SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-27016
ROSS Technology, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 74-2507960
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5316 Highway 290 West, Suite 500
Austin, Texas 78735-8930
(512) 436-2000
(Address and Telephone Number of Principal Executive Offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Number of shares outstanding of each of the issuer's classes of common stock
$.001 par value, as of January 1, 1998: 23,474,846 shares.
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2
ROSS TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
THREE MONTHS ENDED DECEMBER 29, 1997
INDEX
<TABLE>
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Page
<S> <C>
Title Page .............................................................................................. 1
Index ................................................................................................... 2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets - December 29,
1997, and March 31, 1997 .................................................................... 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended December 29, 1997, and December 30, 1996......................... 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended December 29, 1997, and December 30, 1996................................... 5
Notes to Condensed Consolidated Financial Statements ........................................ 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................................................... 8
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings ......................................................................17
ITEM 2. Changes in Securities ................................................................. 18
ITEM 3. Defaults Upon Senior Securities ...................................................... 18
ITEM 4. Submission of Matters to a Vote of Security-Holders ....................................18
ITEM 5. Other Information ..................................................................... 18
ITEM 6. Exhibits and Reports on Form 8-K ...................................................... 19
SIGNATURES ............................................................................................ 20
</TABLE>
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3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
December 29, March 31,
1997 1997
------------ ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ................................................. $ 395 $ 2,811
Trade accounts receivable, net allowance of $1,820 and $1,555, respectively 6,695 11,297
Receivable from Fujitsu ................................................... 6,781 3,320
Inventory ................................................................. 15,150 16,308
Prepaid expenses and other assets ......................................... 2,631 3,331
--------- ---------
Total current assets .............................................. 31,652 37,067
Property and equipment, net ................................................. 16,426 17,752
--------- ---------
Total assets ................................................................ $ 48,078 $ 54,819
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable .................................................... $ 8,434 $ 19,194
Accrued liabilities ....................................................... 4,145 8,307
Payable to Fujitsu ........................................................ 4,020 4,043
Notes payable ............................................................. 10,000 43,500
--------- ---------
Total current liabilities ......................................... 26,599 75,044
Stockholders' equity:
Preferred stock ........................................................... 49,508 --
Common stock .............................................................. 23 23
Additional paid-in capital ................................................ 82,575 82,564
Accumulated deficit ....................................................... (109,376) (101,561)
--------- ---------
22,730 (18,974)
Less treasury stock ......................................................... (1,251) (1,251)
--------- ---------
Total stockholders' equity ........................................ 21,479 (20,225)
--------- ---------
Total liabilities and stockholders' equity.................................... $ 48,078 $ 54,819
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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4
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
December 29, December 30, December 29, December 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales ................................... $ 14,269 $ 19,440 $ 37,554 $ 71,549
Cost of sales ............................... 8,679 52,175 29,917 83,001
-------- -------- -------- --------
Gross profit (loss) ....................... 5,590 (32,735) 7,637 (11,452)
Operating expenses:
Research and development, net ............. 1,490 6,938 2,884 20,427
Selling, general and administrative ....... 3,633 12,040 10,768 23,014
Amortization of goodwill .................. -- 272 -- 816
Total operating expenses .............. 5,123 19,250 13,652 44,257
Income (loss) from operations ......... 467 (51,985) (6,015) (55,709)
Interest expense,net......................... (216) (622) (1,800) (515)
-------- -------- -------- --------
Income (loss) before income taxes ..... 251 (52,607) (7,815) (56,224)
Income tax (benefit) ........................ -- (17,364) -- (18,630)
-------- -------- -------- --------
Net income (loss) ..................... $ 251 $(35,243) $ (7,815) $(37,594)
======== ======== ======== ========
Net income (loss) applicable to
common shareholders ................... $ 251 $(35,243) $ (7,815) $(37,594)
======== ======== ======== ========
Net income (loss) per share:
Basic ................................. $ .01 $ (1.51) $ (0.33) $ (1.62)
======== ======== ======== ========
Diluted ............................... $ .01 $ (1.51) $ (0.33) $ (1.62)
======== ======== ======== ========
Weighted average common shares outstanding:
Basic ................................. 23,471 23,389 23,456 23,262
======== ======== ======== ========
Diluted ............................... 43,582 23,389 23,456 23,262
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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5
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
December 29, December 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) .................................................................. $ (7,815) $(37,594)
Adjustments to reconcile net (loss) to
cash used in operating activities:
Depreciation and amortization ............................................. 4,291 4,652
Change in assets and liabilities:
Trade accounts receivable ............................................... 4,602 (3,027)
Receivable from Fujitsu ................................................. (3,461) 2,753
Inventory ............................................................... 1,158 13,968
Deferred tax asset ...................................................... -- (16,832)
Prepaid expenses ........................................................ 1,352 (6,513)
Trade accounts payable .................................................. (10,760) 10,940
Payable to Fujitsu ...................................................... (23) (13,670)
Accrued liabilities ..................................................... (4,162) (711)
-------- --------
Net cash used in operating activities ................................. (14,818) (46,034)
-------- --------
Cash flows from investing activities:
Capital expenditures ........................................................ (3,617) (3,658)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock ...................................... 11 136
Proceeds from issuance of Series B preferred stock, net ..................... 49,508 --
Proceeds from borrowings on notes payable ................................... (33,500) 31,772
------- --------
Net cash provided by financing activities ............................... 16,019 31,908
-------- --------
Net decrease in cash and cash equivalents ............................... (2,416) (17,784)
Cash and cash equivalents at beginning of period .............................. 2,811 17,941
-------- --------
Cash and cash equivalents at end of period .................................... $ 395 $ 157
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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6
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) FINANCIAL STATEMENT PRESENTATION
The financial statements of ROSS Technology, Inc. and subsidiary (the
"Company") included herein 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. 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 included in
the Company's filing with the SEC on Form 10-K for the fiscal year ended March
31, 1997. The results for interim periods are not necessarily indicative of the
results for the respective fiscal years.
(2) INVENTORIES
December 29, March 31,
1997 1997
---- ----
Die bank $ 2,772 $ 4,496
Work-in-process 9,842 6,236
Finished goods 2,536 5,576
----- -----
$ 15,150 $ 16,308
========= =========
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.
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7
(3) NOTES PAYABLE
In November 1996, the Company established a credit facility (the "DKB
Facility") with The Dai-Ichi Kangyo Bank, Limited ("DKB"). The DKB Facility has
been modified and currently provides a $20 million maximum unsecured line of
credit. The Company's majority stockholder, Fujitsu Limited ("Fujitsu"),
provided a guaranty, through March 31, 1998, to DKB with respect to $20 million
of the DKB Facility. The interest rate payable on the DKB Facility is at DKB's
stated rate, which at December 29, 1997, was 6.2375%. As of December 29, 1997,
the Company's outstanding unpaid principal balance under the DKB Facility was
$10 million.
(4) INCOME (LOSS) PER SHARE
For the three and nine month periods ended December 30, 1996, options
totaling 963,271 were excluded from the computation of diluted "Income (loss)
per share" because they would have been antidilutive for those periods.
Similarly, for the three and nine month periods ended December 29, 1997, options
totaling 1,527,892 and 1,899,049, respectively, were excluded from the
computation of diluted "Income (loss) per share" because they would have been
antidilutive for those periods. Certain reclassifications have been made to
prior financial statements reflecting the adoption of FAS 128.
The following tables provide a reconciliation of basic income (loss)
per share and diluted EPS (in thousands, except per share data):
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended December 29, 1997 Ended December 30,1996
----------------------- ----------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ................... $ 251 $ (35,243)
Basic EPS ........................... 251 23,471 $ .01 $ (35,243) 23,389 $ (1.51)
======= ========
Effect of Dilutive Securities:
Preferred stock ..................... -- 20,000 -- --
Options ............................. -- 111 -- --
-------- -------- ---------- --------
Diluted EPS ......................... $ 251 43,582 $ .01 $ (35,243) 23,389 $ (1.51)
======== ======== ======= ========== ======== ========
</TABLE>
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8
<TABLE>
<CAPTION>
For the Nine Months For the Nine Months
Ended December 29, 1997 Ended December 30,1996
----------------------- ----------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net loss $ (7,815) $ (37,594)
Basic EPS (7,815) 23,456 $ (.33) (37,594) 23,262 $ (1.62)
======= ========
Effect of Dilutive Securities:
Preferred stock -- -- -- --
Options -- -- -- --
-------- -------- ---------- --------
Diluted EPS $ (7,815) 23,456 $ (.33) $ (37,594) 23,262 $ (1.62)
======== ======== ======= ========== ======== ========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Statement
This Quarterly Report contains forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995, with respect to
the financial condition, results of operations and business of ROSS Technology,
Inc. and its subsidiary (collectively, unless the context otherwise requires,
"ROSS", the "Company", or the "Registrant"). Such statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially and adversely from those set forth in the forward-looking statements,
including without limitation, the availability of financial resources adequate
to the Company's short-, medium- and long-term needs, including renewal of its
present loan and loan guaranty arrangements; the Company's dependence on the
timely development, pre-production qualification, manufacture, introduction and
customer acceptance of new higher speed, higher-margin products, including its
'Colorado 5' and 'Viper' microprocessor product; the ability to identify and
access the 32-bit upgrade market; and the impact on revenue, margins and
inventories of rapidly changing technology. Additional risks and uncertainties
include the ability of the Company to successfully implement its strategy of
diversifying into the system products business and the business of supplying
Java-related products; the various effects on revenue, margins, inventories and
operating expenses of repositioning the Company's product lines and overall
business; the effects of building and maintaining product inventories in the
Company's hands and in its distribution channels; product return and credit
risks with distributors, resellers and other customers; the Company's dependence
on distributors and resellers for certain product sales to end-users;
competition, downward pricing pressures and allocations of product among
different distribution channels; the effects of routine price
<PAGE>
9
degradation over time in each of the Company's product lines; varying
customer demand for the Company's products; supply and manufacturing constraints
and costs; the Company's dependence on outside suppliers for wafer fabrication
and raw materials, components and certain manufacturing services; changes in
plans, programs or expenses for research, development, sales or marketing; the
Company's ability to build and maintain adequate staff infrastructures in the
areas of microprocessor design, product engineering and development, sales and
marketing, finance, accounting, and administration; supplier disputes; customer
warranty claims; general economic conditions; and the other risks and
uncertainties described from time to time in the Company's public announcements
and Securities and Exchange Commission filings, including without limitation the
Company's Current, Quarterly, and Annual Reports on Forms 8-K, 10-Q, and 10-K,
respectively. The Company cautions that the foregoing list of important factors
is not exclusive. The Company does not undertake to update any written or oral
forward-looking statement that may be made from time to time by or on behalf of
the Company.
The information contained in this Quarterly Report is not a complete
description of the Company's business or of the risks associated with an
investment in the Company. More complete discussions can be found in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997,
as supplemented by the information contained in subsequent Quarterly Reports on
Forms 10-Q, the Current Report on Form 8-K dated September 30, 1997, and this
Quarterly Report.
RESULTS OF OPERATIONS
Net Sales. Net sales in the three-month period ended December 29, 1997,
of the fiscal year ending March 30, 1998 ("fiscal 1998") decreased 26.6% to
$14.3 million from $19.4 million in the corresponding period of the fiscal year
ended March 31, 1997 ("fiscal 1997"). This was due primarily to a decline in
sales to the Company's upgrade and system customers reflecting a migration by
those customers to 64-bit products sold by the Company's competitors. Original
equipment manufacturer ("OEM") sales increased slightly during the third fiscal
quarter of 1998 over the same period in 1997.
Net sales for the nine months ended December 29, 1997, decreased 47.5%
to $37.6 million from $71.5 million in the corresponding period in fiscal 1997.
This was due primarily to a significant decline in sales to the Company's
primary OEM microprocessor chip customers, including Sun Microsystems, Inc.
("Sun"), historically the Company's largest customer, reflecting a movement by
those customers to competitors' 64-bit products as compared to the Company's
32-bit products.
Gross Profit. Gross profit as a percentage of net sales for the quarter
ended December 29, 1997, increased to 39% from a negative (168%) of net sales
for the comparable period in fiscal 1997. Improvement relative to comparative
1997 figures resulted primarily from a $37 million charge in the third quarter
of fiscal 1997 for the writedown of certain inventory necessitated by
significantly lower than expected demand for a number of the Company's
<PAGE>
10
products. In addition, gross profit was positively impacted during the
third fiscal quarter of 1998 by the Company's pricing strategy and its continued
focus on cost improvement as well as cost control measures. Likewise, gross
profit as a percentage of net sales for the nine months ended December 29, 1997,
increased to 20% from a negative (16%) for the corresponding period in fiscal
1997.
Research and Development Expense. Net research and development ("R&D")
expenses were 10.4% of net sales for the quarter ended December 29, 1997,
compared with 35.7% of net sales for the comparable period in fiscal 1997. This
decrease was primarily attributable to a net reimbursement by Fujitsu of $3.5
million in expenses relating to the Company's 64-bit Viper microprocessor
development project, pursuant to a Development Agreement between Fujitsu and the
Company (the "Viper Development Agreement"), as well as application of $1
million of payments from Fujitsu against R&D expenses pursuant to an additional
development agreement between Fujitsu and the Company to produce a 32-bit
processor "core". The Company will actually receive $4.4 million from Fujitsu
for its design efforts during the third fiscal quarter of 1998, but due to
delays in its design schedule may be subject to a $.9 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 fiscal 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.
Reflecting the same trends, R&D expenses for the nine months ended December 29,
1997, decreased to 7.7% from 28.5% in the corresponding period in fiscal 1997.
Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expenses were 25.5% of net sales for the quarter ended
December 29, 1997, compared with 61.9% of net sales for the comparable period in
fiscal 1997. This decrease in SG&A expense is primarily attributable to a $5.8
million writeoff of doubtful accounts recorded in the comparable period in
fiscal 1997. Similarly, for the nine months ended December 29, 1997, absolute
SG&A expenses decreased to $10.8 million from $23.0 million for the
corresponding period in fiscal 1997. In addition to the $5.8 million writeoff of
doubtful accounts recorded in the third fiscal quarter of 1997, the Company
recorded a $3.4 million writeoff of doubtful accounts in the second quarter of
fiscal 1997. As a percentage of net sales, SG&A expenses for the nine months
ended December 29, 1997, remained flat relative to the prior fiscal period
reflecting a decrease in sales.
Net Interest Expense. The Company incurred net interest expense of $.2
million for the quarter ended December 29, 1997, versus $.6 million for the
quarter ended December 30, 1996, reflecting the retirement of $50 million of
debt on September 30, 1997. The Company incurred net interest expense of $1.8
million for the nine months ended December 29, 1997, versus $.5 million for the
nine months ended December 30, 1996, reflecting a higher average
<PAGE>
11
daily borrowing level during the first nine months of fiscal 1998 versus
the corresponding period in fiscal 1997. See "Liquidity and Capital Resources."
Income Tax Benefit. 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 sustained profitability.
Future Operating Results. The Company's financial condition
deteriorated significantly during fiscal 1997 and the first half of fiscal 1998;
however the third quarter of fiscal 1998 was the Company's first profitable
quarter in the last five quarters. Subsequent to the end of fiscal 1997, the
Company made significant changes to the senior management team to assess the
Company's business and to implement changes necessary to restore the Company to
a sound financial condition. Notwithstanding such changes, there is no assurance
that the Company's improved profitability can be maintained. As indicated below,
the Company's management believes that it is doubtful that the Company will
achieve an operating profit during the fourth fiscal quarter.
The Company depends solely upon its majority stockholder, Fujitsu, for
additions to capital necessary to continue its operations. On September 30,
1997, the Company concluded a recapitalization transaction with Fujitsu whereby
the Company issued 500,000 shares of a new Series B Convertible Preferred Stock
to Fujitsu and Fujitsu paid $50 million on behalf of the Company to DKB in
partial payment of the Company's outstanding indebtedness to DKB and in
satisfaction of Fujitsu's obligation pursuant to certain loan guaranties
provided by Fujitsu to DKB. In connection with the recapitalization transaction,
Fujitsu provided a guaranty for a $20 million line of credit from DKB. $10
million of such line of credit had been borrowed by the Company as of December
29, 1997; since that date the Company has borrowed an additional $3 million
under the line of credit. The Company is pursuing the extension of the guaranty
and renewal of the line of credit, which will expire on March 31, 1998, and
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 absence of a renewal or extension of the guaranty, the Company may not be
able to secure an adequate level of debt financing. See "Liquidity and Capital
Resources."
During the nine months ended December 29, 1997, the Company failed to
timely meet certain of the milestones set forth in the Viper Development
Agreement. Fujitsu and the Company amended such Agreement to provide for a
redefinition of the deliverables associated with such milestones. Given delays
to date and the overall risks inherent in complex developments such as that
undertaken by the Company pursuant to the Viper Development Agreement, there can
be no assurance that the Company will achieve future milestones in a timely
manner or that, if such milestones are not achieved, Fujitsu will agree to waive
or postpone them. The Company is pursuing amendment of the Agreement to reflect
a change in definition of the next milestone.
<PAGE>
12
The Company believes that the development of the Viper product is
approximately 90 days behind the schedule provided in the Viper Development
Agreement. If Fujitsu accepts any milestone set forth in the Viper Development
Agreement more than thirty days later than the due date set forth in that
Agreement, the Company must accrue a penalty of 10% of the payment from Fujitsu
to the Company for milestone achievement, subject to modification under certain
circumstances. Should the Company achieve First Customer Ship ("FCS") on or
before the date set forth in the Agreement, all penalties are waived. Since the
Company does not currently anticipate achieving FCS on or before the agreed
date, it has accrued penalties aggregating $.9 million for late deliveries in
the months ended December 29, 1997, which are reflected in the accompanying
financial statements. Penalties for later milestones may also be accrued if the
Company cannot accelerate its development activities.
Pursuant to the Viper Development Agreement, Fujitsu may terminate the
Agreement if its acceptance of a milestone (as defined in the Agreement) is more
than 120 days later than specified in the Agreement.
Because the Company anticipates that sales in the fourth quarter of
fiscal 1998 may be below sales in the third quarter primarily due to anticipated
decreases in sales to OEM customers, including Fujitsu; because the Company is
still ascertaining the size and accessibility of the 32-bit upgrade market;
because R&D expenses, net, will increase due to the approaching completion of
the 32-bit development project with Fujitsu; and because of uncertainties
associated with the timely achievement of Viper milestones and associated
payments from Fujitsu, the Company believes it is doubtful that it will achieve
profitability from operations during that quarter. Consistent profitability in
future quarters will be difficult to achieve prior to the delivery of the
Company's Java and Viper offerings, the timing of which is uncertain and in any
event is not assured.
The Company's operating results have in the past and may in the future vary
due to a number of factors, including availability and market acceptance of new
or enhanced versions of the Company's products (including Colorado 5 and Viper),
the Company's success in servicing existing markets and in entering new markets,
the timing and extent of product development costs, changes in the mix of
products sold and in the mix of sales by distribution channel, competitive
pricing pressures, anticipated decreases in unit average selling prices of the
Company's products, availability and cost of products (particularly silicon
wafers) from the Company's suppliers, fluctuations in manufacturing yields, the
gain or loss of significant customers, new product introductions by the Company
or the Company's competitors, the competitiveness of the SPARC architecture and
the timing of significant orders, order cancellations or rescheduling, all as
more fully described in the Company's SEC reports, including without limitation
the Annual Report on Form 10-K for fiscal 1997. Any unfavorable change in the
foregoing or other factors could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company operates in an industry characterized by increasing
competition, rapidly changing technology, and increasingly aggressive pricing.
As a result, the Company's future
<PAGE>
13
operating results will depend to a considerable extent on its ability to
rapidly and continuously develop and introduce new microprocessor technologies
that offer its customers enhanced performance at competitive prices. The
development of new high-performance computer products is a complex and uncertain
process requiring high levels of innovation from the Company's designers and
suppliers, as well as accurate anticipation of customers' requirements and
technological trends. The Company is also increasingly dependent on the ability
of its suppliers to design, manufacture, and deliver advanced components
required for the timely introduction of new products. The failure of any of
these suppliers to deliver components on time or in sufficient quantities, or
the failure of any of the Company's designers to develop advanced innovative
products on a timely basis, could result in significant adverse impact on the
Company's business, operating results and financial condition.
Once a hardware product is developed, the Company must rapidly bring it
to volume manufacturing, a process that requires accurate forecasting of both
volumes and configurations, among other things, in order to achieve competitive
yields and costs. Upon introduction of new products, the Company must also
manage the transition from older, displaced products to minimize disruptions in
customer ordering patterns, reduce levels of existing product inventory, and
ensure that adequate supplies of new products can be delivered to meet customer
demand.
Historically, average selling prices for microprocessors in general,
and for the Company's products in the time period during which they have been
commercially available, have decreased over the life of each specific product.
Although the Company has recently announced price increases for several of its
products, it expects that the average selling prices of its products will
continue to be subject to significant downward pressure in the future. If the
Company is unable to introduce and gain market acceptance of new products in new
markets with higher average selling prices or reduce its costs sufficiently to
offset decreases in prices of existing products, the Company's gross profits and
operating results would be adversely affected. In addition, because the Company
is continuing to increase its operating expenses for new product development and
for increased sales and marketing staff in anticipation of increasing sales
levels, the Company's business and operating results would be adversely affected
if such sales levels were not achieved.
The Company intends to continue to emphasize its upgrade business, in which
the Company's modules and motherboards are used to provide enhanced performance
for existing systems, although such business opportunities are limited in the
32-bit market because of customer migration to 64-bit technology. In addition
the Company will focus on sales to OEM customers, which incorporate the
Company's products into their products. The Company intends to continue to
explore the systems business in selling workstation and server components
together with SPARCplug(TM) systems which provide customers with a unique form
factor solution to their systems' requirements.
The Company, pursuant to a development agreement with Fujitsu, has
taped-out a 200 MHz SPARC 32-bit microprocessor "core" optimized for embedded
control based on its Colorado 4 product. The Company anticipates pursuing
markets for Java virtual machines and
<PAGE>
14
embedded applications with this product. However, there can be no assurance
that such markets can be successfully or profitably penetrated by the Company.
As noted above, the Company continues to experience lower than expected
demand for a number of its products, especially its lower speed microprocessor
chips and associated semiconductors and MBus modules, as well as routine price
degradation on older products. These trends are continuing and are expected to
continue for the foreseeable future.
In addition, operating results could be adversely affected by general
economic and other conditions affecting the timing of customer orders and
capital spending or a downturn in the markets for microprocessors or
high-performance computer workstations.
Sales to Sun, historically the Company's largest OEM customer, have
varied substantially on a year-to-year and quarter-to-quarter basis over the
periods since fiscal 1991 and have decreased substantially in the recent fiscal
quarters, as Sun has transitioned its business predominantly to 64-bit
microprocessor products. As previously advised, the Company anticipates that
sales to Sun will continue to fluctuate significantly in the future. The Company
continues to pursue sales to Sun of its current and future microprocessor
products and has several proposals pending, but there can be no assurance that
the Company will achieve any future design wins with Sun.
Similarly, sales to Fujitsu have historically comprised a significant
portion of the Company's revenue. For the near future, the Company anticipates a
significant decline in the level of sales to Fujitsu. As with Sun, the Company
continues to pursue sales to Fujitsu of its current and future microprocessor
products, but there can be no assurance that the Company will achieve any future
design wins with Fujitsu.
Although the Company is taking specific actions to improve gross profit
margins, it is anticipated that gross profit will continue to remain under
pressure for the foreseeable future due to a variety of factors, including
continued industry-wide pricing pressures, relatively low unit volumes processed
by the Company's test and assembly facilities, and the inability to purchase raw
materials in sufficient volume to obtain favorable pricing from vendors.
R&D expenses are expected to increase, reflecting pre-production
qualification of the Colorado 5 hyperSPARC microprocessor and designs based upon
the new Colorado 4 "core" as well as new product design and development related
to the Viper generation of microprocessors that the Company expects to introduce
in 1999. The Company expects that the level of SG&A expenses will vary depending
upon the overall sales effort undertaken and the Company's distribution
strategies. Although R&D and SG&A expenses can be reduced over time if the
Company's revenues are less than anticipated, the Company believes that it is
building an infrastructure that is critical to the Company's future success and
represents a long-term investment in the Company's future. Therefore, as in the
recent past, the Company may
<PAGE>
15
decide to undertake such expenses even if the result would be an increase
in such categories of expense as a percentage of net sales in a given fiscal
quarter or for a fiscal year as a whole.
The Company expects interest expense to be substantially lower on a
quarterly basis for the foreseeable future (as compared to recent prior
quarters) as a consequence of the Company's recapitalization and associated
reduction in debt. See "Liquidity and Capital Resources."
The Company has lost a number of employees due to resignations. The
loss of key employees has negatively affected the overall quality and depth of
the Company's staff infrastructure. The Company is seeking to remedy these
shortcomings as a priority matter through new hiring and the use of consultants
and outside contractors. Given the Company's recent performance and financial
condition, and the availability of other attractive employment opportunities in
the Austin area, hiring staff remains difficult.
The Company anticipates implementing additional incentive compensation
programs in order to attract and retain key employees and to motivate employees.
Such incentive compensation will further increase SG&A in the short run.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced negative cash flows during the nine months ended
December 29, 1997. As previously discussed, the Company is dependent on its
parent company, 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 expires on March 31, 1998,
and is guaranteed by Fujitsu until that date. In September 1997, a separate $10
million "Additional Credit Facility" was established with DKB. This Additional
Credit Facility expired on September 30, 1997. At September 29, 1997, the
principal amount outstanding under both credit facilities was $56.0 million,
with $50 million due on December 31, 1997, and $6 million due on September 30,
1997. On September 30, 1997, the Company concluded a recapitalization
transaction with Fujitsu, whereby the Company issued 500,000 shares of a new
Series B Convertible Preferred Stock to Fujitsu and Fujitsu paid $50 million on
behalf of the Company to DKB and 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. In connection with the
recapitalization, Fujitsu provided a guarantee for a replacement credit facility
with DKB for a maximum principal amount of $20 million (which replaces the
previous "New Credit Facility"). As noted above under "Future Operating
Results", the line of credit and guaranty expire on March 31, 1998. The Company
is pursuing the extension of the guaranty and renewal of the line of credit, but
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. Accordingly, the Company believes that it will have adequate capital
for its business through April 1, 1998, but remains dependent upon meeting the
milestones requisite to receiving the R&D reimbursements contained in the Viper
Development Agreement. Nevertheless, there can be no assurance that the Company
will not experience negative cash flow from operations and the Company may in
the future be required to seek additional external sources of financing for its
operating needs.There can be no assurance that additional capital, including
capital from bank borrowings, will be available on terms
<PAGE>
16
favorable to the Company, if at all, or that Fujitsu would be willing to
provide additional loan guarantees, equity infusions or other financial
assistance to the Company in the future. To the extent that additional capital
is raised through the sale of additional equity or convertible debt securities,
the issuance of such securities would likely result in substantial dilution to
the Company's then existing stockholders. In view of its position as the
Company's controlling stockholder, Fujitsu's concurrence is necessary for the
issuance of any additional debt or equity financing by the Company. The
Company's failure to obtain sufficient additional financing could make it
impossible for it to continue operations, force the Company to seek protection
under Federal bankruptcy law and/or affect the Company's listing on the Nasdaq
National Market.
The Company's principal source of liquidity as of December 29, 1997,
consisted of $.4 million of cash and $10 million of borrowing availability under
its DKB credit facility. Subsequent to the end of the third fiscal quarter, the
Company borrowed an additional $3 million under the DKB credit facility.
During fiscal 1997 and during the first six months of fiscal 1998, 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 third quarter 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 the first nine months of fiscal 1998, operating activities used
cash of $14.8 million, compared with using $46.0 million of cash during the
corresponding period in fiscal 1997. This improvement is due primarily to the
$37 million writeoff of certain inventory in the third fiscal quarter of 1997.
Cash generated by financing activities decreased by $15.9 million in
the first nine months of fiscal 1998 over the same period in 1997 reflecting the
retirement of $50.0 million of debt by the Company during the third fiscal
quarter of 1998.
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 payment terms to the Company. Shorter payment terms would increase the
Company's cash requirements.
The Company intends to incur additional capital expenditures of
approximately $6 million during the next 12 months, principally for computer
hardware and software, lab equipment and general office equipment and
furnishings.
<PAGE>
17
Because the Company must order raw materials, silicon wafers and
components and build finished goods inventory substantially in advance of
product shipments, there is continued risk that the Company will forecast
quantity and product mix incorrectly and, therefore, produce excess or
insufficient inventories. Because the markets for the Company's microprocessor,
module and system products are subject to rapid technological and price changes,
inventory may be subject to rapid obsolescence. The inventory risk is heightened
because the Company's customers usually place orders with short lead times. If
the Company forecasts incorrectly and produces insufficient inventory of
particular products, the Company may face order cancellations from or loss of
customers, who may seek to satisfy their needs from other suppliers. In general,
the Company's customers may change delivery schedules or cancel orders without
penalty. To the extent that the Company produces excess or insufficient
inventories of particular products, or inventory becomes obsolete, the Company's
results of operations and financial condition could be materially and adversely
affected.
Based on the Company's current operating plan, including continued payments
from Fujitsu pursuant to the Viper Development Agreement that are contingent
upon the Company attaining the development milestones defined in such agreement,
the Company believes that its cash requirements will be met through April 1,
1998. Beyond that time, the Company may require additional equity or debt
financing. As previously stated, the Company believes that any debt financing
beyond March 31, 1998 is dependent upon renewal of the DKB line of credit and
the Fujitsu debt guaranty, and there is no assurance of such renewals. In
addition, credit difficulties which have been and may be incurred by Japanese
banks such as DKB may adversely affect the Company's and Fujitsu's access to
credit. There can be no assurance that additional capital, including capital
from bank borrowings, will be available on terms favorable to the Company, if at
all. Moreover, the Company's cash requirements may vary materially from those
now planned because of changes in the Company's business or capital expenditure
plans, product plans or technology roadmap, changes in the Company's level of
product and manufacturing integration, results of research and development,
relationships with suppliers and customers, changes in the focus and direction
of the Company's research and development programs, competitive and
technological advances, the level of working capital required to sustain planned
growth, operating results (including the extent and duration of operating
losses), facilities, employment matters, and other factors.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no material new developments with respect to previously-reported
litigation. In addition, the Company is involved in routine litigation arising
in the ordinary course of business, and, while the results of the proceedings
cannot be predicted with certainty, the Company believes that the final outcome
of such proceedings will not be material.
<PAGE>
18
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security-Holders
None
ITEM 5. Other Information
On December 10, 1997, subject to shareholder approval, the Company's Board
of Directors approved an increase of 2,500,000 shares to the Common Stock
reserved for issuance under the Company's Stock Option and Restricted Stock
Purchase Plan 3.0.
On December 5, 1997, the Company entered into a Separation Agreement with
its founder and former President and Chief Executive Officer, Roger D. Ross,
pursuant to which, among other things, the Company agreed to pay Mr. Ross $.7
million for consulting services over a period of approximately two and half
years, subject to reduction under certain circumstances. The Company accrued
amounts anticipated in such settlement in its financial statements for the
period ended March 31, 1997, and accordingly, the Company anticipates no
material impact to its income statement in subsequent periods.
<PAGE>
19
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
10.1 Agreement between Fujitsu Limited and the Company dated as of
December 26, 1997; relating to the Viper Development Agreement
dated June 25, 1997*
10.2 Separation Agreement between Roger D. Ross and the Company dated
as of December 5, 1997*
10.3 Master Promissory Note, dated October 29,1997, By and between
Registrant and The Dai-Ichi Kangyo Bank, Limited, New York Branch
27 Financial Data Schedule
- -----------------
* Certain portions of this Exhibit have been omitted and
filed separately under an application for confidential treatment
(b) Reports on Form 8-K
A Current Report on Form 8-K dated September 30, 1997 was filed by the
Company reporting consummation of a Recapitalization Transaction (as therein
defined) with Fujitsu as well as certain other agreements between the Company
and Fujitsu.
<PAGE>
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROSS TECHNOLOGY, INC.,
a Delaware corporation
Date: January 22, 1997 /S/ F. S. (KIT) WEBSTER III
---------------------------
F. S. (KIT) WEBSTER III
Chief Financial Officer
<PAGE>
1
ALL SECTIONS MARKED WITH TWO ASTERICKS ("**") REFLECT PORTIONS WHICH HAVE
BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
BY ROSS TECHNOLOGY, INC. AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT.
AGREEMENT
This agreement ("Agreement"), dated as of December 26, 1997, is entered
into by and between FUJITSU LIMITED, a Japanese Corporation ("Fujitsu"), and
ROSS TECHNOLOGY, INC., a Delaware corporation (the "Company").
RECITALS
A. Fujitsu and the Company are parties to a Development Agreement, dated as of
June 25, 1997 (the "Original Agreement"), as amended by an agreement
between Fujitsu and the Company dated September 29, 1997 (the "First
Amendment," and the Original Agreement as amended thereby, the "Development
Agreement"), pursuant to which the Company has agreed to develop a
microprocessor known as the Viper (the "Viper"). Defined terms used herein
without definition have the respective meanings set forth in the
Development Agreement.
B. Pursuant to the Development Agreement, the Company has agreed to deliver to
Fujitsu certain Deliverables on the schedule attached to the Development
Agreement as Exhibit A, including, without limitation, to deliver to
Fujitsu certain Architectural Specifications and a Chip RTL Model in
conformity with Milestone #3 of Exhibit B of the Development Agreement (the
"Subject Deliverables") on September 30, 1997.
C. The Company has delivered to Fujitsu the Subject Deliverables but the
Subject Deliverables were not in full conformity with Milestone #3 of
Exhibit B of the Development Agreement (as amended and restated as Appendix
2 of the First Amendment). Nonetheless, and in full satisfaction of the
Company's obligations with respect to Milestone #3 and Deliverable #3 of
Exhibit B of the Development Agreement (as amended and restated as Appendix
2 of the First Amendment), Fujitsu is willing to accept the non-conforming
deliverables attached hereto as Appendix 1 (the "Alternate Deliverable"),
provided that the Company agrees that (1) such acceptance will not affect
the Company's continuing obligations to develop Viper in accordance with
the Specifications, and otherwise on the terms and conditions, set forth in
the Development Agreement, and (2) Milestone #4 of Exhibit B (Schematics)
of the Development Agreement be amended and restated as attached hereto as
Appendix 2, all as set forth in this Agreement.
D. The Company and Fujitsu attached Target Specifications to the Original
Agreement as Exhibit C until such time as Final Specifications could be
agreed upon, and now wish to agree upon the specifications attached hereto
as Appendix 3 as the Final Specifications for all purposes of the
Development Agreement, in replacement of and substitution for the Target
Specifications.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as
follows:
AGREEMENT
1. Delivery and Acceptance of Alternate Deliverable. The Company hereby
delivers the Alternate Deliverable to Fujitsu for acceptance. Subject to
and upon the terms and conditions of this Agreement, Fujitsu hereby accepts
the Alternate Deliverable in full
<PAGE>
2
satisfaction of the Company's obligations with respect to Milestone #3 and
Deliverable #3 of Exhibit B of the Development Agreement.
2. Limited Nature of Acceptance. The acceptance of the Alternate Deliverable
by Fujitsu shall not be deemed to modify in any respect the performance
specifications set forth in the Development Agreement (without limitation,
**) or the obligations of the Company under the Development Agreement.
3. Amendment of Milestone #3 (SCHEMATICS). Milestone #4 of Exhibit B to the
Development Agreement (pages 7/22, 8/22 and 9/22) is hereby amended and
restated in its entirety as attached hereto as Appendix 2.
4. Payment Terms. Fujitsu will make payment to the Company of the amount
specified in the Development Agreement for Deliverable #3 as provided in
Section 4.1(a) of the Development Agreement. The Company confirms that the
total amount of such payment is $4,400,000 and that no other amounts are
due or payable by Fujitsu to the Company at the present time under the
Agreement. Fujitsu agrees that such payment shall be deemed fully earned
upon the effectiveness of this Agreement and shall be non-refundable;
provided, however, that the Company agrees that nothing herein or in the
First Amendment shall limit the accrual of late delivery penalties through
the date of Fujitsu's acceptance as provided in Section 6.2 of the
Development Agreement, and for such purposes the parties agree that the
Milestone #2 Deliverable was delivered 77 days late and the Milestone #3
Deliverable was delivered 80 days late.
5. Final Specifications. The Company and Fujitsu hereby agree that the
specifications attached hereto as Appendix 3 shall be the Final
Specifications for all purposes of the Development Agreement, in
replacement of and substitution for the Target Specifications.
6. Representations and Warranties. Each party hereby represents and warrants
to the other that the execution and delivery by such party of this
Agreement have been duly authorized by all necessary corporate and other
action and do not and will not require any consent or approval of, notice
to or action by, any person (including any governmental agency) in order to
be effective and enforceable. The Development Agreement, as amended by this
Agreement, constitutes the legal, valid and binding obligation of such
party, enforceable against it in accordance with its terms, without defense
or counterclaim.
7. Reservation of Rights. The Company acknowledges and agrees that neither
Fujitsu's forbearance in exercising its rights in connection with the
delivery of the Alternate Deliverable nor the execution by Fujitsu of this
Agreement shall be deemed (i) to create a course of dealing or otherwise
obligate Fujitsu to forbear or execute a similar agreement under the same
or similar circumstances in the future, or (ii) to waive, relinquish or
impair any right of Fujitsu to future performance by the Company of the
Development Agreement strictly in accordance with its terms.
8. Miscellaneous.
(a) Except as herein expressly amended, all terms and conditions of the
Development Agreement are and shall remain in full force and effect.
All references to the
<PAGE>
3
Development Agreement shall henceforth refer to the Development
Agreement as amended hereby.
(b) This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns. No third party
beneficiaries are intended in connection with this Agreement.
(c) This Agreement shall be governed by and construed in accordance with
the law of the State of California (without regard to principles of
conflicts of laws). (d) This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
ROSS TECHNOLOGY, INC.
By: /s/ Francis S. (Kit) Webster III
--------------------------------
Title: Chief Financial Officer
FUJITSU LIMITED
Matao Itoh for
By: /s/ Yoshiro Yoshioka
Title: Group President,
Computer System Group
**
<PAGE>
1
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH HAVE
BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
BY ROSS TECHNOLOGY, INC. AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT.
SEPARATION AGREEMENT
This Separation Agreement (hereafter the "Agreement"), made this 5th
day of December, 1997 (the "Effective Date"), is entered into by Roger D. Ross
(hereinafter "Ross"), an individual, and ROSS Technology, Inc., a Delaware
corporation (the "Company").
RECITALS
A. WHEREAS, Ross has been employed by the Company, has held the position of
Chairman of the Board, President and Chief Executive Officer of the
Company, and has served as an officer and director of various of its
subsidiaries;
B. WHEREAS, effective March 3, 1997, Ross resigned his positions as Chairman
of the Board, President and Chief Executive Officer of the Company, and as
a member of the Executive Committee of the Company's Board of Directors,
but not his positions as a Director and as an employee of the Company;
C. WHEREAS, Ross ceased to be a Director of the Company on August 11, 1997;
and
D. WHEREAS, Ross and the Company now wish to finally and forever resolve all
existing matters between them, including matters relative to Ross'
employment, and to provide for the termination of the employment
relationship;
NOW, THEREFORE, in consideration of the aforementioned recitals and
the mutual covenants and conditions set forth below and in full settlement
of any and all claims arising out of Ross' employment or the termination of
that employment which were or could have been raised by either party prior
to the date of this Agreement, Ross and the Company hereby agree as
follows:
AGREEMENT
1. Resignation and Termination of Employment. Ross has resigned as Chairman,
President and Chief Executive Officer of the Company effective March 3,
1997, and by this Agreement further resigns from any and all positions with
any subsidiary or related company of the Company (including any position as
an officer, board or committee member or nominal or statutory shareholder
of any subsidiary or related companies, including without limitation his
positions with ROSS Semiconductors (Israel) Ltd.) effective as of December
5, 1997 (the "Termination Date"), and the Company has accepted such
resignations. Ross agrees to execute such documents as the Company may
reasonably request in order to document or further effectuate such
<PAGE>
2
resignations. Ross hereby further resigns as an employee of the Company,
and his employment by the Company will be deemed terminated effective as of
the Termination Date.
2. Board of Directors. Ross hereby acknowledges that he ceased to be a member
of the Board of Directors of the Company (the "Board") effective August 11,
1997.
3. Salary, Bonus, Vacation and Non-Competition Payments.
a. Ross acknowledges that he has received all unpaid salary due him
through the Termination Date.
b. Following the execution of this Agreement, the Company shall commence
payments to Ross in the gross amount of $234,926.66, representing the
unpaid portion of Ross' fiscal 1996 bonus entitlement of $281,912,
plus interest on the amount of said bonus from July 31, 1996 through
the date of payment at the rate of 9% per annum, in full payment of
Ross' 1996 bonus entitlement. Ross acknowledges that no other bonus
remains unpaid. He further acknowledges that he is entitled to no
further or additional bonuses or consideration for bonus for any year
or portion thereof.
c. Following the execution of this Agreement, the Company shall also
commence payments to Ross in the gross amount of $44,000, plus
interest on the portion of said amount remaining unpaid from time to
time, computed from the Effective Date through the date of payment, at
the rate of 9% per annum, representing a settlement and compromise of
Ross' claims for unpaid vacation pay.
d. Payment of the amounts set forth in subparagraphs 3(b) and 3(c) above
shall be made to Ross as follows: (i) $92,975.55 (plus interest as
provided above) in a lump sum on December 18, 1997 and (ii) the
balance of $185,951.11 (plus interest as provided above) in equal
bi-weekly installments (at the same time as the Company's regular
payroll payments) over a period of 8 months commencing January 1, 1998
and ending August 31, 1998.
e. From the gross amounts set forth above, there shall be withheld all
governmentally-mandated withholding amounts. From the initial lump sum
payment pursuant to subparagraph 3(d) above, there shall also be
deducted an amount equal to $27,917 to reimburse the Company for the
cost of equipment, including two Micron computers, purchased at
Company expense for use by Ross, which computers (and any other
equipment for which the Company is so reimbursed) are hereby
transferred and assigned to Ross.
f. As additional compensation to Ross for his compliance with the
provisions of paragraph 12 and subparagraphs 16(a) and 16(b) hereof
for the period from March 3, 1997 through December 4, 1997, on
December 18, 1997 the Company shall
<PAGE>
3
pay to Ross the lump sum of$75,000. Ross acknowledges that no
other amount is due him for such period.
4. Consultancy. Ross shall render services to the Company as a consultant on a
non-exclusive and non-full-time basis as an independent contractor for a
term commencing on the Effective Date and ending on May 15, 2000 (the
"Consultancy Period"). During such consultancy Ross shall be paid at the
rate of $10,842.77 bi-weekly, from which all governmentally-mandated
withholding amounts shall be deducted, with the first payment to be made on
the Company's first regular payroll payment date occurring on or after the
date of execution of this Agreement. Ross shall render services during the
consultancy as follows:
a. Ross shall make himself reasonably available for consulting with the
Company at such times as the Company may reasonably require, subject
to Ross' prior business and professional commitments, prior vacation
plans and absences due to illness or injury. Ross shall not, except in
connection with Ross' obligations under paragraph 19, be obligated to
provide an aggregate of more than 120 hours of service during any
twelve (12) month period. On or before the 15th day of each calendar
month, commencing December 15, 1997, Ross shall provide to the Company
a written report (the "Monthly Report") setting forth the services
performed hereunder by him during the preceding calendar month. The
Monthly Report shall be forwarded to the Company's Chief Financial
Officer at the address set forth in paragraph 42 and shall include a
daily log showing the number of hours of service performed, a
description of the services performed in reasonable detail, and the
name of the Company official requesting such services. The Company
shall have ten (10) business days from its receipt of the Monthly
Report within which to review and object to Ross' calculation of hours
of service performed. If the Company does not object to such report by
written notice sent to Ross by the last day of the review period,
Ross' report shall become conclusive for the month at issue. If the
Company does object to such report, by written notice sent to Ross by
the last day of the review period, the parties shall attempt to
resolve the issue through negotiation and/or mediation. In the event
the matter remains unresolved for sixty (60) days after the date of
the Company's objection, either party may seek final and binding
resolution through arbitration pursuant to paragraph 37.
b. Ross shall provide consulting services in the manner and at such
location (including by telephone, or in person at the Company offices)
as the Company reasonably determines in good faith, subject to
subparagraph 4(a) and based on the nature and urgency of the matter(s)
on which Ross' services are sought.
c. The existence of this consultancy shall not be deemed to create any
duty of loyalty or any non-competition obligations of Ross to the
Company other than as provided in paragraph 12. It is anticipated that
the consultancy will be limited to historical and technical matters
and will not involve or relate to future long-term plans of the
Company.
<PAGE>
4
d. Ross shall be reimbursed for all reasonable out-of-pocket expenses
incurred in connection with any consulting services rendered pursuant
to this paragraph 4, including but not limited to reasonable expenses
incurred for travel to the location of any consulting services outside
of the Austin, Texas area. Such expenses shall be incurred, documented
and reimbursed in accordance and consistent with the Company's
then-existing policies for consultants. No travel expenses shall be
incurred without the Company's prior written consent.
e. It is expressly contemplated that Ross may accept full time employment
during the consultancy. There shall be deducted from the aggregate
consultant's compensation set forth in this paragraph 4 and the lump
sum payment described in subparagraph 3(f) a "Mitigation Adjustment"
in an amount equal to fifty percent (50%) of any amounts received by
Ross as "cash" compensation (essentially the aggregate of all wage,
salary, commission and bonus compensation) as an employee of, or
consultant, adviser or independent contractor to, another employer or
from self-employment (excluding amounts payable to him under this
Agreement) in which he is engaged during the Consultancy Period;
provided, however, that should Ross be employed by, or render services
to, an entity or venture in which he becomes an investor, stockholder,
optionholder, proprietor, partner or other participant, in, his annual
cash compensation from such venture or entity for purposes of this
paragraph shall be deemed to be the greater of (i) his actual cash
compensation or (ii) $225,000, and further provided that no amount
earned during the first three months following the initial date of
such employment or provision of services shall be included in the
amount of the Mitigation Adjustment, it being understood and agreed
for purposes of such exception that the amount earned during this
period will not be disproportionately high as compared with Ross'
earnings during the balance of the Consultancy Period. In the Monthly
Report for each calendar month Ross shall report to the Company any
amounts described in this subparagraph 4(e) that he earned during the
preceding calendar month, and the Company shall apply the resulting
Mitigation Adjustment to reduce the next payment(s) due Ross from the
Company hereunder. Should the remaining payments, if any, due under
this Agreement be insufficient to offset any Mitigation Adjustment in
full, Ross shall promptly refund the net difference to the Company. In
no event shall the aggregate Mitigation Adjustment under this
subparagraph 4(e) exceed the aggregate amount of the consultant's
compensation payable under this paragraph 4 plus the lump sum payment
described in subparagraph 3(f).
f. In the event the Company believes that Ross has failed to comply with
his obligations under this paragraph 4, the Company shall provide Ross
with written notice and the reasonable opportunity to cure prior to
initiating any action with regard to any alleged breach.
5. Benefits. The Company shall pay the Company's share of the cost of the
Company's group medical program for Ross for the period through March 31,
1999, or such shorter period as may be required under the Company's group
medical plan, provided that Ross makes a timely COBRA election. The
Company's obligation to continue to pay the Company's share of the cost of
these group medical benefits shall
<PAGE>
5
cease upon Ross' obtaining employment with another employer offering
group medical coverage. In the Monthly Report for each calendar month Ross
shall report to the Company any such other employment obtained by him.
6. Stock Options. The parties acknowledge that Ross has unexercised, vested
options covering 59,259 shares of Common Stock of the Company as of March
31, 1997. The exercise price of such options is $3.125 share. No other
options will be vested in Ross, and all unvested options shall be treated
as having been cancelled and shall be of no further force or effect. Ross
may exercise his vested options in accordance with their terms during the
ninety (90) day period following the date of execution of this Agreement.
If such options have not been exercised within such 90 day term, then
automatically, without any need for further action by Ross, the time within
which to exercise such options shall be extended to March 31, 2000;
provided, however, that Ross understands that this modification regarding
the time within which to exercise the vested options will deprive such
options of any status they may have had as incentive stock options, and the
options shall be treated as nonqualified options for tax purposes, and
provided, further, that, in the event payments to Ross under paragraph 4
are terminated at any time pursuant to paragraph 12(e) of this Agreement,
Ross must exercise his options, if at all, no later than ninety (90) days
following the date of termination of such payments. The options, if not
exercised within the applicable foregoing exercise period, shall expire as
of the end of such period and be of no further force or effect thereafter.
Ross agrees to bear all taxes and other costs resulting from the exercise
of his stock options.
7. Company Computer and Country Club Membership.
a. The Company hereby transfers to Ross on the Effective Date of this
Agreement, its ownership interest in the computer system and
commercial personal computer software Ross has been using at his
residence. Ross, however, shall promptly return to the Company the
originals and any copies of any custom or enterprise software and all
computer software and computer files containing proprietary or
confidential information of, or concerning, the Company or certify to
the Company due destruction of same. Ross shall pay any software
license fees, upgrade costs, etc. due or incurred after March 31, 1997
with respect to all hardware and software retained by him.
b. Ross has assigned or will assign to the Company, or to a designee of
the Company, the membership standing in his name (and all membership
rights including any right to any membership deposit or investment) at
the Barton Creek Country Club.
8. Office and Secretarial Support.
a. The Company will continue to lease and provide to Ross an office
through February 28, 1998; provided, however, that if Ross secures
alternative employment or fails to use the office on a regular basis,
Ross agrees to vacate said office promptly and the Company shall have
the right to terminate such lease or sublet such
<PAGE>
6
space. The Company shall be responsible only for the lease
payments and shall not be responsible for utility payments or any
other payments in connection with such office. Upon the earlier of
vacating the office or February 28, 1998, Ross shall promptly allow
the Company to take possession of the office furniture, file cabinets,
etc. owned by the Company located at such premises.
b. The Company will pay to Ross a secretarial allowance of $5,000 per
month for the twelve month period commencing when Ross has delivered
to the Company a release (in favor of the Company, its subsidiaries
and their respective officers, directors, shareholders, employees and
agents) in a form reasonably satisfactory to the Company from all
persons who have been providing secretarial support to Ross since
March 3, 1997. This subparagraph 8(b) shall become null and void if
the release is not provided to the Company prior to December 31, 1997.
9. Sole Entitlement. Ross agrees that his sole entitlement to compensation,
payments of any kind, monetary and/or non-monetary benefits and/or
perquisites with respect to his employment with and his services rendered
to, and all other matters between Ross and, the Company and the
subsidiaries or affiliated corporations of the Company, is as expressly set
forth in this Agreement. Payment by a third party of any consideration due
to Ross under this Agreement shall be treated for all purposes hereunder as
a payment of such consideration by the Company.
10. Releases by Ross. Ross does hereby and forever release and discharge the
Company and any subsidiary and affiliated corporations of the Company as
well as the successors, shareholders (including without limitation Fujitsu
Limited ("Fujitsu")), officers, directors, heirs, predecessors, assigns,
agents, employees, attorneys and representatives of each of them, past or
present (collectively, the "Company Parties"), from any and all cause or
causes of action, actions, judgments, liens, indebtedness, damages, losses,
claims, liabilities, and demands of whatsoever kind or character, known or
unknown, suspected to exist or not suspected to exist, anticipated or not
anticipated, whether or not heretofore brought before any state or federal
court or before any state or federal agency or other governmental entity,
whether statutory or common law, heretofore or hereafter arising out of,
connected with or incidental to any dealings between the parties prior to
the date of execution of this Agreement, including without limitation on
the generality of the foregoing, any and all claims, demands or causes of
action attributable to, connected with, or incidental to the employment of
Ross by the Company, the separation of that employment, and any dealings
between Ross and any of the Company Parties concerning the Company, Ross'
employment or any other matter existing prior to the date of execution of
this Agreement, excepting only those obligations of the Company created by
this Agreement. This release is intended to apply to any claims arising
from federal, state or local laws, including those which prohibit
discrimination on the basis of race, national origin, sex, religion, age,
marital status, pregnancy, handicap, perceived handicap, ancestry, sexual
orientation, family or personal leave or any other form of discrimination,
any common law claims of any kind whatever, any claims for salary,
severance pay, sick leave, family leave, vacation pay, life insurance,
bonuses, stock, stock options, incentive compensation, health insurance,
<PAGE>
7
disability or medical insurance or any other fringe benefit or
compensation, and all rights and claims arising under the Employee
Retirement Income Security Act of 1974 ("ERISA"), or pertaining to ERISA
regulated benefits. In the event any shareholder released by this Agreement
shall bring an action against Ross with regard to any matters occurring
before the Effective Date of this Agreement, Ross' release of such party
pursuant to this paragraph shall be null and void from the Effective Date
of this Agreement. This release is not intended to affect any interest Ross
may have as the incidental beneficiary of any judgment or settlement
secured by (or for the benefit of) the Company as a result of any
shareholder's derivative action; provided, however, Ross agrees he will not
instigate, initiate or assist any such action.
11. Releases by the Company. The Company does hereby release and forever
discharge Ross from any and all cause or causes of action, actions,
judgments, liens, indebtedness, damages, losses, claims, liabilities, and
demands of whatsoever kind or character, known or unknown, suspected to
exist or not suspected to exist, anticipated or not anticipated, whether or
not heretofore brought before any state or federal court or before any
state or federal agency or other governmental entity, whether statutory or
common law, heretofore or hereafter arising out of, connected with or
incidental to any dealings between the parties prior to the date of
execution of this Agreement, including without limitation on the generality
of the foregoing, any and all claims, demands or causes of action
attributable to, connected with, or incidental to the employment of Ross by
the Company, the separation of that employment, and any dealings between
the parties concerning the Company, Ross' employment or any other matter
existing prior to the date of execution of this Agreement, excepting only
those obligations of Ross to be performed hereunder and any claim which
arises out of any intentional and dishonest act by Ross, such as
embezzlement, discovered by the Company or its auditors after the date of
execution of this Agreement, by which act Ross enriched himself improperly
through material misappropriation of Company assets. This release is
intended to apply to any claims arising from federal, state or local laws
including those which prohibit discrimination on the basis of race,
national origin, sex, religion, age, marital status, pregnancy, handicap,
perceived handicap, ancestry, sexual orientation, family or personal leave
or any other form of discrimination, or any common law claims of any kind
whatever, any claims for salary, severance pay, sick leave, family leave,
vacation pay, life insurance, bonuses, stock, stock options, incentive
compensation, health insurance, disability or medical insurance or any
other fringe benefit or compensation, and all rights and claims arising
under the ERISA or pertaining to ERISA regulated benefits.
12. Non-Competition.
a. In consideration of the compensation and other benefits being provided
to him hereunder, Ross agrees that he will not directly or indirectly,
at any time during the period commencing on March 3, 1997 and ending
on May 15, 2000 (the "Non-Competition Period"), without the prior
written consent of the Company, except as provided below, compete
with, or render financial or other assistance to or assist or offer
personal or professional services (whether as an employee, officer,
director,
<PAGE>
8
consultant, advisor or otherwise) anywhere in the world and
for payment or otherwise to, any entity or individual to the extent
that such assistance or services relate to such entity's or
individual's competition with, or efforts to compete with (each a
"Competitor"), any product or service offered or under development by
the Company at such time or intended to be offered in the future
pursuant to the Company's then-applicable Board-approved business plan
or a documented project plan approved by the Company's Chief Executive
Officer. Without limiting the definition of "assistance" for purposes
of this paragraph 12, Ross shall be considered to be providing
assistance to a Competitor if Ross or a Ross Entity (as defined in
subparagraph 16(b)) provides a product to the Competitor for resale or
provides a product design to the Competitor for manufacture,
distribution or sale. The prohibitions set forth in this subparagraph
12(a) shall be interpreted as provided in subparagraphs 12(b) and
12(i).
b. The parties understand that Ross will most likely find executive
employment in a business associated with the microprocessor industry.
It is not the intention of the parties to be overly broad in generally
defining competitive activity by Ross as described in subparagraph
12(a). However, a very broad specific restriction is intended by the
parties on any activities by Ross involving (i) microprocessors or
other chips or logical units supporting the SPARC architecture or (ii)
embedded microcontrollers or other embedded control products based
upon any 32 bit architecture (the activities described in this
sentence being collectively termed "Special Activities"). The parties
agree that, at the commencement of this Agreement, any activities of
Ross with regard to (i) the MIPS architecture, (ii) digital signal
processors (DSPs) that do not include a SPARC floating point unit or
co-processor, or (iii) I/O or graphics peripheral chips for embedded
control applications will not violate the prohibitions of subparagraph
12(a), or result in the termination of payments to Ross pursuant to
subparagraph 12(e) below, provided that such activities do not violate
the restrictions with respect to Special Activities set forth in the
preceding sentence.
c. In the event the Company chooses to modify its business emphasis with
additional products or services (other than Special Activities, which
are generally prohibited by subparagraph 12(a) and as to which the
Company shall not be obligated to comply with the provisions of this
subparagraph 12(c)) based upon architectures other than the SPARC
architecture (including without limitation a modification that
encompasses activities previously permitted to Ross under subparagraph
(a) or (b)), then from and after the earlier of (i) the date that the
Company actually commences development of such additional products or
services or (ii) the date that the Company's Board approves a business
plan or the Company's Chief Executive Officer approves a documented
project plan to implement a modified business emphasis (the earlier
date being herein termed a "New Activity Date"), any activities by
Ross relating to such modified business emphasis will be considered
competitive within the scope of the provisions of subparagraph 12(a),
provided that no activity engaged in by Ross as of the New Activity
Date that is not otherwise competitive will be deemed competitive
pursuant to this sentence. For purposes of the preceding sentence,
Ross shall be considered to be engaged in a particular activity if he
or a Ross Entity has actually commenced development of a product or
service implementing, or the Board of Directors of a Ross
<PAGE>
9
Entity has approved a business plan or documented project plan to
implement, the activity. Ross acknowledges and agrees that as of the
date of execution of this Agreement (i) the Company's business
emphasis has been modified to include microprocessors, co-processors
and chipsets that either (A) execute the Java programming language in
native mode or (B) are designed or integrated, and marketed, as more
efficient, enhanced performance or lower cost solutions to execute
Java applications natively or through the Java virtual machine (the
activities in "(A)" and "(B)" being collectively termed "Java
Activities"), (ii) neither Ross nor any Ross Entity is presently
engaged in Java Activities, and (iii) consequently any Java Activities
engaged in by Ross or a Ross Entity will be considered competitive
within the scope of subparagraph 12(a).
d. In the event Ross shall seek to engage in activities which could
arguably fall within the prohibitions of subparagraph 12(a), Ross
shall first make a written disclosure of such proposed activities to
the Company. Such disclosure shall be made at least 30 calendar days
in advance of Ross' intended commencement date and shall provide
sufficient detail to permit the Company to make the judgments required
in this paragraph 12. Within 15 calendar days after its receipt of the
disclosure, the Company shall respond to Ross in writing advising Ross
whether the Company does or does not consider his proposed activities
to be within the scope of the prohibitions of subparagraph 12(a). If
the Company does not consider the proposed activities to be within the
scope of the prohibitions of subparagraph 12(a), Ross may pursue such
activities subject to any other applicable restrictions under this
Agreement. If the Company does consider the proposed activities to be
within the prohibitions of subparagraph 12(a), the parties shall
attempt to resolve the issue through negotiation and/or mediation. In
the event the matter remains unresolved for thirty (30) days after the
date of the Company's response to Ross, either party may seek final
and binding resolution through arbitration pursuant to paragraph 37.
If Ross suspends his proposed activities and is not entitled to
current or deferred compensation therefrom during the course of such
negotiation, mediation and/or arbitration proceedings, then the
payments described in paragraph 4 shall continue during such
proceedings. If Ross does not suspend his proposed activities or is
entitled to current or deferred compensation therefrom during the
course of such negotiation, mediation and/or arbitration proceedings,
then the payments described in paragraph 4 shall be suspended during
such proceedings.
e. Ross may at any time elect to engage in activities, other than Special
Activities, that are competitive within the meaning of subparagraph
12(a), and the Company shall have no right or power to seek damages or
injunctive relief with respect to any such non-Special Activity
competition. If Ross so elects, or shall acknowledge or be found to
have engaged in competitive activities during the Non- Competition
Period prohibited by subparagraph 12(a): (i) all obligations of the
Company pursuant to paragraph 4 of this Agreement to make payments to
Ross shall cease as of the date Ross first so elects or otherwise
undertook such competitive activities and be forever extinguished,
(ii) Ross shall be obligated to promptly refund to the Company any
such amounts paid to Ross after such date, (iii) Ross shall have no
further non-
<PAGE>
10
competition obligations to the Company with respect to
activities other than Special Activities (although his agreement not
to engage in Special Activities shall continue in full force and
effect), and (iv) so long as such competitive activities do not
constitute Special Activities, Ross' obligation to provide consulting
services under paragraph 4 shall cease and forever terminate;
provided, however, that all other obligations of the parties to this
Agreement (including without limitation the obligations of Ross under
paragraphs 13, 14, 16 and 19) shall remain in full force and effect.
In the event that such competitive activities constitute Special
Activities, Ross shall also be liable to the Company for any damages
it incurs as a result of such Special Activities.
f. Ross represents and warrants that he is not in breach of the
provisions of subparagraph 12(a) as of the date of execution of this
Agreement. In addition to the remedies set forth in subparagraphs
12(d) and 12(e), the Company shall be entitled to injunctive relief to
specifically enforce the provisions of subparagraph 12(a) with respect
to any breach thereof to the extent and only to the extent that such
breach consists of Ross' engagement in Special Activities and occurs
during the Non-Competition Period. The Company shall not be entitled
to injunctive relief to specifically enforce the provisions of
subparagraph 12(a) with respect to any breach thereof that does not
arise by reason of Special Activities.
g. Except as may reasonably be required to implement the provisions of
this Agreement (including without limitation paragraphs 12, 13, 14, 16
and 19), neither party shall be obligated at any time to disclose to
the other, or to any third party, confidential information regarding
its then-current or prospective business or project plans or products
or services then-existing or planned or under development. All
communications between the parties under this Agreement that involve
confidential information shall be subject to an appropriate
non-disclosure and confidentiality agreement.
h. Nothing contained in this paragraph 12 shall affect Ross' obligation
at all times to comply with the provisions of paragraphs 13, 14, 16
and 19.
i. Notwithstanding the provisions of this paragraph 12, Ross shall be
entitled to engage in the activities described in subparagraph
16(b)(iii) to the extent provided therein.
13. Confidential Information.
a. Ross recognizes and understands that the Company is engaged in
businesses in which it is crucial to develop and retain proprietary
technology and other confidential information. Accordingly in
furtherance of his prior confidentiality agreements with the Company
and in consideration of the compensation and other benefits being
provided to him hereunder, Ross agrees that he will not at any time,
either directly or indirectly, divulge, or convey to any person,
except as may be expressly authorized by the Company or required
during and in the course of his consultancy or required by court order
or applicable law, or use for his own benefit or
<PAGE>
11
the benefit of anyone else but the Company, any confidential
information obtained by him in the course of his employment or
consultancy with the Company, whether concerning the Company or any
aspect thereof, or concerning a third party; provided that the
foregoing restrictions shall not apply with respect to any information
that becomes generally available to the public other than through
Ross' unauthorized disclosure or fault, and provided, further, that
the foregoing restrictions shall lapse seven (7) years after the
Effective Date except as to details of relationships and
communications between or among the Company, its employees, directors,
and shareholders, which details Ross shall not divulge at any time.
b. The confidential information to which Ross has had or will or may have
access includes, but is not limited to, matters of a technical nature
such as inventions, designs, software, improvements, processes of
discovery, techniques, methods, ideas, discoveries, developments,
know-how, formulae, compounds, compositions, product plans, technology
roadmaps, specifications, trade secrets, design methodologies,
specialized knowledge, internal affairs of the Company, relationships
and communications between or among the Company, its employees,
directors and shareholders, and matters of a business nature such as
information about costs and profits, records, customer lists and
customer contact information, customer data, sales data, or product,
marketing or business plans.
14. Ownership of Ideas.
a. The Company will own, and Ross hereby transfers and assigns to it, all
rights in and to any material and/or ideas and all results and
proceeds of Ross' services as an employee of the Company prior to May
1, 1997, conceived of or produced during the period of such
employment. Ross agrees to execute and deliver to the Company such
assignments, certificates of authorship, or other instruments in
accordance with standard industry practice, and otherwise provide
proper assistance, at the Company's request and expense and for its
benefit or that of its nominees, during and after Ross' employment by
the Company in order to more fully vest in the Company all right,
title and interest in and to such material, ideas, results and
proceeds or to obtain patents, copyrights, or other legal protection
for inventions or innovations in any country;
b. Ross' agreement to assign to the Company any of his rights as set
forth above does not apply to any materials, ideas or inventions (i)
developed by Ross entirely upon his own time without using the
Company's equipment, supplies, facilities or confidential information
and (ii) which do not, at the time of conception or reduction to
practice, relate to the Company's present or anticipated business, or
to actual or demonstrably anticipated research or development of the
Company, and (iii) which do not result from any work or consulting
services performed by Ross for the Company.
15. Return of Property of the Company. Except as and then only to the extent
specifically provided above in subparagraphs 3(e) and 7(a), and except for
the personal automobile previously provided to Ross by the Company, all
memoranda, notes, records,
<PAGE>
12
papers, data and documents concerning the business of the Company or
any of its subsidiaries or affiliates, whether in tangible or intangible
form (including all information stored in electronic form), all computer
programs and software, and all copies of any of the foregoing, made,
obtained, compiled by or made available to Ross during the period of his
employment with the Company through the Effective Date, all equipment
(including personal computers and other computer equipment) made available
to or obtained by Ross from the Company, and all other property of the
Company or any of its subsidiaries or affiliates (including without
limitation identification and access cards, keys, personal digital
assistants, pagers, cellular phones, airline tickets and travel vouchers,
but excluding personal diaries and memorabilia) in the possession of Ross
(collectively referred to as "Company Property"), will be and remain the
exclusive property of the Company, subsidiary or affiliate during and after
the termination of Ross' employment with the Company. Ross will within
seven days of the date of execution of this Agreement return (and, with
regard to intangible property or documents, return a copy to the Company
and destroy all originals and copies in Ross' possession) any and all of
the Company Property that he may have taken off the Company's premises,
and, if requested by the Company to do so, will execute a statement
confirming compliance with this paragraph.
All memoranda, notes, records, papers, data and documents concerning
the business of the Company or any of its subsidiaries or affiliates,
whether in tangible or intangible form (including all information stored in
electronic form), all computer programs and software, and all copies of any
of the foregoing, made, obtained, compiled by or made available to Ross
during the period of his consultancy with the Company, and all equipment
(including personal computers and other computer equipment) and all other
property of the Company or any of its subsidiaries or affiliates (including
without limitation identification and access cards, keys, personal digital
assistants, pagers, cellular phones, airline tickets and travel vouchers,
but excluding personal diaries and memorabilia) made available to or
obtained by Ross from the Company during the period of his consultancy with
the Company (collectively referred to as "Consultancy Property"), will be
and remain the exclusive property of the Company, subsidiary or affiliate
during and after the termination of Ross' consultancy with the Company.
Upon termination of his consultancy for any reason, Ross will within seven
days return (and, with regard to intangible property or documents, return a
copy to the Company and destroy all originals and copies in Ross'
possession) any and all Consultancy Property to the Company, and, if
requested by the Company to do so, will execute a statement confirming
compliance with this paragraph.
16. Interference with Ross, Its Employees and Customers. In consideration of
the compensation and other benefits being provided to him hereunder, Ross
agrees that he will not, without the Company's prior written consent,
whether for his own benefit or for the benefit of any other individual,
partnership, firm, corporation or other business organization (other than
the Company), directly or indirectly:
a. At any time prior to March 31, 2000, solicit or discuss the employment
services of, hire, or otherwise interfere with the relationship of the
<PAGE>
13
Company with any person who is either then employed by or otherwise
engaged to perform services for the Company or has been so employed or
engaged by the Company within the four months preceding any such
solicitation, discussion or hire. In the event that for purposes of
complying with this subparagraph 16(a) Ross shall seek confirmation
from the Company with regard to any person who Ross believes has
ceased to be an employee of the Company, the Company shall promptly
provide Ross with written confirmation of the person's employment
status and termination date.
b. (i) At any time prior to March 1, 1999, solicit business from or
otherwise call upon any person or entity with whom the Company then
has or has had a customer relationship (collectively, "Solicitation
Activities"). On the date of execution of this Agreement, the Company
has provided to Ross a list of its past and present customers with
respect to which the parties agree that the prohibitions of this
subparagraph 16(b) will apply (the "Customer List"). The parties
further agree that the Customer List is a complete list of all
customers with respect to which the prohibitions of this subparagraph
16(b) apply as of the date hereof, and that the prohibitions of this
subparagraph 16(b) will not apply to any customers or other entities
that are not either (i) on the Customer List as of the date hereof or
(ii) subsequently added to the Customer List pursuant to the
provisions of this subparagraph. The Company shall be entitled to
update the Customer List from time to time by written notice to Ross
to include new customers of the Company, and the restrictions of this
subparagraph 16(b) shall apply with respect to such new customers for
the period from the date of Ross's receipt of the updated Customer
List through February 28, 1999; provided, however, that the
restrictions of this subparagraph 16(b) shall not apply with respect
to any such new customers that have been identified as customers of
Ross or a Ross Entity (as hereinafter defined) in a written notice
delivered to the present Chairman of the Company's Board of Directors
(or a successor to such Chairman reasonably agreed to by the parties
hereto) prior to the date of Ross's receipt of notice from the Company
designating such new customer as a Company customer. For purposes of
this subparagraph 16(b), (A) a "customer" of a party shall mean a
person or entity that has purchased product from the party, signed a
purchase order for product of the party, or entered into a written
memorandum of understanding for the purchase of product from the party
and (B) contacts with employees and other representatives of a
customer shall be subject to the same restrictions as those applicable
to the customer itself.
(ii) Nothing in this subparagraph 16(b) shall be applied or construed
to limit or preclude ** and its affiliates (other than any entity
controlled or managed by Ross or in which Ross owns more than two
percent (2%) of the stock, profits interests, capital interests,
units, or other equity ownership interests (including without
limitation stock options and convertible securities) (a "Ross
Entity"), which Ross Entities shall be subject to the
restrictions of this subparagraph 16(b) to the same extent as
Ross) from engaging in Solicitation Activities provided that
neither Ross nor any Ross Entity provides advice or assistance to
such activities or divulges to ** or any of its affiliates the
names of any Company customers (or the names of any contacts at
customers) set forth on the Customer List in effect from time to
time.
<PAGE>
14
(iii)Nothing in this subparagraph 16(b) shall be applied or construed
to limit or preclude Ross, or any other person or entity, from
engaging in Solicitation Activities with respect to the sale of
embedded microcontrollers, and other embedded control products,
based upon the MIPS 64 bit architecture with respect to any of
the following companies or their affiliates: **.
c. At any time, interfere with the relationship of the Company with any
person or entity with whom the Company then has a business
relationship or a prospective business relationship.
d. At any time, instigate, initiate, participate in (except to the extent
required by law, including compulsory process) or assist any
litigation or arbitration proceeding brought against the Company or
any of the Company Parties attributable to, connected with, or
incidental to any claim, liability, action, failure to act or any
other matter existing prior to the Effective Date, including without
limitation any such matters that may be continuing after the Effective
Date and any matters released by Ross pursuant to paragraph 10 of this
Agreement.
17. Injunctive and Other Relief. Subject to the provisions of paragraph 12,
including without limitation subparagraphs 12(d) and 12(e), Ross and the
Company acknowledge that any action taken by Ross constituting a breach of
any of his obligations under paragraphs 12 through 16 of the Agreement
would leave the Company without an adequate remedy and would entitle the
Company to seek relief in any court of competent jurisdiction in the form
of an injunction or temporary restraining order prohibiting any such breach
in addition to any other applicable remedies. In addition, in the event of
a material breach by Ross of paragraphs 13 or 16, the Company may in
addition to any other remedy terminate Ross' consultancy and cease making
the payments described in paragraph 4.
18. Prohibition Against Defamation and Willful Disparagement and Provision for
Favorable References. **.
<PAGE>
15
19. Cooperation. Subject to the provisions of subparagraph 4(a) concerning his
reasonable availability, Ross agrees to cooperate fully with the Company
and to assist the Company in connection with any future or currently
pending disputes, litigation or arbitration proceedings based upon or
arising out of acts, omissions, events or circumstances occurring or
existing during the period from January 1, 1988 through April 30, 1997,
including without limitation the Cherukuri, Megatest and Vorm disputes and
any actions brought by creditors of the Company. Such cooperation by Ross
shall include, but not be limited to, making himself reasonably available
for interviews by Company counsel and to testify in any action as
reasonably requested by the Company. Ross shall not be separately
compensated for such cooperation and assistance but his reasonable and
documented out-of-pocket expenses shall be reimbursed. The obligations of
Ross set forth in this paragraph 19 shall continue during and after the
Consultancy Period and notwithstanding any early termination of payments to
Ross pursuant to the provisions of paragraphs 12 or 17 or any termination
of the parties' other obligations pursuant to paragraph 36. With respect to
any such action, in the event Ross is named
<PAGE>
16
as a defendant by any party thereto, the Company shall indemnify,
defend and hold harmless Ross, to the extent the Company was obligated as
of March 2, 1997 to indemnify, defend and hold harmless Ross, against all
losses, claims, damages, costs, expenses, liabilities, judgments or amounts
of or in connection with any claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part
out of Ross' actions as a director, officer or employee of the Company,
whether pertaining to any matter existing at March 2, 1997 or occurring at
or prior to such date, and whether asserted prior to, at, or after March 2,
1997.
20. Legal Advice. Each party has received independent legal advice from his or
its attorneys with respect to the advisability of making the settlement
provided for herein and with respect to the advisability of executing this
Agreement.
21. Factual Investigation. Each party to this Agreement has made such
investigation of the facts pertaining to the matters resolved by this
Agreement and of all the matters pertaining thereto as he or it deems
necessary.
22. Later Discovered Facts. Each party hereto is aware that he or it may
hereafter discover claims or facts in addition to or different from those
he or it now knows or believes to be true with respect to the matters
resolved herein. Nevertheless, it is the intention of each party to fully,
finally and forever settle and release all such matters and all claims
relative thereto which may exist or may heretofore have existed between
them, whether known or unknown, to the extent provided in the releases
contained herein.
23. Confidentiality. Except as may be required to satisfy the Company's public
disclosure or financial or accounting requirements or as may be compelled
by court order, neither the Company nor Ross shall disclose or publicize to
any person, firm or corporation the terms of this Agreement except (a) as
otherwise specifically provided in this Agreement or (b) with the written
consent of the other party. As reasonably necessary, Ross may discuss this
Agreement with his wife, attorney, assistant, financial advisor, tax
advisor, benefit advisor or compensation advisor and the Company may
discuss this Agreement with its attorneys, accountants, officers, directors
and managers, provided, however, that each such recipient of confidential
information agrees to be bound by the terms of this paragraph to keep the
information confidential. Ross shall advise any employer, prospective
employer or Competitor, and may advise any financial institution with which
he does business, of the limitations set forth in paragraphs 12 through 16
above.
24. Assignment. Each of the parties represents and warrants that he or it has
not heretofore assigned, transferred or granted or purported to assign,
transfer or grant any claims, matters, demands or causes of action herein
released, disclaimed, discharged or terminated, and agrees to indemnify,
defend and hold harmless the other party from and against any and all
costs, expense, loss or liability incurred as a consequence of any such
actual or purported assignment, transfer or grant.
<PAGE>
17
25. Recitals and Paragraph Headings. Each term of this Agreement is contractual
and not merely a recital. All recitals are hereby incorporated by reference
into this Agreement. Captions and paragraph headings are used herein for
convenience only, are not part of this Agreement and shall not be used in
interpreting or construing it.
26. Additional Documents. The parties will execute all such further and
additional documents and undertake all such other actions as shall be
reasonable, convenient, necessary or desirable to more fully effectuate and
carry out the provisions of this Agreement.
27. No Admissions. This Agreement effects the settlement of claims which are
denied, disputed and/or contested, and nothing contained herein shall be
construed as an admission by any party hereto of any liability of any kind
to any other party or to any third party. Each of the parties hereto denies
any and all liability whatsoever in connection with any claim and intends
merely to avoid the uncertainties and costs of litigation and buy his or
its peace.
28. Texas Law. This Agreement was executed and delivered within the State of
Texas, and the rights and obligations of the parties hereto shall be
construed and enforced in accordance with and governed by the laws of the
State of Texas applicable to agreements made and to be performed entirely
within Texas. Should any litigation arise concerning this Agreement, it
will be filed only in a court in Austin, Texas, and then only if consistent
with the parties' obligations under paragraph 37 hereof with regard to
arbitration.
29. Entire Agreement. This Agreement constitutes a single integrated contract
expressing the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous oral and written
agreements and discussions with respect to the subject matter hereof. There
are no other agreements, written or oral, express or implied, between the
parties hereto, concerning the subject matter hereof, except as set forth
herein. This Agreement may be amended only by an agreement in writing.
30. Binding Effect. This Agreement is binding upon and shall inure to the
benefit of the parties hereto, their heirs, permitted assignees and
successors in interest (including successors in any reorganization or
merger with any other entity).
31. Construction of Agreement. Each party has cooperated in the drafting and
preparation of this Agreement, and, accordingly, in any construction or
interpretation of this Agreement, the same shall not be construed against
any party by reason of the source of drafting.
32. Costs and Attorneys' Fees. Each party is to bear his or its own costs and
attorneys' fees incurred in connection with the matters resolved by this
Agreement and in connection with the negotiation and the preparation of
this Agreement. However, in the
<PAGE>
18
event of litigation or arbitration relating to or for the enforcement
of this Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees and costs actually incurred.
33. Taxes. Ross acknowledges his responsibility for any and all taxes due with
respect to the sums paid to him under this Agreement, represents that he
has received independent advice concerning his tax obligations, and states
that he has not relied upon representations or advice, if any, of the
Company or its accountants or legal counsel concerning the taxable or
nontaxable nature of the consideration received by him hereunder or any
other consideration received from the Company. Ross agrees that he will
indemnify, defend and hold the Company harmless from any and all claims for
taxes, penalties and/or interest related to the foregoing consideration.
34. Counterparts. This Agreement may be executed in counterparts. When each
party has signed and delivered at least one such counterpart, each
counterpart shall be deemed an original, and, when taken together with
other signed counterparts, shall constitute one Agreement which shall be
binding upon and effective as to all parties. No counterpart shall be
effective until all parties hereto have executed and exchanged an executed
counterpart hereof.
35. No Waiver. The failure to enforce at any time any of the provisions of this
Agreement, or to require at any time performance by the other party of any
of the provisions hereof, shall in no way be construed to be a waiver of
such provisions or to affect either the validity of this Agreement or any
part hereof or the right of either party thereafter to enforce each and
every provision in accordance with the terms of this Agreement.
36. Non-performance by the Company.
a. The Company agrees that all payments due to Ross under this Agreement
shall be paid when due. If the Company is unable to make any payment
because of the Company's financial condition, the Company shall treat
Ross no less favorably than other unsecured creditors. In addition,
any sum unpaid shall bear interest at the rate of 9% per annum from
the due date until the date of actual payment, and Ross shall be
entitled to reasonable attorney's fees in the event he brings a
successful action to collect any amounts due but unpaid. In the event
of an alleged non-payment by the Company, Ross shall also be entitled
to an expedited arbitration in which the arbitrator shall, in addition
to any other authority, have the right to issue a preliminary order
requiring payment by the Company. In addition to, and not in exclusion
of, any other remedies Ross may have under this Agreement or otherwise
with respect to any failure by the Company to pay amounts due under
this Agreement in a timely fashion, in the event that such a failure
continues and is not cured by the later of (i) ninety (90) days after
the payment due date (provided that the Company's payments to Ross
under this Agreement during the preceding 365 day period have not been
more than thirty (30) days late) or (ii) thirty (30) days after
delivery of written notice of such failure by Ross to the Company (the
later date being termed herein the "Notice Date"), then:
<PAGE>
19
1. If, after the Notice Date, any of the gross amounts
described in subparagraphs 3(b) (bonus) and 3(c) (vacation
pay) have not yet been paid to Ross, and amounts due under
this Agreement remain late and unpaid, Ross may in his sole
discretion elect by written notice to the Company to do any
one or more of the following: (i) accelerate all amounts
remaining due under paragraph 3, (ii) terminate all future
obligations of the parties under paragraphs 4, 5, 8, 12, 16
and 18, and (iii) rescind the releases set forth in
paragraph 10. If Ross rescinds the releases set forth in
paragraph 10, the releases set forth in paragraph 11 shall
also be automatically rescinded. In all other respects, this
Agreement shall remain in full force and effect.
2. If, after the Notice Date, all of the gross amounts
described in subparagraphs 3(b) (bonus) and 3(c) (vacation
pay) have been paid in full to Ross, but other amounts due
under this Agreement remain late and unpaid, Ross may in his
sole discretion elect by written notice to the Company to do
any one or more of the following: (i) accelerate all amounts
remaining due under paragraph 3, and (ii) terminate all
future obligations of the parties under paragraphs 4, 5, 8,
12, 16 and 18. In all other respects, this Agreement shall
remain in full force and effect.
3. Under either clause (1) or clause (2) above, Ross shall be
entitled to retain all amounts paid to him under the
Agreement prior to his election of such remedies (except for
any amounts subject to refund to the Company pursuant to
subparagraphs 4(e) or 12(e)).
b. In the event that the Company's continued failure to make a payment
described in this paragraph 36 after the Notice Date is the result of
a dispute in good faith between the parties or a bankruptcy filing by
or against the Company, then Ross shall have the remedies described in
subparagraph 36(a)(2) but not the additional remedies described in
subparagraph 36(a)(1), and in the case of a bankruptcy filing against
the Company Ross shall be entitled to exercise remedies only if the
failure to pay continues ninety (90) days after the bankruptcy filing.
If a dispute in good faith is resolved in the Company's favor, at the
Company's election any acceleration or termination by Ross pursuant to
subparagraph 36(a)(2) shall be set aside and the parties shall be
restored to their respective positions existing prior to Ross'
exercise of such remedies.
c. If Ross elects to accelerate amounts remaining due under paragraph 3
or to terminate certain future obligations of the parties as provided
in subparagraphs 36(a)(1) and 36(a)(2) above, the Company shall have
the right in its sole discretion to terminate any remaining future
obligations of the parties under paragraphs 4, 5, 8(a), 12, 16 and 18
by written notice to Ross. In all other respects, this Agreement shall
remain in full force and effect.
d. Nothing contained in this paragraph 36 or elsewhere in this Agreement
nor the Company's failure to make any payment due hereunder shall
affect
<PAGE>
20
the validity or finality of any release described in subparagraph
8(b) that may have been delivered to the Company at any time or the
obligations of Ross under paragraphs 13, 14, 15 or 19.
37. Arbitration. Except in connection with an action by the Company or Ross for
injunctive or other equitable relief pursuant to paragraphs 12 through 17,
any controversy, dispute, or claim between the parties to this Agreement or
any party released pursuant to it, including without limitation any claim
arising out of, in connection with, or in relation to the interpretation,
performance or breach of this Agreement, shall be finally resolved, at the
request of either party, by confidential binding arbitration conducted in
Austin, Texas in accordance with the then most applicable rules of the
American Arbitration Association, and judgment upon any award rendered by
the arbitrator may be entered by any state or federal court having
jurisdiction thereof. In any such arbitration, the arbitrator shall have
the jurisdiction and authority to issue any remedy (but only such remedy)
that a court of competent jurisdiction could have provided based upon the
facts found by the arbitrator. After soliciting the views of each party,
the arbitrator shall order such discovery as he or she may consider
reasonable and appropriate given the subject matter of the dispute. At the
conclusion of the proceeding, the arbitrator shall issue a written opinion
setting forth the legal analysis and basis for his or her decision and
material findings of fact. In the event either party shall suspend its
performance on the basis that its performance has been excused by a
material breach by the other party, either party seeking performance may
request preliminary relief from the arbitrator and both parties agree to
cooperate to have such issue heard on an expedited basis. The arbitrator
may hear such issue on a preliminary basis and may grant such preliminary
relief, and under such conditions, as the arbitrator shall deem to be
appropriate and equitable. In the event the parties are unable to agree
upon an arbitrator, the parties shall select a single arbitrator from a
list designated by the nearest office of the American Arbitration
Association of seven arbitrators, all of whom shall be retired judges who
have had experience in the employment law, who are actively involved in
hearing private cases and who are resident in the greater Austin area. If
the parties are unable to select an arbitrator from the list provided by
the American Arbitration Association, then the parties shall each strike
names alternatively from the list, with the first to strike being
determined by lot. After each party has used three strikes, the remaining
name on the list shall be the arbitrator. The parties intend that this
agreement to arbitrate be valid, enforceable and irrevocable and that it
provide the exclusive remedy with respect to all disputes within its scope.
The fees and expenses of the arbitrator shall initially be divided evenly
between the parties. Thereafter they shall be treated as costs pursuant to
paragraph 32.
38. Ross' Understanding. Ross represents and warrants that he has carefully
read this Agreement, that it has been fully explained to him by his
attorney, that he fully understands its final and binding effect and
understands that he is releasing certain rights and entitlements, that the
only promises made to him to sign the Agreement are those stated above, and
that he is signing this Agreement voluntarily.
<PAGE>
21
39. Age Discrimination in Employment Act Waiver. The waiver given below is
given only in exchange for consideration in addition to anything of value
to which Ross is already entitled. The waiver set forth below does not
waive rights or claims which may arise after the date of execution of this
Agreement. Ross acknowledges that (i) this paragraph is written in a manner
calculated to be understood by Ross, (ii) that by reviewing this paragraph
or drafts thereof he has been advised in writing to consult with an
attorney before executing this Agreement, (iii) he was given a period of 21
days within which to consider this paragraph, and (iv) to the extent he
executes this Agreement, including this paragraph, before the expiration of
the 21 day period, he does so knowingly and voluntarily and only after
consulting with an attorney. Ross shall have the right to cancel and revoke
this paragraph during a period of seven days following his execution of the
Agreement and this paragraph shall not become effective, and no money shall
be paid hereunder, until the expiration of such 7-day period. All other
provisions of this Agreement shall become effective upon execution. Ross
shall notify the Company's counsel in writing of the date of the execution
of this Agreement by faxing to the Company's counsel a signed and dated
copy of the signature page signed by him. The 7-day period of revocation
shall commence upon the date of Ross' execution of this Agreement. Within
the 7-day revocation period, Ross or his counsel shall forward to the
Company and the Company's counsel a copy of this Agreement fully executed
by Ross. In order to revoke this paragraph, Ross shall deliver to the
Company, prior to the expiration of said 7-day period, a written notice of
cancellation.
In addition to the release set forth in paragraph 10 hereof, Ross
hereby voluntarily and knowingly waives all rights or claims arising under
the Federal Age Discrimination in Employment Act. The consideration for
this paragraph shall be the compensation due Ross with respect to the final
month of the Consultancy Period.
40. Effectiveness of Agreement. This Agreement shall be a binding agreement
upon its execution except that the provisions of paragraph 39 shall be
effective, if at all, only in accordance with its provisions.
41. Severability and Reformation. In the event that any of the provisions of
this Agreement, as applied to either Ross or the Company or to any
circumstances, shall be found to be impermissibly broad (with regard to
scope, period of time, or geographic reach) or otherwise adjudged void or
unenforceable, or in conflict with any applicable law, the parties intend
such provisions to be enforced to the greatest extent legally possible, and
the body adjudicating such provisions void, unenforceable, or in conflict
with any applicable law, shall be vested with the authority to reform such
provisions in any manner necessary to effectuate the parties' intent to the
greatest extent allowable by law.
42. Notices. Any notice that a party shall desire or be required to provide
under this Agreement shall be in writing and shall be delivered by personal
delivery (including confirmed delivery by a reputable messenger or courier
service), by confirmed facsimile transmission or by deposit in the United
States Mail, registered and return receipt requested, as follows:
<PAGE>
22
Notices to Ross: Mr. Roger D. Ross
**
with a copy by the same means to:
---------------------------------
**
Notices to the Company: ROSS Technology, Inc.
5316 Highway 290 West, Suite 500
Austin, Texas 78735
Attention: President
Facsimile No.: (512) 892-3402
with a copy by the same means to:
---------------------------------
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067
Attention: David A. Dull, Esq.
Facsimile No.: (310) 203-7199
Such addresses may be changed from time to time by written notice
provided hereunder. Any notice delivered hereunder shall be deemed to be
delivered on the date of actual delivery (in the case of personal
delivery), on the next regular business day in the recipient's locality (in
the case of facsimile transmission), or five (5) days after deposit in the
United States Mail (in the case of registered mail).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
<PAGE>
23
EXECUTION AND ACKNOWLEDGMENT BY ROGER D. ROSS:
I received this Separation Agreement on December 5, 1997. I understand
that I have twenty-one (21) days thereafter within which to consider
paragraph 39 of this Agreement with my legal counsel. I have freely chosen
to sign this Separation Agreement on the date shown below. I understand
that I will have seven (7) days thereafter within which to revoke my
acceptance of paragraph 39 of this Separation Agreement and that such
paragraph of the Separation Agreement shall not be effective under the
expiration of that seven (7) day period. I understand that all other
provisions of this Separation Agreement will be effective, as of the
Effective Date, upon its execution by both parties.
Executed at Austin, Texas, this 5th day of December, 1997.
/s/ Roger D. Ross
-----------------
Roger D. Ross
<PAGE>
24
EXECUTION AND ACKNOWLEDGMENT BY ROSS TECHNOLOGY, INC:
ROSS TECHNOLOGY, INC.
Date: December 5, 1997 By: /s/ Jack W. Simpson, Sr.
--------------------------
Jack W. Simpson, Sr.
President and Chief Executive Officer
<PAGE>
25
EXHIBIT A
**
<PAGE>
1
MASTER PROMISSORY NOTE
----------------------
New York, New York Dated: October 29, 1997
Ross Technology, Inc., a Delaware corporation (the "Borrower"), FOR VALUE
RECEIVED, hereby promises to pay to the order of the DAT-ICHI. KANGYO BANK
LIMITED, New York Branch (the "Bank"), at its offices at One World Trade Center,
Suite 4911, New York, New York, the principal sum of any loans or advances (each
herein referred to as a "Loan") from time to time made to the Borrower by the
Bank upon maturity date of each Loan, as such maturity date is specified in the
applicable Loan Request approved by the Bank, and to pay interest thereon on the
unpaid balance thereof at the rate and as the dates specified in the applicable
Loan Request approved by the Bank, all as more fully described below; provided,
however, that in no event shall the aggregate amount of Loans outstanding
hereunder at any time exceed $20,000.000.00 (Twenty Million United States
Dollars).
The Borrower and the Bank agree that the following terms and conditions
shall govern all Loans made at any time by the Bank to the Borrower, except to
the extent othenvise expressly agreed in writing by the Borrower and the Bank as
to any specific transaction. This Agreement shall expire on March 31. 1998 Upon
the date hereof, this Master Promissory Note shall become effective and the
Master Promissory Note dated June 30,o 1997 for the amount of$50,000,000.00
(Fifty Million United States Dollars) made by the Borrower to the order of the
Bank shall be of no further force and effect and shall be canceled.
1. Loans.
-----------
Upon receipt of a Loan Request from the Borrower as provided in Section
4(a), the Bank may, in its sole and absolute discretion, but shall not in any
way be obligated to, make to the Borrower, (a) a Federal Funds Rate Loan or (b)
a LIBOR Rate Loan.
2. Interest.
--------------
(a) Rate. Each Loan shall bear interest on the outstanding principal amount
thereof for each Interest Period applicable thereto at the rate per annum agreed
by the Borrower and the Bank in each case as set forth in the relevant Loan
request approved by the Bank. Such rate shall be based on the Federal Funds Rate
or the LIBOR Rate, plus any applicable margins. Any amount of principal of any
Loan and, to the maximum extent permitted under applicable law, interest
thereon, not paid when due (whether at maturity, by reason of notice of
prepayment, acceleration or otherwise) shall bear interest from the due date
thereof until the date of payment at [the Prime Rate, plus 2%].
<PAGE>
2
(b) Payment. Accrued interest on each Loan shall be payable on the last day
of each Interest Period applicable thereto and on any interim interest payment
dates specified in the relevant Loan Request approved by the Bank.
(c) Computation. Interest on the Loans shall be computed on the basis of a
year of 360 days and paid for the actual number of days elapsed (including the
first but excluding the last day).
3. Repayments and Prepayments.
--------------------------------
(a) Mandatory Repayment. Each Loan shall be due and payable by the Borrower
upon the maturity date therefore specified in the relevant Loan Request approved
by the Bank.
(b) Voluntary Prepayment. The Borrower may, upon at least two Business
Days' prior irrevocable wntten notice to the Bank stating the proposed date
(which date shall be the last day of an Interest Period in respect of the Loan
being prepaid) and aggregate principal amount of the prepayment, prepay the
outstanding principal amount of a Loan, in whole or in part, without premium or
penalty, together with accrued interest to the date of such prepayment on the
principal amount of the Loan prepaid and any amounts owing under Section 8 [;
provided, however, that each partial prepayment shall be in an aggregate amount
not less than $100,000.00 (One Hundred Thousand United States Dollars) or
integral multiples of $100.000.00 (One Hundred Thousand United States Dollars)
in excess thereof]. Upon the giving of such notice of prepayment, the principal
amount of a Loan specified to be prepaid, accrued interest thereon, and any
amounts owing under Section 8 shall become due and payable on the date specified
for such prepayment.
4. Loan and Prepayment Procedures.
------------------------------------
(a) Notice. The Borrower shall deliver to the Bank a Loan Request ( which
shall be irrevocable) in substantially the form of tixhibit 1 for a requested
Loan no later than (i) one Business Day, in the case of Federal Funds Rate
Loans, or (ii) three Business Days, in the case of LABOR Rate Loans, before the
requested disbursement date for such Loan. Such Loan Request shall specify (i)
the requested Loan disbursement date, which shall be a Business Day, (ii) the
amount of such Loan, and (iii) the requested duration of the initial Interest
Period for such Loan. Upon the disbursement of each requested Loan, the Bank
shall send to the Borrower a copy of such Loan Request accepted in writing by
the Bank and completed to include the additional terms of such Loan referred to
therein, including the maturity date, applicable interest rate and the
applicable Interest Period (and, in the case of any Interest Period that exceeds
three months, any interim interest payment dates), which confirmation shall be
binding for all purposes, absent manifest error.
<PAGE>
3
The Borrower, by its delivery of a Loan Request to the Bank and its
acceptance of the Loan made pursuant thereto, irrevocably agrees that it shall
be bound by all of the terms, conditions and provisions set forth in the
completed and accepted Loan Request and in this Master Promissory Note.
(b) Loan and Payments. (i) Manner. The Bank will credit the Borrower's
account at the Bank unith proceeds of each Loan that the Bank agrees to make
unless other disbursement instructions acceptable to the Bank are received. All
payments made hereunder to the Bank shall be made without any reduction or
deduction whatsoever including any reduction or deduction for set-off,
recoupment, counterclaim (whether sounding in tort, contract or otherwise) or
any Federal, state or foreign tax of any kind or nature whatsoever. A payment
shall not be deemed to have been made on any day unless such payment has been
received by the Bank in U.S. Dollars in funds immediately available to the Bank
at its offices referred to above no later than 12:00 noon (New York City time)
on such day. The Borrower hereby authorizes the Bank to charge any amount
payable hereunder that is not paid when due against any and all of the accounts
of the Borrower with the Bank or any of its affiliates, with the Borrower
remaining liable for any deficiency.
(ii) Extension of Pavment Date. Whenever any payment to the Bank in respect
of any Loan would otherwise be due on a day that is not a Business Day, such
payment shall instead be due on the next succeeding Business Day (and shall bear
interest for such extended time at the rate applicable in respect of the
immediately prior Business Day).
Continuation. Each Federal Funds Rate Loan or LIBOR Rate Loan shall
automatically be continued as a Federal Funds Rate Loan or LIBOR Rate Loan, as
the case may be, at the end of the Interest Period applicable thereto, unless
(i) such Loan is due to the mature at the end of such Interest Period, or (ii)
the Borrower shall have given the Bank a timely Loan Request as provided in
Section 4(a) requesting that such Loan be changed to a LIBOR Rate Loan or
Federal Funds Rate Loan, as the case may be.
(d) Evidence of Indebtedness. Each Loan and the Borrower's obligation to
repay each Loan with interest thereon in accordance with the terms of this
Master Promissory Note shall be evidenced hereby and by the records of the Bank.
5. Representations and Warranties.
------------------------------------
The Borrower represents and Warrants to the Bank that:
(a) Corporate Existence; Compliance with Law. The Borrower (i) is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware; (ii) is duly qualified as a foreign corporation and in good
standing under the law of each jurisdiction where such qualification is
necessary, except for failures which in the aggregate have no Material Adverse
Effect; (iii) has all requisite corporate power and authority and the legal
right to own, pledge, mortgage and operate its properties, to lease
<PAGE>
4
the property it operates under lease and to conduct its busniness as now or
currently proposed to be conducted; (iv) is in compliance with its certificate
of incorporation and by-laws; (v) is in compliance with all applicable
requirements of law except for such noncompliances as in the aggregate have no
Material Adverse Effect; and (vi) has all necessary licenses, permits, consents
or approvals from or by, has made all necessary filings with, and has given all
necessary notice to, each governmental authority having jurisdiction, to the
extent required for such ownership, operation and conduct, except for licenses,
permits, consents or approvals which can be obtained by the taking of
ministerial action to secure the grant or transfer thereof or failures which in
the aggregate have no Material Adverse Effect.
(b) Corporate Power; Authorization; Enforceable Obligations. (i) The
execution, delivery and performance by the Borrower of each Loan Document and
the consummation of the transactions contemplated thereby:
(A) are within the Borrower's corporate powers;
(B) have been duly authorized by all necessary corporate action;
(C) do not and will not (1) contravene the Borrower's certificate of
incorporation or by-laws or other comparable governing documents,
(2) violate any applicable requirement of law (including, without
limitation, Regulations G, T, U and X of the Board of Governors
of the Federal Reserve System), or any order or decree of any
governmental authority or arbitrator, (3) conflict with or result
in 'the breach of, or constitute a default under, or result in or
permit the termination or acceleration of, any contractual
obligation of the Borrower, or (4) result in the creation or
imposition of any lien upon any of the property of the Borrower
(other than pursuant to any Collateral Agreement); and
(D) do not require the consent of, authorization by, approval of,
notice to, or filing or registration with, any governmental
authority or any other person or entity, other than those which
have been obtained or made and copies of which have been
delivered to the Bank, and each of which is in full force and
effect.
(ii) This Master Promissory Note has been, and each of the other Loan
Documents will have been upon delivery thereof, duly executed and delivered by
the Borrower. This Master Promissory Note is, and each of the other Loan
Documents will be, when delivered to the Bank, the legal, valid and binding
obligation of the Borrower, enforceable against it in accordance with its terms.
(c) Financial Matters. (i) The consolidated balance sheet of the Borrower
and its subsidiaries as at March 31. 1997, and the related consolidated
statements of income, retained earnings and cash flows of the Borrower and
<PAGE>
5
its subsidiaries for the fiscal year then ended, certified by the borrower's
auditor, copies of which have been furnished to the Bank, fairly present the
consolidated financial condition of the Borrower and its subsidiaries as at such
dates and the consolidated results of the operations of the Borrower and its
subsidiaries for the period ended on such dates, all in conformity with
generally accepted accounting principles.
(ii) Since April 1, 1996 there has been no Material Adverse Change and
there have been no events or developments that in the aggregate have had a
Material Adverse Effect.
(d) Litigation. The performance of any action by the Borrower required or
contemplated hereby is not restrained or enjoined (either temporarily,
preliminary or permanently), and no material adverse condition has been imposed
by any governmental authority or arbitrator upon any of such transactions.
(e) Pari Passu Obliaations. The Loans, all interest thereon and all other
amounts payable by the Borrower hereunder constitute the direct, unconditional
and general obligations of the Borrower, and rank at least pari passu with all
other indebtedness and other obligations of the Borrower.
6. Information.
------------------
Upon the request from time to time of the Bank, the Borrower shall promptly
furnish to the Bank such certificates, reports, statements, (including financial
statements of the Borrower and its subsidiaries), documents and information
regarding the business, assets, liabilities, financial condition, results of
operations or business prospects of the Borrower and its subsidiaries as the
Bank may reasonably request.
7. Events of Default: Remedies.
---------------------------------
If any of the following events (each, an "Event of Default") shall occur
and be continuing:
(a) any payment of principal of or interest on any Loan shall not be paid
when and as due (whether at maturity, by reason of notice of prepayment,
acceleration or otherwise) in accordance with the terms of this Master
Promissory Note; or
(b) the Borrower shall default in the performance or observance of any
other term, covenant or agreement contained herein or in any other Loan
Document: or
(c) the Borrower shall fail to pay any other indebtedness for borrowed
money or any interest thereon, when due (whether by scheduled maturity, by
reason of notice of prepayment, acceleration, demand, or otherwise), and such
failure shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such indebtedness; or
<PAGE>
6
(d) a case or proceeding shall be commenced and continue undismissed or
unstayed for a period of 30 days against the Borrower or any of its
subsidiaries, or the Borrower or any of its subsidiaries shall commerce a
voluntary case, in either case seeking relief under the Federal bankruptcy laws
or any other law relating to bankruptcy, insolvency, reorganization, winding up
or composition or adjustment of debts, in each case as now or hereafter in
effect, or the Borrower or any of its subsidiaries shall apply for, consent to,
or fail to contest, the appointment of a receiver, liquidator, custodian,
trustee or the like of the Borrower or any o fits subsidiaries or for all or any
part or its property or any of its subsidiaries' property, or the Borrower or
any of its subsidiaries shall make a general assignment for the benefit of its
creditors, or the Borrower or any of its subsidiaries shall fail, or admit in
writing its inability, to pay, or generally not be paying, its debts as they
become due; or
(e) any provision of this Master Promissory Note, any other Loan Document
or any other agreement related hereto or thereto shall fail to be the legal
valid and binding obligation of the Borrower, enforceable in accordance with its
terms, or the Borrower shall so state in writing; or
(f) any representation or warranty made by the Borrower in this Master
Promissory Note, any other Loan Document or any other agreement related hereto
or thereto shall have been incorrect, or shall have been misleading in any
material respect, when made; or
(g) there shall occur any Material Adverse Change or any event which would
have a Material Adverse Effect; or
(h) any Collateral Agreement after delivery thereof shall, for any reason,
cease to create a valid lien on any of the collateral purported to be covered
thereby, or such lien shall cease to be a perfected and first priority lien, or
the Borrower shall so state in writing:
THEN, during the continuance of any such Event of Default (other than an Event
of Default of the type specified in Section 7(d)), the Bank may by written
notice to the Borrower (i) declare, in whole or from time to time in part, the
principal of and interest on the Loans and all other amounts owing hereunder and
under each of the other Loan Documents to be, and the Loans, such interest and
such other amounts shall thereupon and to that extent become, due and payable to
the Bank, and (ii) exercise any or all rights provided for herein, in any other
Loan Document or by applicable law or in equity. During the continuance of any
Event of Default of the type specified in Section 7(d), automatically and
without any notice to the Borrower the principal of and interest on the Loans
and all other amounts owing hereunder and under each of the other Loan Documents
shall be immediately due and payable to the Bank.
<PAGE>
7
8. Funding Losses.
--------------------
The Borrower shall pay to the Bank, upon request, such amount or amounts as
the Bank determines are necessary to compensate if for any loss, cost or expense
incurred by it as a result of a Loan for any reason not being made, or any
payment of principal thereof or interest thereon not being made on the date
therefore determined in accordance with the applicable provisions of this Master
Promissory Note or any Loan Request. At the option of the Bank, and without
limitation, such compensation on account of losses may include an amount equal
to the excess of(a) the interest that would have been received from the Borrower
on any amounts to be reemployed by the Bank during an Interest Period or its
remaining portion over (b) the interest component of the return that the Bank
determines it could have obtained had it placed such an amount on deposit in the
London Interbank U.S. Dollar Market for a period equal to such Interest Period
or its remaining portion. The Bank shall furnish to the Borrower upon request a
certificate outlining in reasonable detail the computation of any amounts
claimed by it under this Section and the assumptions underlying such
computations.
9. Notices.
-------------
All notices and other communications provided for hereunder shall be in
writing (including, without limitation, telegraphic, telex, telecopy or cable
communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered
by hand, ifto the Borrower, at its address at 5316 Highway 290 W#500. Austin.
Texas 78735-8930 (telecopy number: (512) 892-3036) (telephone number:(512)
436-2508), Attention: ifto the Bank, at its address at The Dai-Ichi Kangyo Bank,
Ltd., New York Branch, One World Trade Center, Suite 4911, New York, New York
10048 (telecopy number: (212) 524-0579) (telephone number: (212) 432-6664),
Attention: Junichi Morita, or as to either 'party, at such other address as
shall be designated by such party in a written notice to the other parties. All
such notices and communications shall, when mailed, telegraphed, telexed,
telecopied, cabled or delivered, be effective when deposited in the mails,
delivered to the telegraph company, confirmed by telex answer back, telecopied
with confirmation of receipt, delivered to the cable company or delivered by
hand to the addressee or its Bank, respectively, except that notices and
communications to the Bank pursuant to Section 4 shall not be effective until
actually received by the officer of the Bank responsible at the time for the
administration or this Master Promissory Note.
10. Expenses. Indemnity.
-------------------------
The Borrower shall pay or reimburse the Bank for all costs and expenses
(including, but not limited to, fees and disbursements of legal counsel)
incurred by the bank in connection with, arising out of, or in any way related
to, the enforcement, exercise, preservation or protection by the Bank of any of
its rights under this Master Promissory Note or any other Loan Document. The
Borrower shall indemnify the Bank, its affiliates, and the directors, officers,
employees, and agents of the Bank and its affiliates against any loss, claim,
liability or expense (including, without limitation fees and disbursements of
legal counsel) incurred by any of them in connection with, arising out of or
relating to this Master Promissory Note, any other Loan Document, any Loan, or
any of the transactions contemplated hereby, unless and to the extent proven to
be the result of willful misconduct or gross negligence by the Bank.
<PAGE>
8
11. Judicial Proceedings; WAIVER OF JURY TRIAL.
------------------------------------------------
(a) Each of the Borrower and the Bank agrees to submit to personal
jurisdiction in any court of competent jurisdiction in New York City and to
irrevocably waive any objection it may now or hereafter have as to the venue of
any proceeding brought in such court or that such court is an inconvenient
forum. The Borrower hereby waives personal service of process and consents that
service of process upon it may be made, and deemed completed, in accordance with
the provision of Section 9.
(b) EACH OF THE BORROWER AND THE BANK HEREBY WAIVES TRLAL BY JURY IN ANY
JUDICIAL PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN, THIS MASTER
PROMISSORY NOTE, ANY OTHER LOAN DOCUMENT, ANY OTHER AGREEMENT RELATED HERETO OR
THERETO, OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY.
12. No Waiver: Remedies.
-------------------------
No failure on the part of the Bank to exercise, and no delay in exercising,
and no course of dealing with respect to, any right hereunder or under any other
Loan Document or under any other document executed in connection herewith or
therewith shall operate as a waiver thereof nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law or in equity.
13. Binding Effect.
--------------------
This Master Promissory Note and each of the other Loan Documents shall be
binding upon and inure to the benefit of the Borrower, the Bank and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights or delegate its obligations hereunder or thereunder
or any interest herein or therein without the prior written consent of the Bank.
14. Severabilitv.
------------------
Wherever possible, each provision of this Master Promissory Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Master Promissory Note.
<PAGE>
9
15. Execution in Counterparts.
-------------------------------
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
16. Survival
-------------
The representations and warranties of the Borrower contained in each of the
Loan Documents shall survive the execution and delivery of the Loan Documents
and the making of the Loans.
17. Entire Agreement
---------------------
This Agreement, together with all of the other Loan Documents and all
certificates and documents delivered thereunder or thereunder, embody the entire
agreement of the parties and supersedes all prior agreements and understandings
relating to the subject matter hereof.
18. Governing Law.
-------------------
THIS MASTER PROMISSORY NOTE AND EACH OF THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY AND CONSTRUED LV ACCORDANCE WITH TB[E LAW OF THE STATE OF NEW YORK.
19. Definitions.
-----------------
For purpose of this Agreement:
"Business Day" shall mean any day other than Saturday, Sunday or other day
on which banks in New York City are authorized to close.
"Collateral Agreement" shall mean any security agreement, pledge agreement,
or similar agreement between the Borrower and/or any of its affiliates and the
Bank securing the Loan and the other obligations of the Borrower to the Bank
under the Loan Documents, which may from time to time be entered into.
"Federal Funds Rate" shall mean with respect to any Interest Period, the
arithmatic mean of such rates as are referred to as the Term Fed Funds Rate for
a term comparable to the relevant Interest Period on the date of the
disbursement of the relevant Loan or the commencement of new Interest Period, as
the case may be.
<PAGE>
10
"Federal Funds Rate loan" shall mean any Loan the interest on which is computed
on the basis of the Federal Funds Rate.
"Interest Period" shall mean for each Loan a period (a) commencing, on the
date of the making of such Loan and, in the case of each subsequent, successive
Interest period applicable thereto, on the last day of the immediately preceding
Interest Period applicable thereto and (b) of such' duration as the Bank and the
Borrower shall agree in each case, except that any Interest Period that would
otherwise end on a day that is not a Business Day shall be extended to the next
succeeding Business Day.
"LIBOR Rate" shall mean the rate per annum determined by the Bank in it's
sole discretion to be the respective rate in the London Interbank Market at
approximately 11:00a.m. London Time on the date two EurodoIlar Business Days in
London prior to the first day of such Interest Period for the offering by the
Bank in the London interbank Market of deposits in U.S. Dollars for a period
equal to such Interest Period in amounts comparable to the Eurodollar Rate Loan
to which such Interest Period applies, at the time as of which the Bank makes
such determination.
"LIBOR Rate Loan" shall mean any Loan the interest on which is computed on
the basis of the LIBOR Rate.
"Loan Document" shall mean this Master Promissory Note, each Loan Request
and each Collateral Agreement.
"Loan Request" shall mean a Request for Loan in substantially the form of
Exhibit 1 hereto.
"Material Adverse Change" shall mean a material adverse change in any of(a)
the condition( financial or otherwise), business, performance, prospects,
operations or properties of the Borrower and its subsidiaries taken as one
enterprise, (b) the legality, validity or enforceability of any Loan document,
(c) the perfection or priority of the liens granted pursuant to the Collateral
Documents, (d) the ability of the Borrower to repay or perform its obligations
under this Master Promissory Note or any of the other Loan Documents, or (e) the
rights and remedies of the Bank under this Master Promissory Note or any of the
other Loan Documents.
"Material Adverse Effect" shall mean an effect that results in or causes,
or has a reasonable likelihood of resulting in or causing, a Material Adverse
Change.
"Prime Rate" shall mean the rate of interest publicly announced from time
to time by the Bank as its "prime rate" for extensions of credit in United
States Dollars to customers in the United Sates, which rate is not necessarily
the lowest rate of interest charged by the Bank.
<PAGE>
11
20. Termination.
-----------------
This Agreement may be terminated by either party upon thirty days prior
notice to the other party, provided that such termination shall not affect any
Loans outstanding as of the date of termination, which shall continue to be
governed by the terms thereof or, on the expire date of March 31. 1998, which
ever comes earlier.
21. Waivers by Borrower.
-------------------------
Demand, presentment, protest and notice of non-payment and protest are
hereby waived by the Borrower.
IN WITNESS WHEREOF, the Borrower has caused this Master Promissory Note be
duly executed and delivered by its duly authorized officer, all as of the date
hereof.
[NAME OF BORROWER]
By:--------------------------
Name
Title
ACCEPTED AND AGREED TO:
THE DAI-ICHI KANGYO BANK, LTD., NEW YORK BRANCH
By:--------------------------
Name: Shigeto Yanase
Title: Senior Vice President
<PAGE>
12
Exhibit 1
REOUEST FOR LOAN
The Dai-Ichi Kangyo Bank, Ltd,. New York Branch
One World Trade Center
Suite 4911
New York, NY 10048
Gentlemen:
Reference is made to the Master Promissory Note, dated as of June 30, 1997
("the Master Note"), executed by the undersigned in favor of The Dai-Ichi Kangyo
Bank, Ltd., New York Branch (the "Bank"). The undersigned hereby gives notice
pursuant to the requirements of the Master Note of its request for the following
Loan(s) on the following requested terms, to be made in the sole and absolute
discretion of the Bank and on such other or additional terms as the Bank may
indicate below, which will be subject to and governed by the Master Note(the
terms, definitions and provisions of which are hereby incorporated herein as if
set forth in full herein):
Amount of Loan Date of Loan Maturity Date Interest Rate
The Undersigned represents and warrants that:
1. The representations and warranties made by the undersigned in the Master
Note and in each of the other Loan Documents are and will be true, complete and
correct on and as of the date hereof and on and as of the date of disbursement
of each of the requested Loans, as if made on and as of the date hereof and
thereof and
2. No Event of Default has occurred and is continuing, or would result from
the borrowing(s) requested herein.
<PAGE>
13
By accepting the Loan(s) requested pursuant hereto, the Borrower irrevocably
agrees to all of the terms, conditions and provisions set forth therein
(including, without limitation, those terms and provisions indicated above by
the Bank) and in the Master Note.
CNAME OF BORROWER]
By:--------------------------
Name :
Title:
The foregoing request is approved.
THE DAI-ICHI KANGYO BANK, LTD., NEW YORK BRANCH
By:--------------------------
Name: Shigeto Yanase
Title: Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ARTICLE 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 29, 1997 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 29, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-30-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-29-1997
<CASH> 395
<SECURITIES> 0
<RECEIVABLES> 6,695
<ALLOWANCES> 1,820
<INVENTORY> 15,150
<CURRENT-ASSETS> 31,621
<PP&E> 16,426
<DEPRECIATION> 15,903
<TOTAL-ASSETS> 48,047
<CURRENT-LIABILITIES> 26,568
<BONDS> 0
0
49,508
<COMMON> 23
<OTHER-SE> (28,052)
<TOTAL-LIABILITY-AND-EQUITY> 48,047
<SALES> 37,554
<TOTAL-REVENUES> 37,554
<CGS> 29,917
<TOTAL-COSTS> 29,917
<OTHER-EXPENSES> 13,652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,800
<INCOME-PRETAX> (7,815)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,815)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,815)
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
