;
(vi) Tax Certificate. A properly executed receipt or certificate
from the Texas comptroller of public accounts (as described in
"sec.sec. 31.08 and 111.020 of the Texas Tax Code) stating the amount,
if any, of Texas Taxes that Seller owes for any period up to and
including the Closing Date (the "TAX CERTIFICATE");
(vii) Intellectual Property License Agreement. A counterpart of the
Intellectual Property License Agreement executed by Seller and Fujitsu
Limited;
(viii) Consents; Acknowledgments. The original or, if no original
is reasonably available, a copy of each Consent described in Section
5.2; and
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(ix) Estoppel Certificates. Estoppel certificates from the
lessor(s) of the Leased Real Property in a form and substance reasonably
satisfactory to Buyer and its lenders or other financing sources.
(c) At the Closing, Buyer shall receive from the chief executive
officer or chief financial officer of Seller a non-foreign affidavit within
the meaning of section 1445(b)(2) of the Code.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated prior to the Closing:
(a) by mutual consent of Buyer and Seller;
(b) by either Seller or Buyer:
(i) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Agreement which (A) would give rise to the failure of a condition set
forth in Article 5, as applicable, and (B) cannot be or has not been
cured within 20 days (the "CURE PERIOD") following receipt by the
breaching party of written notice of such breach;
(ii) if a court of competent jurisdiction or other Governmental
Entity shall have issued an order, decree, or ruling or taken any other
action (which order, decree or ruling the parties hereto shall use their
best efforts to lift), in each case permanently restraining, enjoining,
or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling, or other action shall have
become final and nonappealable; or
(iii) if the Closing shall not have occurred by the later of (x)
August 15, 1998, (y) fifteen days after the receipt of all required
Consents of Governmental Entities, or (z) fifteen days after the date
Seller is first permitted under Applicable Law to act upon the vote of
Seller's shareholders necessary to consummate the transactions
hereunder; provided, however, that the right to terminate this Agreement
under this clause (iii) shall not be available to any party whose breach
of this Agreement has been the cause of, or resulted in, the failure of
the Closing to occur on or before such date; or
(c) by Buyer pursuant to the provisions of Section 4.9; or
(d) subject to Section 9.7, by Seller, if Seller enters into a binding
agreement for the acquisition, merger or combination of Seller as a whole
or the sale of all of Seller's assets as a whole.
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
employees, accountants, consultants, legal counsel, agents, or other
representatives whether prior to or after the execution of this Agreement.
Notwithstanding anything in the foregoing to the contrary, no party that is in
material breach of this Agreement shall be entitled to terminate this Agreement
except with the consent of the other party.
7.2 Effect of Termination. In the event of a termination of this Agreement
by either Seller or Buyer as provided above, there shall be no liability on the
part of either Buyer or Seller, except as set forth in Section 9.7 and for
liability arising out of a breach of this Agreement. Article 1, Section 4.9 and
this Article 7 shall survive the termination of this Agreement. Except as set
forth in Section 9.7, each of the parties hereto shall be responsible for its
own expenses and those of its advisors, and no party hereto, nor any of their
Affiliates, shall be responsible to the other parties, or any of their
Affiliates, for any expenses relating to the transactions contemplated by this
Agreement.
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ARTICLE 8
INDEMNIFICATION
8.1 Indemnification of Buyer. Subject to the provisions of this Article 8
and Section 9.6, Seller agrees to indemnify and hold harmless the Buyer
Indemnified Parties from and against any and all Buyer Indemnified Costs.
8.2 Indemnification of Seller. Subject to the provisions of this Article 8
and Section 9.6, Buyer agrees to indemnify and hold harmless the Seller
Indemnified Parties from and against any and all Seller Indemnified Costs.
8.3 Defense of Third-Party Claims. An Indemnified Party shall give prompt
written notice to any person who is obligated to provide indemnification
hereunder (an "INDEMNIFYING PARTY") of the commencement or assertion of any
action, proceeding, demand, or claim by a third party (collectively, a
"THIRD-PARTY ACTION") in respect of which such Indemnified Party shall seek
indemnification hereunder. Any failure so to notify an Indemnifying Party shall
not relieve such Indemnifying Party from any liability that it, he, or she may
have to such Indemnified Party under this Article 8 unless the failure to give
such notice materially and adversely prejudices such Indemnifying Party. The
Indemnifying Party shall have the right to assume control of the defense of,
settle, or otherwise dispose of such third-party action on such terms as it
deems appropriate; provided, however, that:
(a) The Indemnified Party shall be entitled, at its own expense, to
participate in the defense of such third-party action (provided, however,
that the Indemnifying Party shall pay the attorneys' fees of the
Indemnified Party if (i) the employment of separate counsel shall have been
authorized in writing by such Indemnifying Party in connection with the
defense of such third-party action, (ii) the Indemnifying Party shall not
have employed counsel reasonably satisfactory to the Indemnified Party to
have charge of such third-party action, or (iii) the Indemnified Party's
counsel shall have advised the Indemnified Party in writing, with a copy
delivered to the Indemnifying Party, that there is a conflict of interest
that could make it inappropriate under applicable standards of professional
conduct to have common counsel);
(b) The Indemnifying Party shall obtain the prior written approval of
the Indemnified Party before entering into or making any settlement,
compromise, admission, or acknowledgment of the validity of such
third-party action or any liability in respect thereof if, pursuant to or
as a result of such settlement, compromise, admission, or acknowledgment,
injunctive or other equitable relief would be imposed against the
Indemnified Party or if, in the opinion of the Indemnified Party, such
settlement, compromise, admission, or acknowledgment could have an adverse
effect on its business;
(c) No Indemnifying Party shall consent to the entry of any judgment
or enter into any settlement that does not include as an unconditional term
thereof the giving by each claimant or plaintiff to each Indemnified Party
of a release from all liability in respect of such third-party action; and
(d) The Indemnifying Party shall not be entitled to control (but shall
be entitled to participate at its own expense in the defense of), and the
Indemnified Party shall be entitled to have sole control over, the defense
or settlement, compromise, admission, or acknowledgment of any third-party
action (i) as to which the Indemnifying Party fails to assume the defense
within a reasonable length of time or (ii) to the extent the third-party
action seeks an order, injunction, or other equitable relief against the
Indemnified Party which, if successful, would materially adversely affect
the business, operations, assets, or financial condition of the Indemnified
Party; provided, however, that the Indemnified Party shall make no
settlement, compromise, admission, or acknowledgment that would give rise
to liability on the part of any Indemnifying Party without the prior
written consent of such Indemnifying Party.
The parties hereto shall extend reasonable cooperation in connection with the
defense of any third-party action pursuant to this Article 8 and, in connection
therewith, shall furnish such records, information, and testimony and attend
such conferences, discovery proceedings, hearings, trials, and appeals as may be
reasonably requested.
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8.4 Direct Claims. In any case in which an Indemnified Party seeks
indemnification hereunder which is not subject to Section 8.3 because no
third-party action is involved, the Indemnified Party shall notify the
Indemnifying Party in writing of any Indemnified Costs which such Indemnified
Party claims are subject to indemnification under the terms hereof. Subject to
the limitations set forth in Section 8.5(a), the failure of the Indemnified
Party to exercise promptness in such notification shall not amount to a waiver
of such claim except to the extent the resulting delay materially prejudices the
position of the Indemnifying Party with respect to such claim.
8.5 Limitation as to Time. No Indemnifying Party shall be liable for any
Indemnified Costs pursuant to this Article 8 unless a written claim for
indemnification in accordance with Section 8.3 or 8.4 is given by the
Indemnified Party to the Indemnifying Party with respect thereto on or before
the date which is 12 months after the Closing Date, except that this time
limitation shall not apply to any claims at law or equity based on a party's
fraudulent acts or omissions, which shall survive until the expiration of the
applicable statute of limitations.
8.6 Dispute Resolution. Any controversy, dispute or claim for
indemnification arising pursuant to this Article 8 (a "DISPUTE") shall be
resolved by binding arbitration administered by the American Arbitration
Association (the "AAA") in accordance with the terms of this Section 8.6, the
Commercial Arbitration Rules of the AAA, and, to the maximum extent applicable,
the United States Arbitration Act. Judgment on any matter rendered by
arbitrators may be entered in any court having jurisdiction. Any arbitration
shall be conducted before three arbitrators. The arbitrators shall be
individuals knowledgeable in the subject matter of the Dispute. Each of Buyer
and Seller shall select one arbitrator by written notice to the other party
within fifteen (15) days after a request by one party for arbitration and the
two arbitrators so selected shall select the third arbitrator. If the third
arbitrator is not selected within thirty (30) days after the request for an
arbitration, then any party may request the AAA to select the third arbitrator.
The arbitrators may engage engineers, accountants or other consultants they deem
necessary to render a conclusion in the arbitration proceeding. To the maximum
extent practicable, an arbitration proceeding hereunder shall be concluded
within 90 days of the filing of the Dispute with the AAA. Arbitration
proceedings shall be conducted in Austin, Texas. Arbitrators shall be empowered
to impose sanctions and to take such other actions as the arbitrators deem
necessary to the same extent a judge could impose sanctions or take such other
actions pursuant to the Federal Rules of Civil Procedure and applicable law. At
the conclusion of any arbitration proceeding, the arbitrators shall make
specific written findings of fact and conclusions of law. Subject to the
limitations set forth in this Agreement, the arbitrators shall have the power to
award recovery of all costs and fees to the prevailing party. All fees of the
arbitrators and any engineer, accountant or other consultant engaged by the
arbitrators, shall be shared equally between the parties unless otherwise
awarded by the arbitrators.
8.7 Instructions to Escrow Agent. Seller hereby covenants and agrees that
at any time prior to the expiration of the Indemnification Escrow Agreement
Seller is or becomes obligated to indemnify a Buyer Indemnified Party for Buyer
Indemnified Costs under this Article 8, at Buyer's request, Seller will execute
and deliver to the Escrow Agent written instructions to release to the Buyer
Indemnified Party such portion of the Indemnification Holdback Amount as is
necessary to indemnify the Buyer Indemnified Party for such Buyer Indemnified
Costs.
ARTICLE 9
GENERAL PROVISIONS
9.1 Survival of Representations, Warranties, and Covenants; Limitation of
Liability. Except as otherwise provided in the next two sentences, the
representations and warranties set forth in this Agreement shall terminate on
the date which is 12 months after the Closing Date, except that this time
limitation shall not apply to any claims at law or in equity based on a party's
fraudulent acts or omissions, which shall survive until the expiration of the
applicable statute of limitations. Following the date of termination of a
representation or warranty, no claim can be brought with respect to a breach of
such representation or warranty, but such termination shall not affect any claim
for a breach of a representation or warranty that was
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asserted before the date of termination. To the extent that such are performable
after the Closing, each of the covenants and agreements contained in this
Agreement shall survive the Closing indefinitely. Notwithstanding any other
provision hereof or any applicable law, (i) no claim based on the breach of any
representation of Seller herein may be asserted by Buyer under this Agreement if
Buyer had Knowledge of the facts and circumstances giving rise to such breach
prior to the date hereof and (ii) no claim based on the breach of any
representation or warranty of Buyer in Section 3.2(d) may be asserted by Seller.
Any specific disclosure on the Schedules hereto made with reference to one or
more subsections of Section 3.1 shall be deemed disclosed with respect to each
other subsection of such Section as to which such disclosure is relevant;
provided, that such relevance is reasonably apparent. Notwithstanding any other
provision of this Agreement, in the event that the Closing occurs, Buyer's sole
and exclusive remedy for any breach by Seller of any representation, warranty or
covenant in this Agreement shall be indemnification pursuant to Section 8.1, and
in no event shall Seller's aggregate liability for all such breaches exceed the
amounts held pursuant to the Indemnification Escrow Agreement. In the event the
Closing does not occur, Seller's sole liability for breach of any representation
or warranty hereunder shall be limited to payment of the reasonable and
documented costs and expenses incurred by Buyer in connection with the
preparation, negotiation and attempted consummation of the transactions
contemplated by this Agreement up to $100,000 and, if the failure of the Closing
to occur is a result of Seller's breach of this Agreement, Seller shall pay such
costs and expenses up to such amount.
9.2 Further Actions. After the Closing Date, Seller shall execute and
deliver such other certificates, agreements, conveyances, and other documents,
and take such other action, as may be reasonably requested by Buyer in order to
transfer and assign to, and vest in, Buyer the Acquired Assets pursuant to the
terms of this Agreement.
9.3 Amendment and Modification. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.
9.4 Waiver of Compliance. Any failure of Buyer on the one hand, or Seller,
on the other hand, to comply with any obligation, covenant, agreement, or
condition contained herein may be waived only if set forth in an instrument in
writing signed by the party or parties to be bound thereby, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any other failure.
9.5 Specific Performance. The parties recognize that in the event Seller
should refuse to perform under the provisions of this Agreement (excluding
Sections 4.2 and 9.7), monetary damages alone will not be adequate. Buyer shall
therefore be entitled, in addition to any other remedies which may be available,
including money damages, to obtain specific performance of the terms of this
Agreement. In the event of any action to enforce this Agreement specifically,
Seller hereby waives the defense that there is an adequate remedy at law.
9.6 Severability. If any term or other provision of this Agreement is
invalid, illegal, or incapable of being enforced by any rule of Applicable Law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated herein are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal, or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated herein are
consummated as originally contemplated to the fullest extent possible.
9.7 Expenses and Obligations. Except as otherwise expressly provided in
this Section 9.7, all costs and expenses incurred by the parties hereto in
connection with the consummation of the transactions contemplated hereby shall
be borne solely and entirely by the party which has incurred such expenses.
Notwithstanding the foregoing, (a) the fee payable to the Escrow Agent shall be
borne as provided in the Indemnification Escrow Agreement, and (b) all sales
taxes, if any, arising out of the transactions contemplated by this Agreement
shall be paid by Seller. If the transactions contemplated by this Agreement are
not consummated as a result of (x) a termination by Buyer pursuant to Section
7.1(b)(i) or (y) Seller entering into any agreement or letter of intent with
respect to an Acquisition Proposal or any proposal, agreement or letter of
intent for the acquisition,
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merger or combination of Seller as a whole, then Seller agrees to pay the
reasonable and documented costs and expenses incurred by Buyer in connection
with the preparation, negotiation and consummation of such transactions up to
$100,000 within ten (10) days after receipt of Buyer's request for
reimbursement. In the event of a dispute between the parties in connection with
this Agreement and the transactions contemplated hereby, each of the parties
hereto hereby agrees that the prevailing party shall be entitled to
reimbursement by the other party of reasonable legal fees and expenses incurred
in connection with any action or proceeding.
9.8 Parties in Interest. This Agreement shall be binding upon and, except
as provided below, inure solely to the benefit of each party hereto and their
permitted successors and assigns, and nothing in this Agreement, except as set
forth below, express or implied, is intended to confer upon any other person
(other than the Indemnified Parties as provided in Article 8) any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
9.9 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) If to Buyer, to
BridgePoint Technical Manufacturing Corporation
4007 Commercial Center Drive
Austin, Texas 78744
Attn: Joe David Jones
Telephone: (512) 436-2501
Facsimile: (512) 434-4750
with copies to
Vinson & Elkins L.L.P.
One American Center
600 Congress Avenue
Suite 2700
Austin, Texas 78701-3200
Attn: Kyle K. Fox, Esq.
Telephone: (512) 495-8539
Facsimile: (512) 236-3340
(b) If to Seller, to
Ross Technology, Inc.
5316 Highway 290 West
Austin, Texas 78735
Attn: Francis S. ("Kit") Webster III
Telephone: (512) 436-2578
Facsimile: (512) 892-3402
with a copy to
Irell & Manella LLP
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067-4276
Attn: Andrew W. Gross, Esq.
Telephone: (310) 203-7032
Facsimile: (310) 203-7199
All notices, requests or instructions given in accordance herewith shall be
deemed given (i) on the date of delivery, if hand delivered, (ii) on the date of
receipt, if telecopied, (iii) three business days after the date of
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mailing, if mailed by registered or certified mail, return receipt requested,
and (iv) one business day after the date of sending, if sent by Federal Express
or other recognized overnight courier.
9.10 Counterparts. This Agreement may be executed and delivered (including
by facsimile transmission) in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
9.11 Entire Agreement. This Agreement (which term shall be deemed to
include the exhibits and schedules hereto and the other certificates, documents
and instruments delivered hereunder) constitutes the entire agreement of the
parties hereto and supersedes all prior agreements, letters of intent and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. There are no representations or warranties, agreements,
or covenants other than those expressly set forth in this Agreement.
9.12 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
9.13 Public Announcements. Except for statements made or press releases
issued (i) pursuant to the Securities Act of 1933 or the Securities Exchange Act
of 1934, (ii) pursuant to any listing agreement with any national securities
exchange or the National Association of Securities Dealers, Inc., or (iii) as
otherwise required by law, Seller and Buyer shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to this Agreement or the transactions contemplated hereby. Prior to the Closing,
Seller will not issue any other press release or otherwise make any public
statements regarding its business, except as may be required by Applicable Law
or in a letter to be mutually agreed upon and jointly sent by Buyer and Seller
to Seller's employees, landlords, suppliers or customers.
9.14 Assignment. Neither this Agreement nor any of the rights, interests,
or obligations hereunder shall be assigned by any of the parties hereto, whether
by operation of law or otherwise; provided, however, that nothing in this
Agreement shall limit Buyer's ability to make a collateral assignment of its
rights under this Agreement to any institutional lender that provides funds to
Buyer without the consent of Seller. Seller shall execute an acknowledgment of
such assignment(s) and collateral assignments in such forms as Buyer or its
institutional lenders may from time to time reasonably request; provided,
further, however, that unless written notice is given to Seller that any such
collateral assignment has been foreclosed upon, Seller shall be entitled to deal
exclusively with Buyer as to any matters arising under this Agreement or any of
the other agreements delivered pursuant hereto. In the event of such an
assignment, the provisions of this Agreement shall inure to the benefit of and
be binding on Buyer's assigns.
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IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be
signed as of the date first written above.
SELLER:
ROSS TECHNOLOGY, INC.
By: /s/ FRANCIS S. (KIT) WEBSTER
III
----------------------------------
Francis S. (Kit) Webster III
Chief Financial Officer
BUYER:
BRIDGEPOINT TECHNICAL
MANUFACTURING CORPORATION
By: /s/ JOE DAVID JONES
----------------------------------
Joe David Jones
President and Chief Executive
Officer
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EXHIBIT A
FORM OF
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT (the "AGREEMENT") is made and entered into as of
this day of July, 1998, by and between BridgePoint Technical
Manufacturing Corporation, a Texas corporation ("BUYER"), and Ross Technology,
Inc., a Delaware corporation ("SELLER").
WITNESSETH
WHEREAS, concurrently with the execution and delivery hereof, Seller has
sold to Buyer substantially all of the assets and properties of Seller that are
used in the operation of Seller's manufacturing, failure analysis and
reliability testing, sale, distribution and customer service business pursuant
to that certain Asset Purchase Agreement, dated as of July 23, 1998 (the
"PURCHASE AGREEMENT"), by and between Buyer and Seller; and
WHEREAS, pursuant to the Purchase Agreement, Buyer has agreed to assume
certain liabilities and obligations of Seller.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Buyer hereby covenants and agrees
with Seller as follows:
1. Effective as of the date hereof, Buyer hereby agrees to assume and
be solely responsible for the payment, performance and discharge of all of
the Assumed Contracts (as defined in the Purchase Agreement), other than
the Assumed Contracts for which a Consent is required but has not been
obtained except to the extent assumed by Buyer pursuant to Section 4.6 of
the Purchase Agreement, and the Assumed Liabilities (as defined in the
Purchase Agreement), subject, however, to the terms and conditions of the
Purchase Agreement.
2. Except as specifically provided in this Agreement and the Purchase
Agreement, Buyer shall not be liable for and shall not assume any other
obligations or liabilities of Seller (whether known or unknown, matured or
unmatured, or fixed or contingent).
3. The Buyer and Seller hereby agree to execute and deliver any and
all additional documents that the other may reasonably request in order to
more fully effect the agreements set forth in this Agreement.
4. The undertakings, covenants, and agreements set forth herein shall
be binding upon and inure to the benefit of Buyer and Seller and their
respective successors and assigns.
5. This Agreement, being further documentation of the assumptions
provided for in and by the Purchase Agreement, neither expands upon nor
limits the rights, obligations or warranties of the parties under the
Purchase Agreement. In the event of a conflict or ambiguity between the
provisions of this Agreement and the Purchase Agreement, the provisions of
the Purchase Agreement shall be controlling. The terms and conditions of
this Agreement shall be governed and construed in accordance with the laws
of the State of Texas.
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IN WITNESS WHEREOF, Buyer and Seller have executed this Agreement as of the
date first written above.
BRIDGEPOINT TECHNICAL
MANUFACTURING CORPORATION
By:
------------------------------------
Joe David Jones
President and Chief Executive
Officer
ROSS TECHNOLOGY, INC.
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
A-2
<PAGE> 139
EXHIBIT B
FORM OF
BILL OF SALE AND ASSIGNMENT
STATE OF [ ]
COUNTY OF [ ]
KNOW ALL MEN BY THESE PRESENTS:
THAT Ross Technology, Inc., a Delaware corporation ("Grantor"), in
consideration of the payment by BridgePoint Technical Manufacturing Corporation,
a Texas corporation ("Grantee"), of the consideration specified in the Purchase
Agreement (as hereinafter defined), the receipt and sufficiency of which are
hereby acknowledged, does hereby sell, convey, transfer, assign and deliver unto
Grantee, pursuant to that certain Asset Purchase Agreement, dated as of July 23,
1998 (the "PURCHASE AGREEMENT"), by and between Grantor and Grantee, all of
Grantor's rights, titles, and interests in and to all of the assets, properties,
contracts, leases (including, but not limited to, all of Grantor's interests as
"tenant" or "lessee" under all real property leases), and agreements which are
part of the Acquired Assets, but excluding the Excluded Assets and the items set
forth on Schedule I hereto, which require a Consent to assignment and which
shall be treated as set forth in Section 4.6 of the Purchase Agreement. Unless
otherwise defined herein, capitalized terms used herein shall have the meanings
assigned to them in the Purchase Agreement.
TO HAVE AND TO HOLD the Acquired Assets unto Grantee and its successors and
assigns forever.
Grantor covenants and agrees, for the benefit of Grantee and its successors
and assigns, without further consideration, and whenever and as often as
required so to do by Grantee and its successors and assigns, to execute and
deliver to Grantee such other instruments of conveyance, transfer, and
assignment and take such other action as Grantee may reasonably require to more
fully and effectively to transfer, assign and convey to and vest in Grantee and
its successors and assigns, the Acquired Assets.
Grantor hereby constitutes and appoints Grantee and its successors and
assigns Grantor's true and lawful attorneys, with full power of substitution, in
Grantor's name and stead but on behalf and for the benefit of Grantee and its
successors and assigns, to demand and receive any and all of the Acquired Assets
and to give receipts and releases for and in respect of the same, and any part
thereof, and from time to time to institute and prosecute, at the expense and
for the benefit of Grantee and its successors and assigns, any and all
proceedings at law, in equity or otherwise which Grantee or its successors or
assigns may deem proper for the collection or reduction to possession of any of
the Acquired Assets or for the collection and enforcement of any claim or right
of any kind hereby sold, conveyed, transferred and assigned, or intended so to
be, and to do all acts and things in relation to the Acquired Assets which
Grantee or its successors or assigns shall deem desirable. The foregoing powers
are coupled with an interest and are and shall be irrevocable by Grantor or by
its dissolution or in any manner or for any reason whatsoever.
Grantor further authorizes Grantee and its successors and assigns to
receive and open all mail, telegrams and other communications, and all express
or other packages, addressed to Grantor and sent to the Lease Real Property (as
defined in the Purchase Agreement) or to any of its officers, to retain the same
insofar as they relate to the Business or the Acquired Assets, and to return and
deliver the remainder of same to Grantor. To the extent such communications
retained by Grantee relate to matters other than the Business or the Acquired
Assets, Grantee agrees to deliver copies of such communications to Grantor in a
reasonably prompt manner.
Nothing in this Bill of Sale and Assignment, express or implied, is
intended or shall be construed to confer upon, or to give to, any person, firm,
corporation or other entity other than the Grantor, the Grantee, and their
respective successors and assigns, any right or remedy under or by reason of
this Bill of Sale and Assignment or any term, covenant or condition hereof, and
all the terms, covenants, conditions, promises and agreements contained in this
Bill of Sale and Assignment shall be for the sole and exclusive benefit of the
Grantor, the Grantee and their respective successors and assigns.
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This Bill of Sale and Assignment, being further documentation of the
conveyances, transfers and assignments provided for in and by the Purchase
Agreement, neither expands upon nor limits the rights, obligations or warranties
of the parties under the Purchase Agreement. In the event of a conflict or
ambiguity between the provisions of this Bill of Sale and Assignment and the
Purchase Agreement, the provisions of the Purchase Agreement shall be
controlling. The terms and conditions of this Bill of Sale and Assignment shall
be governed and construed in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the undersigned has executed this Bill of Sale of
Assignment as of this day of July, 1998.
ROSS TECHNOLOGY, INC.
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
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EXHIBIT C
FORM OF
INDEMNIFICATION ESCROW AGREEMENT
THIS INDEMNIFICATION ESCROW AGREEMENT (this "AGREEMENT") is made and
entered into as of July , 1998, by and among BridgePoint Technical
Manufacturing Corporation, a Texas corporation ("BUYER"), Ross Technology, Inc.,
a Delaware corporation ("SELLER"), and [Bank], a national banking association
with its headquarters in (the "ESCROW AGENT").
RECITALS
A. Pursuant to the Asset Purchase Agreement, dated as of July 23, 1998 (the
"PURCHASE AGREEMENT"), between Buyer and Seller, Buyer has agreed to purchase
from Seller substantially all of the assets of Seller used in Seller's
manufacturing, failure analysis and reliability testing, sale, distribution and
customer service business (the "ACQUISITION"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to them in the
Purchase Agreement.
B. It is a condition precedent to the consummation of the Acquisition that
Buyer, Seller and the Escrow Agent execute and deliver this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and of the respective
agreements and covenants contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties,
intending to be legally bound hereby, agree as follows:
SECTION 1. Establishment of Escrow Account. Concurrently with the
execution hereof and pursuant to the Purchase Agreement, Buyer will deliver to
the Escrow Agent $250,000 in cash (the "ESCROWED PROPERTY") by wire transfer of
immediately available funds to an account designated by the Escrow Agent as the
"Ross Technology Escrow Account" (the "ESCROW ACCOUNT"). The Escrowed Property
and any interest, dividends, income, or other proceeds earned thereon from and
after the Closing Date (the "INTEREST") shall be held, administered and disposed
of by the Escrow Agent in accordance with the terms and conditions hereinafter
set forth.
SECTION 2. Investment of Proceeds of Escrowed Property.
(a) The Escrow Agent shall from time to time invest and reinvest the
Escrowed Property, if any, in such of the following investments as Buyer
and Seller may from time to time elect by joint notice in writing
("PERMITTED INVESTMENTS"):
(i) Any U.S. Government or U.S. Government Agency security;
(ii) Any commercial paper rated A1/P1 or better;
(iii) Any certificate of deposit or time deposit in any bank with a
long-term debt rating of A or better from Moody's Investors Services,
Inc. or Standard & Poor's Corporation;
(iv) The [ ] Treasury Fund; or
(v) The following institutional money market funds:
(1) Dreyfus Treasury Cash Management Fund
(2) Provident T-Fund Dollar Account
(3) Federated Treasury Obligations Fund
(4) AIM Treasury Portfolio
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In the absence of written instructions to the contrary from Buyer and
Seller, the Escrow Agent shall invest the Escrowed Property in Permitted
Investments set forth in clause (iv) of this Section 2(a).
(b) Any Interest shall be set aside and distributed as provided in
Section 2(d).
(c) The Escrow Agent will act upon investment instructions the
business day after such instructions are received, provided the requests
are communicated within a sufficient amount of time to allow the Escrow
Agent to make the specified investment. Instructions received after an
applicable investment cutoff deadline will be treated as being received by
the Escrow Agent on the next business day, and the Escrow Agent shall not
be liable for any loss arising directly or indirectly, in whole or in part,
from the inability to invest Escrowed Property on the day the instructions
are received. The Escrow Agent shall not be liable for any loss incurred by
the actions of third parties or by any loss arising by error, failure or
delay in the making of an investment or reinvestment, unless such error,
failure or delay results from the Escrow Agent's gross negligence or
willful misconduct, and the Escrow Agent shall not be liable for any loss
of principal or income in connection therewith. As and when the Escrowed
Property or any Interest or any portion thereof is to be released under
this Agreement, the Escrow Agent shall cause the Permitted Investments to
be converted into cash, and the Escrow Agent shall not be liable for any
loss of principal or income in connection therewith. None of the parties
hereto shall be liable for any loss of principal or income due to the
choice of Permitted Investments in which the Escrowed Property is invested
or the choice of Permitted Investments that are converted into cash
pursuant to this Section 2(c).
(d) Except as otherwise provided herein, all Interest shall be
distributed to Seller upon the termination of this Agreement pursuant to
Section 15. Subject to Section 2(e) and the last sentence of Section 5(b),
the Escrow Agent shall distribute to Seller, solely out of Interest, on a
quarterly basis as of the last day of March, June, September and December,
upon written demand of Seller, an amount equal to the product of the
Effective Tax Rate (as defined below) times the taxable Interest for the
quarter. For purposes of determining taxable interest, dividends and other
income, the Escrow Agent shall provide an itemized report of all Interest
for the quarter to Buyer and Seller at the close of business of the last
day of the end of each such quarter, and Seller shall provide a summary to
the Escrow Agent of all such income that is taxable. For this purpose, the
"EFFECTIVE TAX RATE" shall mean the highest marginal effective combined
federal, state and local income tax rate applicable to a corporate taxpayer
as reasonably computed and provided to the Escrow Agent by Seller.
(e) For tax purposes, the Escrowed Property shall be deemed property
of Seller and all Interest shall be the income of Seller. Buyer and Seller
shall file Tax Returns and the Escrow Agent shall file a Form 1099
consistent with such treatment. In the event that the Internal Revenue
Service or any other governmental authority successfully claims that the
Interest is taxable to Buyer for a taxable period, Seller shall promptly
pay to Buyer all amounts paid by the Escrow Agent to Seller pursuant to
Section 2(d) for such taxable period plus interest on such amounts at the
rate specified by section 6621(a)(1) of the Code and corresponding
provisions of applicable state and local laws to the extent such interest
has been received by or credited to Seller, and Seller shall thereafter no
longer have any right to receive payments under Section 2(d).
SECTION 3. Release of the Escrowed Property to Indemnitees. The Escrow
Agent shall disburse to Buyer (for its own account or for the account of any
Indemnitee, as defined in Section 8) such portion of the Escrowed Property as
instructed pursuant to this Section 3 to pay Buyer Indemnified Costs for which
the Indemnitee is entitled to reimbursement pursuant to Article 8 of the
Purchase Agreement. Payment shall be made not more than three business days
after: (a) the delivery to the Escrow Agent of joint written instructions signed
by Buyer and Seller specifying an amount to be paid to an Indemnitee or (b) the
delivery to the Escrow Agent and Seller of a copy of a Final Determination (as
defined below) establishing the Indemnitee's right to reimbursement under this
Agreement and Article 8 of the Purchase Agreement with respect to such Buyer
Indemnified Costs. A "FINAL DETERMINATION" shall mean a final, written findings
of fact and conclusions of law by an arbitration panel pursuant to Section 8.6
of the Purchase Agreement.
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SECTION 4. No Distribution of Expenses. Except as provided in Section 8 of
this Agreement with respect to Buyer, neither Seller nor Buyer shall be entitled
to reimbursement out of the Escrowed Property for any costs and expenses
incurred by them in connection with exercising their rights or performing their
duties under this Agreement.
SECTION 5. Segregation of the Fund. (a) The Escrow Agent shall segregate
from the Escrow Account and transfer into a separate account (the "PENDING
CLAIMS ACCOUNT") maintained by the Escrow Agent for the benefit of Buyer and
Seller the portion of the Escrowed Property (together with the Interest) that
may be necessary to satisfy in full all Pending Claims (as defined below), and
shall hold such portion in accordance with this Section 5. "PENDING CLAIMS"
shall mean unresolved Claims (as defined in Section 8) that are the subject of
Claims Notices delivered under Section 8(b). Such segregated Escrowed Property
(together with the Interest) will be invested pursuant to Section 2.
(a) Any portion of the Escrowed Property segregated under Section 5(a)
shall continue to be segregated (together with the interest, dividends, and
other income earned thereon) by the Escrow Agent until the Escrow Agent is
directed to release such Escrowed Property by (i) written instructions signed by
Buyer and Seller instructing the Escrow Agent how to pay all or any portion of
such segregated Escrowed Property (together with the Interest) or (ii) a copy of
a Final Determination establishing or denying the Indemnitee's right to
reimbursement under Section 8. Notwithstanding the provisions of Section 2, if
there is no Escrowed Property remaining except the Escrowed Property (together
with the Interest) held in the Pending Claims Account, the Escrow Agent shall
not release from the Pending Claims Account any amount in order to make a
payment otherwise required under Section 2.
SECTION 6. Distribution of Escrowed Property to Seller. Not later than the
second business day after the date which is 12 months from the execution of this
Agreement (the "RELEASE DATE"), the Escrow Agent shall distribute to Seller the
remainder of the Escrowed Property (plus accrued and undistributed earnings on
the Escrowed Property) minus the sum of the total amount of Escrowed Property
that is then being segregated with respect to Pending Claims under Section 5.
Any amounts segregated with respect to Pending Claims shall be released as
provided in Section 5(b). Notwithstanding anything to the contrary contained
herein, any provision hereof requiring the disbursement of Interest by the
Escrow Agent shall be construed to refer only to Interest which has accrued and
been paid to the Escrow Agent. Any Interest which has accrued and, except for
the fact that it has not been paid to the Escrow Agent, would be required to be
disbursed, shall be disbursed within two business days of being paid.
SECTION 7. Taxpayer Identification Numbers. The parties acknowledge that
payment of any Interest earned on the Escrowed Property invested in this escrow,
or the distribution of any other amounts under this escrow, will be subject to
backup withholding penalties unless a properly completed Internal Revenue
Service Form W-8 or W-9 certification is submitted to the Escrow Agent by the
party entitled to receive such payment. Any Form W-8 or W-9 certification shall
be submitted to the Escrow Agent on or before the date hereof.
SECTION 8. Claims Against the Escrowed Property. From and after the
Closing, but subject to the conditions and limitations set forth in this
Agreement and the Purchase Agreement, the Buyer Indemnified Parties and their
respective successors and assigns (collectively, the "INDEMNITEES") shall be
entitled to reimbursement out of the Escrowed Property for any and all Buyer
Indemnified Costs pursuant to and as provided in Article 8 of the Purchase
Agreement (the "CLAIMS"). Notwithstanding any of the provisions of the Purchase
Agreement, the Escrow Agent shall be entitled to conclusively rely upon the
provisions of Sections 8(a)-(d) hereof in determining whether a Claim for
indemnification shall be paid out of the Escrowed Property.
(a) Claims against the Escrowed Property may be made by Buyer, on its
own behalf or on behalf of any other Buyer Indemnified Party, for
indemnification of any Buyer Indemnified Cost. No person other than Buyer
shall be permitted to make a claim on behalf of the Buyer Indemnified
Parties against the Escrowed Property for Buyer Indemnified Costs under
this Section 8 unless Buyer provides written notice to Escrow Agent and
Seller that Buyer has authorized another Buyer Indemnified Party to make
such claims.
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(b) Buyer shall promptly notify Seller and the Escrow Agent in writing
of any sums which Buyer claims are subject to indemnification ("CLAIMS
NOTICE"). Failure of Buyer to exercise promptness in such notification
shall not amount to a waiver of such claim unless the resulting delay
materially and adversely prejudices Seller. Such notice shall consist of a
description of the claim and specify each Buyer Indemnified Party and the
amount (which may be estimated) of the claim in United States dollars.
(c) Seller may contest the claims specified in Section 8(b) (or any
portion thereof) by giving the Escrow Agent and Buyer written notice of
such contest within ten days after receipt by Seller and Escrow Agent of a
notice from Buyer under Section 8(b), which notice of contest shall include
a statement of the grounds of such contest and shall state the amount of
any such claim by Buyer that Seller does not dispute.
(d) Payment of any claim for indemnification (or portion thereof)
shall become due and payable as follows:
(i) If, notwithstanding Section 3 of this Agreement, at 5:00 p.m.
(New York City time) on the 30th business day after receipt by Seller
and the Escrow Agent of a notice of claim for indemnification pursuant
to Section 8(b) above, the Escrow Agent has not received written notice
from Seller that Seller contests the claim (or portion thereof) pursuant
to Section 8(c) above, the claim (or the uncontested portion thereof)
shall be promptly paid by the Escrow Agent to Buyer;
(ii) If Seller contests the claim (or portion thereof) pursuant to
Section 8(c) and the claim (or portion thereof) is settled by written
agreement of Seller and Buyer, the amount provided in such written
agreement shall, upon receipt by the Escrow Agent of a copy of such
written agreement, be promptly paid by the Escrow Agent pursuant to the
terms of such written agreement; and
(iii) If Seller contests the claim (or portion thereof) pursuant to
Section 8(c) hereof and a Final Determination has been obtained, the
amount set forth in such Final Determination shall be promptly paid by
the Escrow Agent pursuant to the terms of such Final Determination.
SECTION 9. Expiration of Indemnification Claims. Any claim for
reimbursement from the Escrow Account must be asserted in writing by Buyer or
any Buyer Indemnified Party designated pursuant to Section 8(a) in accordance
with Section 8 by a writing received by Seller and the Escrow Agent prior to
5:00 p.m. (New York City time) on the Release Date.
SECTION 10. The Escrow Agent. To induce the Escrow Agent to act hereunder,
it is further agreed by Buyer and Seller that:
(a) The Escrow Agent shall not be under any duty to give the Escrowed
Property held by it hereunder any greater degree of care than it gives its
own similar property and shall not be required to invest any Escrowed
Property held hereunder except as directed in this Agreement. Uninvested
Escrowed Property held hereunder shall not earn or accrue interest.
(b) This Agreement expressly sets forth all the duties of the Escrow
Agent with respect to any and all matters pertinent hereto. No implied
duties or obligations shall be read into this Agreement against the Escrow
Agent. The Escrow Agent shall not be bound by the provisions of any
agreement among the other parties hereto except this Agreement.
(c) The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims based
upon such gross negligence or willful misconduct that are successfully
asserted against the Escrow Agent, Buyer and Seller shall jointly and
severally indemnify and hold harmless the Escrow Agent (and any successor
escrow agent) from and against any and all losses, liabilities, claims,
actions, damages and expenses, including reasonable attorneys' fees and
disbursements, arising out of and in connection with this Agreement.
Without limiting the foregoing, the Escrow Agent shall in no event be
liable in connection with its investment or reinvestment of any cash held
by it hereunder in good faith, in accordance with the terms hereof,
including without limitation, any liability for any delays (not resulting
from its gross negligence or willful misconduct) in the investment or
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reinvestment of the Escrowed Property or any loss of interest incident to
any such delays. This Section 10(c) shall survive notwithstanding any
termination of this Agreement or the resignation of the Escrow Agent.
(d) The Escrow Agent shall be entitled to rely in good faith upon any
order, judgment, certification, demand, notice, instrument or other writing
delivered to it hereunder without being required to determine the
authenticity or the correctness of any fact stated therein or the propriety
or validity or the service thereof. The Escrow Agent may act in reliance
upon any instrument or signature believed by it in good faith to be genuine
and may assume that any person purporting to give receipt or advice or make
any statement or execute any document in connection with the provisions
hereof has been duly authorized to do so.
(e) The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Agreement and shall not be liable
for any action taken or omitted in good faith in accordance with such
advice.
(f) The Escrow Agent does not have any interest in the Escrowed
Property deposited hereunder but is serving as escrow holder only and
having only possession thereof. Seller shall pay or reimburse the Escrow
Agent upon request for any transfer taxes or other taxes relating to the
Escrowed Property incurred in connection herewith and shall indemnify and
hold harmless the Escrow Agent from any amounts that it is obligated to pay
in the way of such taxes. Any payments of income from the Escrow Account
shall be subject to withholding regulations then in force with respect to
United States taxes. It is understood that the Escrow Agent shall be
responsible for income reporting only with respect to income earned on
investment of the Escrowed Property and is not responsible for any other
reporting. This Section 10(f) shall survive notwithstanding any termination
of this Agreement or the resignation of the Escrow Agent.
(g) The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectability of any security or other document
or instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to advise any party as
to the wisdom in selling or retaining or taking or refraining from any
action with respect to any securities or other property deposited
hereunder.
(i) The Escrow Agent (and any successor escrow agent) may at any time
resign as such by delivering the Escrowed Property to any successor escrow
agent jointly designated by the other parties hereto in writing or to any
court of competent jurisdiction, whereupon the Escrow Agent shall be
discharged of and from any and all further obligations arising in
connection with this Agreement. The resignation of the Escrow Agent will
take effect on the earlier of (the "RESIGNATION DATE"): (i) the appointment
of a successor (including a court of competent jurisdiction) or (ii) the
date which is 30 days after the date of delivery of its written notice of
resignation to the other parties hereto. Upon the appointment of a
successor escrow agent, such successor escrow agent shall deliver written
notice to Buyer and Seller on the appointment of such successor escrow
agent. If at the Resignation Date the Escrow Agent has not received a
designation of a successor escrow agent, the Escrow Agent's sole
responsibility after the Resignation Date shall be to safekeep the Escrowed
Property until receipt of a designation of successor escrow agent or a
joint written disposition instruction by the other parties hereto or a
Final Determination.
(j) The Escrow Agent shall have no responsibility for the contents of
any writing of any third party contemplated herein as a means to resolve
disputes and may rely without any liability upon the contents thereof.
(k) In the event of any disagreement between Buyer and Seller
resulting in adverse claims or demands being made in connection with the
Escrowed Property, or in the event that the Escrow Agent in good faith is
in doubt as to what action it should take hereunder, the Escrow Agent shall
be entitled to retain the Escrowed Property until the Escrow Agent shall
have received (i) a Final Determination (accompanied by the opinion of
counsel referred to in Section 3) directing delivery of the Escrowed
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Property or (ii) a written agreement executed by Buyer and Seller directing
delivery of the Escrowed Property, in which event the Escrow Agent shall
disburse the Escrowed Property in accordance with such Final Determination
or agreement. The Escrow Agent shall act on such Final Determination or
agreement without further question.
(l) The compensation of the Escrow Agent (as payment in full) for the
services to be rendered by the Escrow Agent hereunder shall be the amount
of $250 paid by Seller at the time of execution of this Agreement and
$ annually thereafter, together with reimbursement for all
reasonable expenses, disbursements and advances incurred or made by the
Escrow Agent in performance of its duties hereunder (including reasonable
fees, expenses and disbursements of its counsel) not to exceed $1,000
absent any litigation or other dispute arising under this Agreement. All
fees and expenses of the Escrow Agent hereunder shall be paid by Seller.
Any fees or expenses of the Escrow Agent or its counsel which are not paid
as provided for herein may be taken from any property held by the Escrow
Agent hereunder. The Escrow Agent's fee may be adjusted from time to time
to conform to its then current guidelines.
(m) No prospectuses, press releases, reports and promotional material,
or other similar materials which mention in any language the Escrow Agent's
name or the rights, powers, or duties of the Escrow Agent shall be issued
by the other parties hereto or on such parties' behalf unless the Escrow
Agent shall first have given its specific written consent thereto.
(n) The other parties hereto authorize the Escrow Agent, for any
securities held hereunder, to use the services of any United States central
securities depository it deems appropriate, including, but not limited to,
the Depositary Trust Company and the Federal Reserve Book Entry System.
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SECTION 11. Notices. All notices, requests, consents, waivers, and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given (a) if transmitted by facsimile,
upon acknowledgment of receipt thereof in writing by facsimile or otherwise; (b)
if personally delivered, upon delivery or refusal of delivery; (c) if mailed by
registered or certified United States mail, return receipt requested, postage
prepaid, upon delivery or refusal of delivery; or (d) if sent by a nationally
recognized overnight delivery service, upon delivery or refusal of delivery. All
notices, consents, waivers, or other communications required or permitted to be
given hereunder shall be addressed to the respective party to whom such notice,
consent, waiver, or other communication relates at the following addresses:
(i) if to Buyer or to any Buyer Indemnified Party:
BridgePoint Technical Manufacturing
4007 Commercial Center Drive
Austin, Texas 78744
Attn: Joe David Jones
Facsimile: (512) 436-2501
Telephone: (512) 892-3317
with a copy to:
Vinson & Elkins L.L.P.
One American Center
600 Congress Avenue, Suite 2700
Austin, Texas 78701-3200
Attn: Kyle K. Fox
Facsimile: (512) 236-3340
Telephone: (512) 495-8539
(ii) if to Seller, to:
Ross Technology, Inc.
5316 Highway 290 West
Austin, Texas 78735
Attn: Francis S. ("Kit") Webster III
Telephone: (512) 436-2578
Facsimile: (512) 892-3402
with a copy to
Irell & Manella LLP
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067-4276
Attn: Andrew W. Gross, Esq.
Telephone: (310) 203-7032
Facsimile: (310) 203-7199
(iii) if to the Escrow Agent, to:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Attn:
----------------------------------------------------------
Facsimile:
-----------------------------------------------------
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Any party by written notice to the other parties pursuant to this Section 11 may
change the address or the persons to whom notices or copies thereof shall be
directed.
SECTION 12. Waivers; Amendments. Any waiver by any party hereto of any
breach of or failure to comply with any provision of this Agreement by any other
party hereto shall be in writing and shall not be construed as, or constitute, a
continuing waiver of such provision, or a waiver of any other breach of, or
failure to comply with, any other provision of this Agreement. This Agreement
may only be modified by a writing signed by all of the parties hereto.
SECTION 13. Construction. The headings in this Agreement are solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement. Unless otherwise stated, references to
Sections are references to Sections of this Agreement.
SECTION 14. Assignment; Third Parties. Seller may not assign this
Agreement without the consent of the other parties; provided, that Seller may
assign its right to receive payment of the Escrow Funds without the consent of
the other parties hereto upon written notice to Escrow Agent. In connection with
an assignment by Buyer of the Purchase Agreement, Buyer may assign this
Agreement and its rights and obligations hereunder to an Affiliate upon 10 days'
prior written notice to the Escrow Agent and may assign its rights and
obligations hereunder to a person who is not an Affiliate upon 30 days' prior
written notice to the Escrow Agent. Subject to the preceding sentence, this
Agreement shall be binding upon and inure solely to the benefit of the parties
hereto and their respective successors and assigns, heirs, administrators and
representatives and shall not be enforceable by or inure to the benefit of any
third party, except as provided in Section 10(i) with respect to a resignation
by the Escrow Agent and except that this Agreement is also for the benefit of
Buyer Indemnified Parties, who shall have the rights specified herein.
SECTION 15. Termination. This Agreement shall terminate at the time of the
final distribution by the Escrow Agent of all Escrowed Property in accordance
with the provisions of this Agreement.
SECTION 16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute a single instrument.
SECTION 17. Governing Law; Severability. This Agreement shall be construed
in accordance with and governed by the internal law of the State of Texas. The
invalidity, legality or enforceability of any provisions of this Agreement shall
in no way affect the validity, legality or enforceability of any other
provision; and if any provision is held to be unenforceable as a matter of law,
the other provisions shall not be affected thereby and shall remain in full
force and effect.
SECTION 18. Waiver of Offset Rights. The Escrow Agent hereby waives any
and all rights to offset that it may have against the Escrowed Property
including, without limitation, claims arising as a result of any claims,
amounts, liabilities, costs, expenses, Buyer Indemnified Costs, or other losses
(collectively "ESCROW AGENT CLAIMS") that the Escrow Agent may be otherwise
entitled to collect from any party to this Agreement or any Indemnitee, other
than Escrow Agent Claims arising under this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first written above.
BRIDGEPOINT TECHNICAL
MANUFACTURING CORPORATION
By:
----------------------------------
Joe David Jones
President and Chief Executive
Officer
ROSS TECHNOLOGY, INC.
By:
----------------------------------
Name:
------------------------------------
Title:
------------------------------------
[BANK]
By:
----------------------------------
Name:
------------------------------------
Title:
------------------------------------
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EXHIBIT D
FORM OF OPINION OF
SELLER'S COUNSEL
The opinion shall be substantially to the following effect:
1. Seller is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware.
2. Seller has full corporate power and authority to execute and
deliver the Seller's Agreements and to perform the obligations contemplated
thereby. The execution and delivery by Seller of each of the Seller's
Agreements has been duly authorized by all necessary corporate action on
the part of Seller. Each of the Seller's Agreements has been duly executed
and delivered by Seller and constitutes the valid and binding obligation of
Seller and is enforceable in accordance with its terms.
3. Neither the execution and delivery by Seller of the Seller's
Agreements, nor the performance by Seller of its obligations thereunder,
violates or conflicts with, results in a breach of, or constitutes a
default under its Articles or Certificate of Incorporation or Bylaws or any
provision of statutory law or regulations.
4. The Seller Agreements are sufficient in form collectively to convey
to Buyer all of Seller's right, title and interest in and to the Acquired
Assets, subject to the filing of necessary documents with appropriate
governmental entities, where required.
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EXHIBIT E
FORM OF OPINION OF
BUYER'S COUNSEL
The opinion shall be substantially to the following effect:
1. Buyer is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Texas.
2. Buyer has full corporate power and authority to execute and deliver
the Buyer's Agreements and to perform the obligations contemplated thereby.
The execution and delivery by Buyer of each of the Buyer's Agreements has
been duly authorized by all necessary corporate action on the part of
Buyer. Each of the Buyer's Agreements has been duly executed and delivered
by Buyer and constitutes the valid and binding obligation of Buyer and is
enforceable in accordance with its terms.
3. Neither the execution and delivery by Buyer of the Buyer's
Agreements, nor the performance by Buyer of its obligations thereunder,
violates or conflicts with, results in a breach of, or constitutes a
default under its Articles or Certificate of Incorporation or Bylaws or any
provision of statutory law or regulations.
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ANNEX B
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION OF
ROSS TECHNOLOGY, INC.
This Plan of Complete Liquidation and Dissolution (the "PLAN") is intended
to accomplish the complete liquidation and dissolution of ROSS Technology, Inc.,
a Delaware corporation (the "COMPANY"), in accordance with Section 275 and other
applicable provisions of the General Corporation Law of Delaware ("DGCL") and
Sections 331 and 336 (or Sections 332 and 337, as appropriate) of the Internal
Revenue Code of 1986, as amended (the "CODE").
1. Approval and Adoption of Plan
This Plan shall be effective when all of the following steps have been
completed:
(a) Resolutions of the Company's Board of Directors. The Company's
Board of Directors shall have adopted a resolution or resolutions with
respect to the following:
(i) Complete Liquidation and Dissolution: The Board of Directors
shall determine that it is deemed advisable for the Company to be
liquidated completely and dissolved.
(ii) Adoption of the Plan: The Board of Directors shall approve
this Plan as the appropriate means for carrying out the complete
liquidation and dissolution of the Company.
(iii) Sale of Assets: The Board of Directors shall determine
that, as part of the Plan, it is deemed expedient and in the best
interests of the Company to sell all or substantially all of the
Company's assets in order to facilitate liquidation and distribution
to the Company's creditors and stockholders, as appropriate.
(b) Adoption of This Plan by the Company's Preferred and Common
Stockholders. The holders of a majority of the outstanding shares of the
Company's Series B Convertible Preferred Stock, par value $.001 per
share (the "PREFERRED STOCK") and the holders of a majority of the
outstanding shares of common stock of the Company, par value $0.001 per
share (the "COMMON STOCK"), entitled to vote shall have adopted this
Plan, including the dissolution of the Company and those provisions
authorizing the Board of Directors to sell all or substantially all of
the Company's assets, by written consent or at a special meeting of the
stockholders of the Company called for such purpose by the Board of
Directors.
2. Dissolution and Liquidation Period
Once the Plan is effective, the steps set forth below shall be
completed at such times as the Board of Directors, in its absolute
discretion, deems necessary, appropriate or advisable. Without limiting the
generality of the foregoing, the Board of Directors may instruct the
officers of the Company to delay the taking of any of the following steps
until the Company has performed such actions as the Board or such officers
determine to be necessary, appropriate or advisable for the Company to
maximize the value of the Company's assets upon liquidation; provided that
such steps may not be delayed longer than is permitted by applicable law.
(a) The filing of a Certificate of Dissolution of the Company (the
"CERTIFICATE OF DISSOLUTION") pursuant to Section 275 of the DGCL
specifying the date (no later than ninety (90) days after the filing)
upon which the Certificate of Dissolution will become effective (the
"EFFECTIVE DATE"), and the completion of all actions that may be
necessary, appropriate or desirable to dissolve and terminate the
corporate existence of the Company;
(b) The cessation of all of the Company's business activities and
the withdrawal of the Company from any jurisdiction in which it is
qualified to do business, except and insofar as necessary for the sale
of its assets and for the proper winding up of the Company pursuant to
Section 278 of the DGCL;
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<PAGE> 153
(c) The negotiation and consummation of sales of all of the assets
and properties of the Company, including the assumption by the purchaser
or purchasers of any or all liabilities of the Company, insofar as the
Board of Directors of the Company deems such sales to be necessary,
appropriate or advisable;
(d) The giving of notice of the dissolution to all persons having a
claim against the Company and the rejection of any such claims in
accordance with Section 280 of the DGCL;
(e) The offering of security to any claimant on a contract whose
claim is contingent, conditional or unmatured in an amount the Company
determines is sufficient to provide compensation to the claimant if the
claim matures, and the petitioning of the Delaware Court of Chancery to
determine the amount and form of security sufficient to provide
compensation to any such claimant who has rejected such offer in
accordance with Section 280 of the DGCL;
(f) The petitioning of the Delaware Court of Chancery to determine
the amount and form of security which would be reasonably likely to be
sufficient to provide compensation for (i) claims that are the subject
of pending litigation against the Company, and (ii) claims that have not
been made known to the Company or that have not arisen, but are likely
to arise or become known within five (5) years after the date of
dissolution (or longer in the discretion of the Delaware Court of
Chancery), each in accordance with Section 280 of the DGCL;
(g) The payment, or the making of adequate provision for payment,
of all claims made against the Company and not rejected, including all
expenses of the sale of assets and of the liquidation and dissolution
provided for by the Plan in accordance with Section 280 of the DGCL;
(h) The posting of all security offered and not rejected and all
security ordered by the Court of Chancery in accordance with Section 280
of the DGCL; and
(i) The distribution of the remaining funds of the Company and the
distribution of remaining unsold assets of the Company, if any, to its
stockholders pursuant to Sections 4, 7 and 8 below.
Notwithstanding the foregoing, the Company shall not be required to
follow the procedures described in Section 280 of the DGCL, and the
adoption of the Plan by the Company's preferred and common stockholders
shall constitute full and complete authority for the Board of Directors and
the officers of the Company, without further stockholder action, to proceed
with the dissolution and liquidation of the Company in accordance with any
applicable provision of the DGCL, including, without limitation, Section
281(b) thereof.
3. Authority of Officers and Directors
After the Effective Date, the Board of Directors and the officers of
the Company shall continue in their positions for the purpose of winding up
the affairs of the Company as contemplated by Delaware law. The Board of
Directors may appoint officers, hire employees and retain independent
contractors in connection with the winding up process, and is authorized to
pay to the Company's officers, directors and employees, or any of them,
compensation or additional compensation above their regular compensation,
in money or other property, in recognition of the extraordinary efforts
they, or any of them, will be required to undertake, or actually undertake,
in connection with the successful implementation of this Plan. Adoption of
this Plan by holders of a majority of the outstanding shares of Preferred
Stock and Common Stock shall constitute the approval of the Company's
stockholders of the Board of Directors' authorization of the payment of any
such compensation.
The adoption of the Plan by the Company's preferred and common
stockholders shall constitute full and complete authority for the Board of
Directors and the officers of the Company, without further stockholder
action, to do and perform any and all acts and to make, execute and deliver
any and all agreements, conveyances, assignments, transfers, certificates
and other documents of any kind and character which the Board or such
officers deem necessary, appropriate or advisable: (i) to sell, dispose,
convey, transfer and deliver the assets of the Company, (ii) to satisfy or
provide for the satisfaction of the
2
<PAGE> 154
Company's obligations in accordance with Sections 280 and 281 of the DGCL,
(iii) to distribute all of the remaining funds of the Company and any
unsold assets of the Company to the Company's preferred stockholders (up to
the $50 million liquidation preference of the Preferred Stock), with the
remaining amounts, if any, distributable to the common stockholders, and
(iv) to dissolve the Company in accordance with the laws of the State of
Delaware and cause its withdrawal from all jurisdictions in which it is
authorized to do business.
4. Conversion of Assets Into Cash or Other Distributable Form
Subject to approval by the Board of Directors, the officers, employees
and agents of the Company, shall, as promptly as feasible, proceed to
collect all sums due or owing to the Company, to sell and convert into cash
any and all corporate assets and, out of the assets of the Company, to pay,
satisfy and discharge or make adequate provision for the payment,
satisfaction and discharge of all debts and liabilities of the Company
pursuant to Section 2 above, including all expenses of the sale of assets
and of the liquidation and dissolution provided for by the Plan.
5. Professional Fees and Expenses
It is specifically contemplated that the Board of Directors may
authorize the payment of a retainer fee to a law firm or law firms selected
by the Board for legal fees and expenses of the Company, including, among
other things, to cover any costs payable pursuant to the indemnification of
the Company's officers or members of the Board provided by the Company
pursuant to its Certificate of Incorporation and Bylaws or the DGCL or
otherwise.
In addition, in connection with and for the purpose of implementing
and assuring completion of this Plan, the Company may, in the absolute
discretion of the Board of Directors, pay any brokerage, agency and other
fees and expenses of persons rendering services to the Company in
connection with the collection, sale, exchange or other disposition of the
Company's property and assets and the implementation of this Plan.
6. Indemnification
The Company shall continue to indemnify its officers, directors,
employees and agents in accordance with its Certificate of Incorporation
and Bylaws and any contractual arrangements, for actions taken in
connection with this Plan and the winding up of the affairs of the Company.
The Board of Directors, in its absolute discretion, is authorized to obtain
and maintain insurance as may be necessary, appropriate or advisable to
cover the Company's obligations hereunder.
7. Liquidating Trust
The Board of Directors may establish a Liquidating Trust (the
"LIQUIDATING TRUST") and distribute assets of the Company to the
Liquidating Trust. The Liquidating Trust may be established by agreement
with one or more Trustees selected by the Board. If the Liquidating Trust
is established by agreement with one or more Trustees, the trust agreement
establishing and governing the Liquidating Trust shall be in form and
substance determined by the Board of Directors. In the alternative, the
Board may petition the Delaware Court of Chancery for the appointment of
one or more Trustees to conduct the liquidation of the Company subject to
the supervision of the Court. Whether appointed by an agreement or by the
Court, the Trustees shall in general be authorized to take charge of the
Company's property, and to collect the debts and property due and belonging
to the Company, with power to prosecute and defend, in the name of the
Company, or otherwise, all such suits as may be necessary or proper for the
foregoing purposes, and to appoint an agent under it and to do all other
acts which might be done by the Company that may be necessary, appropriate
or advisable for the final settlement of the unfinished business of the
Company.
8. Liquidating Distributions
Liquidating distributions, in cash or in kind, shall be made from time
to time after the adoption of the Plan to the holders of record, at the
close of business on the date of the filing of a Certificate of
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<PAGE> 155
Dissolution of the Company as provided in Section 2 above, of outstanding
shares of stock of the Company, according to the priorities of the various
classes of the Company's stock and pro rata in accordance with the
respective number of shares then held of record; provided that in the
opinion of the Board of Directors adequate provision has been made for the
payment, satisfaction and discharge of all known, unascertained or
contingent debts, obligations and liabilities of the Company (including
costs and expenses incurred and anticipated to be incurred in connection
with the sale of assets and complete liquidation of the Company). All
determinations as to the time for and the amount and kind of liquidations
shall be made in the exercise of the absolute discretion of the Board of
Directors and in accordance with Section 281 of the DGCL.
Any assets distributable to any creditor or stockholder of the Company
who is unknown or cannot be found, or who is under a disability and for
whom there is no legal representative, shall escheat to the state or be
treated as abandoned property pursuant to applicable state law.
9. Amendment, Modification or Abandonment of Plan
If for any reason the Company's Board of Directors determines that
such action would be in the best interests of the Company, it may amend,
modify or abandon the Plan and all action contemplated thereunder,
notwithstanding stockholder approval, to the extent permitted by the DGCL;
provided, however, that the Company will not amend or modify the Plan under
circumstances that would require additional stockholder approval under the
DGCL and the federal securities laws without complying with the DGCL and
the federal securities laws. Upon the abandonment of the Plan, the Plan
shall be void.
10. Cancellation of Stock and Stock Certificates
Following the dissolution of the Company, the Company's stock transfer
books shall be closed and the Company's capital stock and stock
certificates evidencing the Company's Preferred Stock and Common Stock will
be treated as no longer being outstanding.
11. Liquidation under Section 331 and 336 (or Sections 332 and 337, as
appropriate)
It is intended that this Plan shall be a plan of complete liquidation
within the terms of Sections 331 and 336 (or Sections 332 and 337, as
appropriate) of the Code. The Plan shall be deemed to authorize such action
as, in the opinion of counsel for the Company, may be necessary to conform
with the provisions of said Sections 331 and 336 (or Sections 332 and 337,
as appropriate).
12. Filing of Tax Forms
The appropriate officer of the Company is authorized and directed,
within thirty (30) days after the effective date of the Plan, to execute
and file a United States Treasury Form 966 pursuant to Section 6043 of the
Code and such additional forms and reports with the Internal Revenue
Service as may be appropriate in connection with this Plan and the carrying
out thereof.
4
<PAGE> 156
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, business or residence address,
principal occupation or employment at the present time and during the last five
years, the name of any corporation or other organization in which such
employment is conducted or was conducted of each director and executive officer
of the Company. Except as otherwise indicated, all of the persons listed below
are citizens of the United States. The business address of each executive
officer of the Company is Two Cielo Center, Third Floor, 1250 Capital of Texas
Highway, South, Austin, Texas 78746. Each occupation set forth below, unless
otherwise indicated, refers to employment with the Company. Directors of the
Company are indicated with an asterisk.
<TABLE>
<CAPTION>
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD
CURRENT BUSINESS ADDRESS PRESENT OCCUPATION OR EMPLOYMENT DURING THE PAST FIVE YEARS
- ------------------------ -------------------------------- -----------------------------------
<S> <C> <C>
Fred T. May*...................... Management Consultant Acting President and Chief
4553 Golf Vista Drive (self-employed); Chairman of the Executive Officer from March 1997
Austin, Texas 78730 Board since 1997; Director since until May 1997; Secretary from
1993 (except for the period from February 1994 until October 1995;
July 1993, when Fujitsu acquired retired from IBM in 1987 after
the Company, to December 1993) 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
Ryusuke Hoshikawa*................ Member of the Board, Fujitsu; 1998, Member of the Board, Group
Fujitsu Limited Group Executive Vice President Executive Vice President, LSI
1-1, Kamikodanaka 4-Chome, of Fujitsu's LSI Products Group; Group; 1996-1998, Member of the
Nakahara-ku Director since 1993 Board, Group President, Logic LSI
Kawasaki 211-88 Japan Group; 1994-1995, Group Senior Vice
(Citizen of Japan) President, Logic LSI Group;
1993-1994, General Manager, System
LSI & ASIC Design Division
Masahiro Saida*................... Senior Vice President of Various engineering and management
Fujitsu Limited Fujitsu's Computer Systems Group positions with Fujitsu, including
1-1, Kamikodanaka 4-Chome, and General Manager of Fujitsu's Deputy Group Manager of the
Nakahara-ku File Systems Division; Director Computer Systems Group; Manager of
Kawasaki 211-88 Japan since 1993 Workstation Development and General
(Citizen of Japan) Manager of Open Systems Division
Jack W. Simpson, Sr.*............. President and Chief Executive President of the Network Systems
Officer since May 1997; Director Group of Scientific-Atlanta, Inc.
since May 1997 from October 1993 until May 1997;
President of Infobyte, Inc. from
December 1992 until October 1993;
President, Mead data Central (now
Lexis-Nexis, Inc.), a wholly-owned
subsidiary of the Mead Corporation,
from 1982 to 1992
</TABLE>
I-1
<PAGE> 157
<TABLE>
<CAPTION>
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD
CURRENT BUSINESS ADDRESS PRESENT OCCUPATION OR EMPLOYMENT DURING THE PAST FIVE YEARS
- ------------------------ -------------------------------- -----------------------------------
<S> <C> <C>
Yasushi Tajiri*................... Senior Vice President of Amdahl Various management positions with
Amdahl Corporation Corporation, a wholly-owned Fujitsu, including General Manager
1250 Argues Avenue subsidiary of Fujitsu; Director of Fujitsu's Strategy and Planning
Sunnyvale, CA 94088 since 1993 Division Marketing Group, General
(Citizen of Japan) 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
II, International Operations Group
Edward F. Thompson*............... Senior Advisor to Fujitsu; Various positions with Amdahl
Fujitsu Limited Independent Board Member for or Corporation from 1976 to 1994,
3055 Orchard Drive Advisor to various Fujitsu including Chief Financial Officer
San Jose, CA 91534 subsidiaries; Director since and Corporate Secretary and
1995 Chairman of the Board of its
subsidiary, Amdahl Capital
Corporation; Director, HaL Computer
Systems, Inc. and Fujitsu Computer
Products of America, Inc.; Chairman
of the Board of Systems Integrators
Incorporated (not affiliated with
Fujitsu)
Seiichi Yoshikawa*................ Group Senior Vice President of Group Senior Vice President of
6-1, Marunouchi 1-Chome Fujitsu's External Affairs Fujitsu's Legal and Industry
Chiyoda-ku Tokyo 100 Japan Group; Director since 1996 Relations Group
(Citizen of Japan)
Francis S. (Kit) Webster III...... Chief Financial Officer and President, Nirvana Systems, Inc., a
Secretary since April 1997 PC-based securities analysis
software developer, from 1995 to
1997; President and Chief Operating
Officer of U.S. Medical Products,
Inc. from 1992 to 1994; and Senior
Vice President and Chief Financial
Officer of Continuum
Joe D. Jones...................... Vice President of Operations Vice President of hyperSPARC(TM)
since 1995 Operations from 1993 to 1995;
Director of Quality Assurance from
1991 to 1993
Carter L. Godwin.................. Chief Accounting Officer and Accounting Manager from 1993 to
Corporate Comptroller since August 1995; Financial Analyst from
August 1995 1992 until December 1992
</TABLE>
I-2
<PAGE> 158
SCHEDULE II
DIRECTORS AND EXECUTIVE OFFICERS OF FUJITSU
The following table sets forth the name, business or residence address,
principal occupation or employment at the present time and during the last five
years, and the name of any corporation or other organization in which such
employment is conducted or was conducted, of each executive officer of Fujitsu
and each person carrying out functions in Fujitsu similar to that of a director
in a United States corporation. Other than Mr. Hoshikawa, who holds (i) a single
share of the Company's common stock that was issued to him at the time of the
Company's initial public offering and (ii) an unexercised option to acquire up
to 14,000 shares of the Company's common stock, none of the persons listed below
owns any securities of the Company or right to acquire any such securities. Each
of the persons listed below is a citizen of Japan and in each case, unless
otherwise indicated, occupation refers to employment with Fujitsu. The business
address of each of the persons listed below is Fujitsu Limited, Marunouchi
Center Building, 6-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100, Japan, unless
otherwise set forth below.
<TABLE>
<CAPTION>
PRESENT OCCUPATION MATERIAL POSITIONS HELD
NAME OR EMPLOYMENT DURING THE PAST FIVE YEARS
---- ------------------ --------------------------
<S> <C> <C>
Tadashi Sekizawa Chairman 1998, Chairman; 1993-1998, President and
Representative Director
Michio Naruto Vice Chairman 1998, Vice Chairman; June 1997,
Executive Vice President, in charge of
Legal & Industry Relations, Strategic
Products Export Control, External
Affairs Group; March 1997, Executive
Vice President, in charge of Legal &
Industry Relations, Strategic Products
Export Control, and ICL Business Group,
Group President of China Project
Promotion Group, Group President of
External Affairs Group; 1994-1997,
Executive Vice President, in charge of
Legal & Industry Relations, ICL Business
Group and China Project Promotion Group;
1993-1994, Senior Vice President, Group
President Legal & Industry Relations and
ICL Business Group.
Naoyuki Akikusa President and Representative 1998, President; 1997-1998, Executive
Director Vice President, Group President, China
Project Promotion Group, Group
President, Software & Service Business
Promotion Group, Group President, ITS
Business Promotion Group and in charge
of ICL Business Group; 1996-1997,
Executive Vice President, Group
President, Software & Service Business
Promotion Group, Group President, ITS
Business Group, in charge of Large Scale
Projects Promotion Headquarters;
1994-1996, Executive Vice President,
Group President, Kansai Regional Sales
Group; 1993-1994, Executive Vice
President, Group President, System
Business Group.
Takesi Maruyama Senior Executive Vice President June 1998, Senior Executive Vice
and Representative Director President, in charge of all information
technology businesses within the Fujitsu
Group, Network Business Group; November
1997, Executive Vice President, in
charge of all information
</TABLE>
II-1
<PAGE> 159
<TABLE>
<CAPTION>
PRESENT OCCUPATION MATERIAL POSITIONS HELD
NAME OR EMPLOYMENT DURING THE PAST FIVE YEARS
---- ------------------ --------------------------
<S> <C> <C>
technology businesses within the Fujitsu
Group, Network Business Group and of
Corporate Manufacturing Systems
Engineering Group; June 1997, Executive
Vice President, in charge of all
information technology businesses within
the Fujitsu Group, Group President,
Network Business Group and in charge of
Corporate Manufacturing Systems
Engineering Group; December 1996,
Executive Vice President, in charge of
all information technology businesses
within the Fujitsu Group; June 1996,
Executive Vice President, Information
Processing, Corporate Manufacturing
Systems Engineering, Group President,
Client Server Business Group; October
1995, Executive Vice President, Group
President, Client Server Systems Group;
June 1995, Executive Vice President,
Group President, Client Server Business
Group; 1994-1995, Senior Vice President,
Group President, Client Server Business
Group; 1993-1994, Member of the Board,
Group Executive Vice President, System
Business Promotion Group.
Masuo Tanaka Senior Executive Vice President 1998, Senior Executive Vice President,
and Representative Director in charge of all sales activities
related groups within Fujitsu Limited;
1996-1998, Executive Vice President,
Group President, Customer Satisfaction
Group, Group President, Sales Group,
Banking, Insurance & Securities;
1994-1996, Senior Vice President, Group
President, Electronic Devices Group;
1993-1994, Senior Vice President, Group
President, International Marketing
Group.
Keizo Fukagawa Senior Executive Vice 1998, Senior Executive Vice President,
President, Representative in charge of all administrative
Director and Chief Financial departments within Fujitsu Limited;
Officer 1993-1998 Chief Financial Officer;
1996-1998, Executive Vice President;
1993-1996, Senior Vice President.
Michio Fujisaki Executive Vice President 1997-1998, Executive Vice President, in
charge of all telecommunication business
within Fujitsu Limited, in charge of
Space Technology Development Group,
Kawasaki Research and Manufacturing
Facilities, Defense Systems Group,
Integrated Information Network Systems
Group, Network Business Group;
1996-1997, Executive Vice President,
Group President, Communication Systems
Group & Group President,
Telecommunication Network Systems Group;
1995-1996, Senior Vice President, Group
President,
</TABLE>
II-2
<PAGE> 160
<TABLE>
<CAPTION>
PRESENT OCCUPATION MATERIAL POSITIONS HELD
NAME OR EMPLOYMENT DURING THE PAST FIVE YEARS
---- ------------------ --------------------------
<S> <C> <C>
Telecommunication Network Systems Group;
1994-1995, Senior Vice President, Group
President, Telecommunication Network
Systems Group, Group Executive Vice
President, Communication Systems Group;
1993-1994, Member of the Board, Group
President, Telecommunication Network
Systems Group, Group Executive
VicePresident, Communication Systems
Group.
Takamitsu Tsuchimoto Executive Vice President 1997-1998, Executive Vice President,
Group President, CAD Group, Group
President, Administration & Business
Promotion Group, Electronic Devices, in
charge of LCD Group; 1996-1997, Senior
Vice President, Group President, CAD
Group, Group President, Administration &
Business Promotion Group, Electronic
Devices; 1994-1996, Member of the Board,
Group President, Logic LSI Group & CAD
Group; 1993-1994, Member of the Board,
Group President, Technology Group.
Ryuzo Kawakami Senior Vice President 1996-1998, Senior Vice President, Group
President, Kansai Regional (Western
Japan) Sales Group; 1995-1996, Member of
the Board, Group President, Industrial
Services Group & Group President,
Customer Satisfaction Group; 1994-1995,
Member of the Board, Group President,
Sales Group; 1993-1994, Member of the
Board, Group Executive Vice President,
Sales Group.
Hiroaki Sakai Senior Vice President July 1998, Senior Vice President, in
charge of all software and service
business within Fujitsu; Leader of
Unified Information Center, Group
President, Software & Service Business
Promotion Group, Group President, ICL
Business Group; June 1998, Senior Vice
President, in charge of all software and
service business within Fujitsu, Group
President, Software & Service Business
Promotion Group, Group President, ICL
Business Group; 1997-1998, Senior Vice
President, Group President, Network
Service Group, Group President, ICL
Business Group, Group Executive Vice
President, Software & Service Business
Promotion Group; 1996-1997, Senior Vice
President, Group President, Network
Service Business Group, Group Executive
Vice President, Systems Business Group,
Group Executive Vice President,
Large-Scale Projects Promotion
Headquarters; 1994-1996, Member
</TABLE>
II-3
<PAGE> 161
<TABLE>
<CAPTION>
PRESENT OCCUPATION MATERIAL POSITIONS HELD
NAME OR EMPLOYMENT DURING THE PAST FIVE YEARS
---- ------------------ --------------------------
<S> <C> <C>
of the Board, Group Executive Vice
President, Systems Integration Group;
1993-1994, Member of the Board, Group
Executive Vice President, Systems
Engineering Group & Group Executive Vice
President, International Computer
Business Group.
Toru Katsurada Senior Vice President 1996-1998, Senior Vice President;
1995-1998, Group President,
Eastern-Japan Regional Sales Group;
1993-1995, Member of the Board; 1994,
(in charge of Personnel, Employee
Relations, Personnel Development,
General Affairs, Public Relations);
1993, (in charge of Public Relations,
General Affairs, Personnel, Employee
Relations), General Manager, Corporate
Planning Division.
Akira Takashima Senior Vice President 1998, Senior Vice President, in charge
of Legal & Industry Relations, Group
President, External Affairs Group; 1997,
Senior Vice President, Group President,
External Affairs Group; 1996, Corporate
Adviser, Nihon Research Institute, and
Corporate Adviser, The Sumitomo Marine &
Fire Insurance Co., Ltd.; 1995,
Corporate Adviser, The Mechanical Social
Systems Foundation; 1994, Director
General, Patent Office, Ministry of
International Trade and Industry; 1993,
Director, Environmental Protection and
Industrial Location Bureau, Ministry of
International Trade and Industry.
Yoshiro Yoshioka Senior Vice President 1998, Senior Vice President (since 1997)
Group President, Strategy and Planning
Group; 1996-1998, Group President,
Computer Systems Group; 1994-1997, HAL
Computer Systems, Inc., President & CEO,
Acting Chairman (US resident);
1993-1996, Member of the Board;
1993-1995, Group President, Open Systems
Group.
Kazunari Shirai Senior Vice President 1998, Senior Vice President, Group
President, LSI Group; 1997-1998, Senior
Vice President, Group President, LSI
Manufacturing Group; 1996-1997, Member
of the Board, Group President, Memory
Devices Group, Group Executive Vice
President, Logic LSI Group; 1994-1996,
Member of the Board, Group President,
2nd Semiconductor Development Group &
Group Executive Vice President, 1st
Semiconductor Development Group;
1993-1994, Member of the Board, Group
President, Administration & Business
Promotion Group, Electronic Devices.
Tatsuhiko Otaki Senior Vice President 1998, Senior Vice President, Group
President, Corporate Operations
Management Group,
</TABLE>
II-4
<PAGE> 162
<TABLE>
<CAPTION>
PRESENT OCCUPATION MATERIAL POSITIONS HELD
NAME OR EMPLOYMENT DURING THE PAST FIVE YEARS
---- ------------------ --------------------------
<S> <C> <C>
Group President, Information Processing
Administration Group, Division Leader,
CALS Project Promotion Division, Group
Leader, Corporate Manufacturing Systems
Engineering Group, in charge of Kawasaki
factory; 1997-1998, Senior Vice
President, Group President, Information
Processing Administration Group;
1996-1997, Member of the Board, Group
President, Information Processing
Administration Group; 1994-1996, Member
of the Board, Group Executive Vice
President, Information Processing
Administration Group; 1993-1994, Group
Senior Vice President, Information
Processing Administration Group (in
charge of Management &
Administration),General Manager,
Administration Division, Personal
Systems Group.
Kazuto Kojima Senior Vice President 1998, Senior Vice President, Group
President, Marketing Group, Group
President, International Computer
Business Group; 1996-1998, Member of the
Board, Group President, International
Computer Business Group; 1994-1996,
Member of the Board, Group President,
Corporate Marketing & Strategy & Group
President, Digital Media Group;
1993-1994, General Manager, Corporate
Marketing & Strategy.
Akio Moridera Senior Vice President October 1998, Senior Vice President,
Group President, Mobile Phones Group,
Group Executive Vice President,
Telecommunication Network Systems Group;
June 1998, Senior Vice President, Group
President, Mobile Communication &
Wireless Systems Group; 1996-1998,
Member of the Board, Group President,
Mobile Communication & Wireless Systems
Group, Group Executive Vice President,
China Project Promotion Group;
1995-1996, Member of the Board, Group
President, Mobile Communication & Access
Systems Group; Group Executive Vice
President, China Project Promotion
Group; 1994-1995, Group Senior Vice
President, Telecommunications Network
Systems Group (in charge of Switching
Systems); 1993-1994, Group Senior Vice
President, Integrated Communication
Systems Group.
Tadayasu Sugita Senior Vice President 1998, Senior Vice President, Group
President, Personal Systems Business
Group; 1995-1998, Member of the Board,
Group President, Personal Systems
Business Group; 1994-1995, Group Senior
Vice President, Personal
</TABLE>
II-5
<PAGE> 163
<TABLE>
<CAPTION>
PRESENT OCCUPATION MATERIAL POSITIONS HELD
NAME OR EMPLOYMENT DURING THE PAST FIVE YEARS
---- ------------------ --------------------------
<S> <C> <C>
Systems Business Group; 1993-1994,
President, Fujitsu Personal Systems,
Inc.
Isao Suzuki Senior Vice President 1998, Senior Vice President, Group
President, Tokyo Regional Sales Group,
Group Executive Vice President,
Marketing Group, General Manager, Dealer
Support Department; 1997-1998, Member of
the Board, Group President, Tokyo
Regional Sales Group, Group Executive
Vice President, Marketing Group General
Manager, Dealer Support Department;
1994-1997, Group President, Tokyo
Branch, Capital Regional Sales Group;
1993-1994, General Manager, Sales
Division, Distribution & Service, Sales
Group.
Kunihiko Sawa Member of the Board 1998, Member of the Board of Fujitsu
Ltd., President and Representative
Director of Fuji Electric Co., Ltd.;
1993-1997, Various engineering and
management positions with Fuji Electric
Co., Ltd., including Vice President and
Representative Director.
Hiroshi Oshima Member of the Board October 1997-1998, Member of the Board,
Group President, Sales Group, Banking,
Insurance & Securities, Group President,
Sales Group, Customer Satisfaction
Group, Group President, Sales Group,
Credit & Leasing Industry; June 1997,
Member of the Board, Group President,
Sales Group, Banking, Insurance &
Securities, Group President, Sales
Group, Customer Satisfaction Group;
1994-1997, Member of the Board, Group
President, Western-Japan Regional Sales
Group; 1993-1994, General Manager,
Kyushu Branch, Western-Japan Regional
Sales Group.
Yuji Hirose Member of the Board 1998, Member of the Board, Group
Executive President, Software & Service
Business Promotion Group, Group
President, ITS Business Group, in charge
of Consumer Transaction Systems Group;
1996-1998, Member of the Board, Group
President, Systems Engineering Group;
1994-1996, Member of the Board, Group
President, Branch & Sales Office
Business Group; 1993-1994, General
Manager, Eastern Region System
Engineering Division, System Engineering
Group.
Tatsuzumi Furukawa Member of the Board 1998, Member of the Board, Group
President, Package System Group, Group
President, Network & Contents Business
Group, Group Executive Vice President,
Software Group; 1996-1998, Member of the
</TABLE>
II-6
<PAGE> 164
<TABLE>
<CAPTION>
PRESENT OCCUPATION MATERIAL POSITIONS HELD
NAME OR EMPLOYMENT DURING THE PAST FIVE YEARS
---- ------------------ --------------------------
<S> <C> <C>
Board, Group President, Package Systems
Group, Group President, Multimedia &
Digital Media Business Group, Group
Executive Vice President, Software
Group; 1994-1996, Member of the Board,
Group President, Middleware Group &
Group President, Multi-Media Project
Promotion Group; 1993-1994, Group
President, Middleware Group.
Takashi Takaya Member of the Board 1998, Member of the Board, in charge of
Finance, Accounting Divisions, and
Corporate Planning & Business
Development; 1996-1998, Member of the
Board, General Manager, Finance
Division, General Manager, Corporate
Marketing & Strategy; 1995-1996, Member
of the Board, General Manager, Finance
Division & General Manager, Accounting
Division; 1993-1995, Group President,
Administration & Business Operation
Group, Electronic Devices.
Ryusuke Hoshikawa Member of the Board 1998, Member of the Board, Group
Executive Vice President, LSI Group;
1996-1998, Member of the Board, Group
President, Logic LSI Group; 1994-1995,
Group Senior Vice President, Logic LSI
Group; 1993-1994, General Manager,
System LSI & ASIC Design Division
Production Group, Electronic Devices.
Junji Maeyama Member of the Board 1996-1998, Member of the Board, Group
President, Software Group; 1994-1996,
Group Senior Vice President, Global
Server Group; 1993-1994, General
Manager, Software Department,
Information Systems Group.
Hiroya Madarame Member of the Board 1998, Member of the Board, Group
President, Outsourcing Group; 1996-1997,
Member of the Board, Group Executive
Vice President, Systems Engineering
Group; 1995, General Manager, Systems
Engineering Division I, Systems
Integration Group; 1993-1994, General
Manager, Systems Engineering Division I,
Systems Engineering Group.
Masaru Takei Member of the Board 1997-1998, Member of the Board, Group
President, Sales Group -- Industries,
Group President, Sales
Group -- Distribution & Information
Systems; 1996-1997, Member of the Board,
Group President, Sales Group --
Industries; 1994-1996, General Manager,
System Engineering Division II, System
Integration Group; 1993-1994, General
Manager, System Engineering Division II,
System Engineering Group.
</TABLE>
II-7
<PAGE> 165
<TABLE>
<CAPTION>
PRESENT OCCUPATION MATERIAL POSITIONS HELD
NAME OR EMPLOYMENT DURING THE PAST FIVE YEARS
---- ------------------ --------------------------
<S> <C> <C>
Tatsushi Miyazawa Member of the Board 1998, Member of the Board, Group
President, Computer Systems Group; 1996-
1998, Member of the Board, Group
Executive Vice President, Computer
Systems Group; 1994-1996, Group Senior
Vice President, Global Server Systems
Group; 1993-1994, General Manager,
Mainframe Division, Computer Systems
Group.
Kazuo Murano Member of the Board 1996-1998, Member of the Board;
1996-1998, Group Executive Vice
President, Telecommunication Network
Systems Group; 1996, General Manager,
Optical Access Systems Division,
Telecommunication Network Systems Group;
1995, General Manager, Access Network
Systems Division, Mobile Communication &
Access Systems Group; 1993-1995, Member
of the Multimedia Business Development
Group; 1993-1994, General Manager,
Technology Division, Fujitsu
Laboratories, Inc.; 1993, Member of
Multimedia Business Development
Division, Middleware Group; 1993,
General Manager, Technology Division,
Multimedia Systems Laboratories, Fujitsu
Laboratories, Inc., Program Products
Group, Vice General Manager,
Communication and Space Division,
Fujitsu Laboratories, Kawasaki, Fujitsu
Laboratories, Ltd.
Noboru Ogi Member of the Board 1997-1998, Member of the Board;
1994-1998, Group President, Technology
Group; 1993, General Manager, Technology
Development Department, Technology
Group.
Hidetoshi Shibagaki Member of the Board 1998, Member of the Board, Group
President, Consumer Transaction Systems
Group; 1996-1998, Group President,
Branch & Office Business Group;
1994-1996, Group Executive Vice
President, Branch & Office Business
Group; 1993-1994, General Manager,
Retail Terminal Systems Division,
Computer Systems Group.
</TABLE>
II-8
<PAGE> 166
SCHEDULE III
DIRECTORS AND EXECUTIVE OFFICERS OF THE BUYER
The following table sets forth the name, business or residence address,
principal occupation or employment at the present time and during the last five
years, the name of any corporation or other organization in which such
employment is conducted or was conducted of, and the aggregate amount and
percentage of the Company's Common Stock beneficially owned by, each person who
is expected be a director or executive officer of the Buyer as of the closing of
the Sale of Assets. No director or executive officer of Buyer beneficially owns
1% or more of the Company's Common Stock. All of the persons listed below are
citizens of the United States. The business address of each executive officer of
the Buyer is 4007 Commercial Center Drive, Austin, Texas 78744. Each occupation
set forth below, unless otherwise indicated, refers to employment with the
Buyer. Directors of the Buyer are indicated with an asterisk.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND CURRENT PRESENT OCCUPATION OR MATERIAL POSITIONS HELD --------------------
BUSINESS ADDRESS EMPLOYMENT DURING THE PAST FIVE YEARS OPTIONS(A) TOTAL
---------------- ---------------------- -------------------------- ---------- ------
<S> <C> <C> <C> <C>
Joe D. Jones*......... President and Chief Vice President of 0 80,001
Executive Officer Operations of the Company
from 1995 to 1998 and
Director of Quality
Assurance of the Company
from 1991 to 1995.
Ray Pixley............ Vice President of Vice President of 0 10,000
Engineering and Strategic Purchasing of
Secretary the Company from 1996;
Division/Manufacturing
Engineering Manager for 3M
from 1993 to 1996.
Tim Vlach............. Vice President of Vice President of 4,545 500
Manufacturing Production Control and
Manufacturing of the
Company from 1991 to 1998.
Everett Hoskins....... Vice President of Director of Sales and 0 0
Sales and Marketing Marketing of DS4, Inc.
from 1997 to 1998;
Business Team Manager of
Texas Instruments from
1995 to 1996, and
Consultant, Hill Audio
Ltd./Web
Instruments -- start up
freelance consultant from
1992 to 1995.
Barbara Lee........... Chief Financial Acting Controller, 0 0
Officer Cypress/Cirrus Logic from
1990 to August 1998.
</TABLE>
III-1
<PAGE> 167
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND CURRENT PRESENT OCCUPATION OR MATERIAL POSITIONS HELD --------------------
BUSINESS ADDRESS EMPLOYMENT DURING THE PAST FIVE YEARS OPTIONS(A) TOTAL
---------------- ---------------------- -------------------------- ---------- ------
<S> <C> <C> <C> <C>
Clive Barton*......... President of FED President of Cypress 0 0
FED Corporation Corporation since 1994 Semiconductor, Inc. (Round
1580 Route 52 Rock, Texas) from 1989 to
Hopswell Junction, NY 1994.
12533
Dave Sargent*......... President and Chief Regional Vice President of 0 0
Growth Capital Operating Officer of new business at
Partners Growth Capital Prudential-Bache
363 N. Sam Houston Partners of Houston, Securities from 1984 to
Parkway E. Texas since 1992 1992.
Suite 455
Houston, TX 77060
Jack Baum*............ President of Engles President and Founder of 0 0
EUFCC Capital Urso Follmer Capital Dallas-based Canyon Cafe
3811 Turtle Creek Corporation since May from 1989 to 1998.
Blvd. 1998
Suite 1300
Dallas, TX 75219
</TABLE>
- ---------------
(a) Includes shares of the Company's Common Stock which the executive officers
and directors have the right to acquire within 60 days of October 15, 1998.
III-2
