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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
ROSS TECHNOLOGY, INC.
(Name of the Issuer)
ROSS TECHNOLOGY, INC.
FUJITSU LIMITED
BRIDGEPOINT TECHNICAL MANUFACTURING CORPORATION
(Name of Persons Filing Statement)
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class of Securities)
778304105
(CUSIP Number of Class of Securities)
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<TABLE>
<S> <C> <C>
FRANCIS S. (KIT) WEBSTER III YOSHIRO YOSHIOKA JOE D. JONES
CHIEF FINANCIAL OFFICER FUJITSU LIMITED PRESIDENT
ROSS TECHNOLOGY, INC. 1-1 KAMIKODANAKA 4-CHOME BRIDGEPOINT TECHNICAL
TWO CIELO CENTER, THIRD FLOOR NAKAHARU-KU MANUFACTURING
1250 CAPITAL OF TEXAS HIGHWAY, KAWASAKI-SHI KANAGAWA 211-88 CORPORATION
SOUTH AUSTIN, TEXAS 78746 JAPAN 4007 COMMERCIAL CENTER DRIVE
(512) 329-2499 011-81-44-754-3019 AUSTIN, TEXAS 78744
(512) 434-4726
</TABLE>
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Persons Filing Statement)
Copies to:
<TABLE>
<S> <C> <C>
ANDREW W. GROSS, ESQ. DAVID C. WILSON, ESQ. KYLE K. FOX, ESQ.
IRELL & MANELLA LLP MORRISON & FOERSTER LLP VINSON & ELKINS L.L.P.
1800 AVENUE OF THE STARS, SUITE 755 PAGE MILL ROAD ONE AMERICAN CENTER,
900 PALO ALTO, CALIFORNIA 94304 600 CONGRESS AVENUE, SUITE 2700
LOS ANGELES, CALIFORNIA 90067 (650) 813-5600 AUSTIN, TEXAS 78701
(310) 277-1010 (512) 495-8451
</TABLE>
CALCULATION OF FILING FEE
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TRANSACTION VALUATION AMOUNT OF FILING FEE
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<S> <C>
$15,760,000* $3,152**
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</TABLE>
* For purposes of fee calculation only. The total transaction value is based
on the aggregate proceeds to the Company of $15,760,000 from the sales of
assets described herein.
** The amount of the filing fee calculated in accordance with Regulation
240.0-11 of the Securities Exchange Act of 1934 equals 1/50 of 1% of the
value of the assets to be purchased.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
<TABLE>
<S> <C> <C> <C> <C>
Amount Previously Paid: $1,132 Filing Party: ROSS Technology, Inc.
Form or Registration No.: Schedule 14C Date Filed: July 28, 1998
</TABLE>
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INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule
13E-3") is being filed by ROSS Technology, Inc., a Delaware corporation (the
"Company"), Fujitsu Limited, a Japanese corporation ("Fujitsu"), and BridgePoint
Technical Manufacturing Corporation, a newly formed Texas corporation (the
"Buyer"), pursuant to Section 13(e) of the Securities Exchange Act of 1934, as
amended (the "Act"), and Rule 13e-3 ("Rule 13e-3") thereunder in connection with
(i) the sale of assets (the "Sale of Assets") related to the Company's
manufacturing, sale, distribution and customer service (but not the design)
business for the 32-bit hyperSPARC(TM) families of microprocessors and
hyperSTATION(TM) and SPARCplug(TM) families of 32-bit systems and products (the
"Business") to Buyer, in which Joe D. Jones (currently Vice President of
Operations of the Company) is Chief Executive Officer, President and currently
sole stockholder, pursuant to an Asset Purchase Agreement dated as of July 23,
1998, between the Company and Buyer (the "Asset Purchase Agreement"), a copy of
which is filed as Annex A to the Information Statement on Schedule 14C filed by
the Company with the Securities and Exchange Commission (the "SEC") on the date
hereof (the "Information Statement"); (ii) the sale by the Company to Fujitsu of
certain intellectual property, as more fully described in the Information
Statement, pursuant to an Asset Purchase and License Agreement, dated as of July
10, 1998, between the Company and Fujitsu (the "IP Sale"); and (iii) the sale by
the Company of all of the issued and outstanding capital stock of the Company's
Design Center in Israel, ROSS Semiconductors (Israel) Ltd. ("RIL"), pursuant to
the Share Acquisition Agreement, dated as of August 6, 1998, between the Company
and Fujitsu (the "Sale of RIL" and, together with the Sale of Assets and the IP
Sale, the "Transactions.")
This Schedule 13E-3 is being filed at the request of the SEC. The SEC's
staff has taken the position that Mr. Jones is an affiliate of the Company (as
that term is defined in Rule 13e-3(a)(1)) and that the Transactions are part of
a series of transactions requiring the filing of a Schedule 13E-3. The filing of
this Schedule 13E-3 by the Company should not be construed as an admission by
the Company, Fujitsu or the Buyer that Mr. Jones is an affiliate of the Company
for the purpose of Rule 13e-3, that the Transactions are part of a series of
transactions, or that the Transactions are subject to Rule 13e-3.
The information contained in this Schedule 13E-3 concerning the Company,
including, without limitation, information concerning the background of the
Transactions, the deliberations, approvals and recommendations of the Ad Hoc
Committee (as such term is defined in the Information Statement) and of the
Board of Directors of the Company in connection with the Transactions, the
appraisal report of Houlihan Lokey (as such term is defined in the Information
Statement), and the Company's capital structure and historical financial
information, was supplied by the Company. Fujitsu and Buyer take no
responsibility for the accuracy of such information. The information contained
in this Schedule 13E-3 concerning Fujitsu or the Buyer was supplied by Fujitsu
and the Buyer, respectively. The Company takes no responsibility for the
accuracy of such information and Fujitsu and the Buyer each take no
responsibility for the accuracy of the information provided by the other.
The following Cross Reference Sheet, prepared pursuant to General
Instruction F to Schedule 13E-3, shows the location in the Information Statement
of the information required to be included in this Schedule 13E-3. The
information set forth in the Information Statement, including all exhibits
thereto, is hereby expressly incorporated herein by reference as set forth in
the Cross Reference Sheet and the responses in this Schedule 13E-3, and such
responses are qualified in their entirety by reference to the information
contained in the Information Statement and the Schedules and Annexes thereto.
2
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CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM IN WHERE LOCATED
SCHEDULE 13E-3 IN SCHEDULE 14C
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<S> <C>
Item 1(a)............... Cover Page
Item 1(b-e)............. Cover Page; Market Price Data
Item 1(f)............... Special Factors -- Transactions with Fujitsu; -- Credit
Guarantees and the Recapitalization
Item 2(a-d, g).......... Business; Certain Additional Information Concerning the
Company; Certain Information Concerning Fujitsu; Certain
Information Concerning Buyer; Miscellaneous; Schedules I, II
and III
Item 2(e-f)............. *
Item 3(a)(1)............ Special Factors -- Transactions with Fujitsu -- Supply of
Wafer Products; -- Purchase of OEM Products; -- The
Colorado-4 Development Agreement and License; -- The Viper
Development Agreement and License; -- Termination Agreement;
-- Credit Guarantees and the Recapitalization; -- Background
of the Asset Purchase Agreement--Agreements between the
Buyer and Fujitsu
Item 3(a)(2)............ Special Factors -- Transactions with Fujitsu -- Credit
Guarantees and the Recapitalization; -- The IP Sale; -- The
Sale of RIL; -- Background of the Asset Purchase Agreement
Item 3(b)............... Special Factors -- Attempted Sale of the Company or its
Various Assets Other Than to Fujitsu or Buyer -- Attempted
Sale to Sun; -- Attempted Sale of the Viper Design Team and
64-bit Intellectual Property; -- Attempted Sale of 32-bit
Intellectual Property; -- Transaction with Fujitsu -- The
Sale of RIL; --Background of the Asset Purchase
Agreement -- Agreements between the Buyer and Fujitsu
Item 4(a)............... Introduction; Summary; Special Factors -- Transactions with
Fujitsu -- The IP Sale; -- the Sale of RIL; The Sale of
Assets
Item 4(b)............... **
Item 5.................. Special Factors -- General Background; -- Special Matters
Relating to the IP Sale and the Sale of RIL -- Plans for the
Company After the IP Sale and the Sale of RIL; The Sale of
Assets -- Plans for the Company After the Sale of Assets;
-- Use of Proceeds; Liquidation and Dissolution; The Plan of
Complete Liquidation and Dissolution
Item 6(a)............... Special Factors -- Transactions with Fujitsu -- The IP Sale;
-- The Sale of RIL; -- Background of the Asset Purchase
Agreement; -- Buyer's Funding of the Sale of Assets
Item 6(b)............... Fees and Expenses
Item 6(c)............... Special Factors -- Background of the Asset Purchase
Agreement -- Buyer's Funding of the Sale of Assets
Item 6(d)............... **
</TABLE>
3
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<TABLE>
<CAPTION>
ITEM IN WHERE LOCATED
SCHEDULE 13E-3 IN SCHEDULE 14C
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<S> <C>
Item 7(a-c)............. Introduction; Summary; Special Factors -- General
Background -- Attempted Sale of the Company or its Various
Assets Other Than to Fujitsu or Buyer; -- Special Matters
Relating to the IP Sale and the Sale of RIL -- Approval of
the Board of Directors; Recommendation of the Executive
Committee and Ad Hoc Committee; Fairness of the IP Sale and
the Sale of RIL; -- Purpose of the IP Sale and the Sale of
RIL; The Sale of Assets -- Approval of the Board of
Directors and Reasons for the Sale of Assets; Recommendation
of the Ad Hoc Committee; Fairness of the Sale of
Assets; -- Purpose of the Asset Purchase Agreement and the
Sale of Assets; Reasons for the Sale Assets; The Plan of
Complete Liquidation and Dissolution
Item 7(d)............... Introduction; Summary -- The Plan; Special
Factors -- General Background; -- Special Matters Relating
to the IP Sale and the Sale of RIL -- Plans for the Company
After the IP Sale and the Sale of RIL; -- Background of the
Asset Purchase Agreement -- Agreements between the Buyer and
Fujitsu; The Sale of Assets -- Purpose of the Asset Purchase
Agreement and the Sale of Assets; Reasons for the Sale of
Assets; -- Plans for the Company After the Sale of
Assets; -- Use of Proceeds; Liquidation and Dissolution; The
Plan of Complete Liquidation and Dissolution; Certain
Federal Income Tax Consequences
Item 8(a-b)............. Special Factors -- General Background; -- Transactions with
Fujitsu -- The IP Sale; -- The Sale of RIL; -- Special
Matters Relating to the IP Sale and the Sale of
RIL -- Approval of the Board of Directors; Recommendation of
the Executive Committee and Ad Hoc Committee; Fairness of
the IP Sale and the Sale of RIL; -- Position of Fujitsu
Regarding the Fairness of the IP Sale and the Sale of RIL;
-- The KPMG Japan Valuation Analysis; -- Background of the
Asset Purchase Agreement -- The Asset Purchase
Agreement; -- Absence of Fairness Opinions; The Sale of
Assets -- Approval of the Board of Directors and Reasons for
the Sale of Assets; Recommendation of the Ad Hoc Committee;
Fairness of the Sale of Assets; -- Position of the Buyer
Regarding the Fairness of the Sale of Assets; -- Appraisal
Report of Houlihan Lokey
Item 8(c-d)............. Summary -- The Stockholder Consent to the Sale of Assets and
the Plan; Special Factors -- Special Matters Relating to the
IP Sale and the Sale of RIL; -- Approval of the Board of
Directors; Recommendation of the Executive Committee and Ad
Hoc Committee; Fairness of the IP Sale and the Sale of RIL;
The Sale of Assets -- Approval of the Board of Directors and
Reasons for the Sale of Assets; Recommendation of the Ad Hoc
Committee; Fairness of the Sale of Assets
Item 8(e)............... Special Factors -- Transactions with Fujitsu -- The IP
Sale; -- The Sale of RIL; -- Special Matters Relating to the
IP Sale and the Sale of RIL; -- Approval of the Board of
Directors; Recommendation of the Executive Committee and Ad
Hoc Committee; Fairness of the IP Sale and the Sale of
RIL; -- Potential Conflicts of Interest; The Sale of
Assets -- Approval of the Board of Directors and Reasons for
the Sale of Assets; Recommendation of the Ad Hoc Committee;
Fairness of the Sale of Assets
Item 8(f)............... Special Factors -- Attempted Sale of the Company or its
Various Assets Other Than to Fujitsu or Buyer -- Attempted
Sale of RIL; -- Transactions with Fujitsu -- The Sale of RIL
Item 9(a)............... Special Factors -- Special Matters Relating to the IP Sale
and the Sale of RIL; -- The KPMG Japan Valuation
Analysis; -- Absence of Fairness Opinions; The Sale of
Assets -- Appraisal Report of Houlihan Lokey
</TABLE>
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<TABLE>
<CAPTION>
ITEM IN WHERE LOCATED
SCHEDULE 13E-3 IN SCHEDULE 14C
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<S> <C>
Item 9(b-c)............. Special Factors -- Special Matters Relating to the IP Sale
and the Sale of RIL -- The KPMG Japan Valuation Analysis;
The Sale of Assets -- Appraisal Report of Houlihan Lokey
Item 10(a).............. Security Ownership of Certain Beneficial Owners and
Management; Schedule II; Schedule III
Item 10(b).............. Certain Additional Information Concerning the Company;
Certain Information Concerning Fujitsu; Certain Information
Concerning Buyer; Schedule II; Schedule III
Item 11................. **
Item 12(a-b)............ Special Factors -- Transactions with Fujitsu -- The IP
Sale; -- The Sale of RIL; -- Special Matters Relating to the
IP Sale and the Sale of RIL -- Approval of the Board of
Directors; Recommendation of the Executive Committee and Ad
Hoc Committee; Fairness of the IP Sale and the Sale of
RIL; -- Background of the Asset Purchase Agreement -- The
Asset Purchase Agreement; The Sale of Assets -- Approval of
the Board of Directors and Reasons for the Sale of Assets;
Recommendation of the Ad Hoc Committee; Fairness of the Sale
of Assets
Item 13(a).............. Absence of Appraisal Rights
Item 13(b-c)............ **
Item 14(a)(1)........... Audited Financial Statements -- Consolidated Balance Sheets
as of March 30, 1998 and March 31, 1997; -- Consolidated
Statements of Operations for the years ended March 30, 1998,
March 31, 1997 and April 1, 1996; Notes to Consolidated
Financial Statements
Item 14(a)(2)........... Unaudited Condensed Financial Statements -- Condensed
Consolidated Balance Sheets as of September 28, 1998 and
March 30, 1998; Condensed Consolidated Statements of
Operations for the three and six months ended September 28,
1998 and September 29, 1997; Condensed Consolidated
Statements of Cash Flows for the three and six months ended
September 28, 1998 and September 29, 1997; Notes to
Condensed Consolidated Financial Statements
Item 14(a)(3)........... Selected Consolidated Financial Data
Item 14(a)(4)........... Selected Consolidated Financial Data
Item 14(b).............. Pro Forma Condensed Consolidated Balance Sheet
Item 15(a).............. Special Factors -- General Background; -- Transactions with
Fujitsu -- The IP Sale; -- The Sale of RIL; -- Background of
the Asset Purchase Agreement
Item 15(b).............. **
Item 16................. The Information Statement; Annex A
</TABLE>
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* The Item is located in the Schedule 13E-3 only.
** The Item is inapplicable or the answer thereto is in the negative.
5
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The name of the subject company is ROSS Technology, Inc., a Delaware
corporation, which has its principal executive offices at Two Cielo Center,
Third Floor, 1250 Capital of Texas Highway South, Austin, Texas 78746.
(b) None of the Transactions involve, directly or indirectly, an
acquisition of any class of equity securities of the Company. The Company's
Common Stock, par value $0.001 per share (the "Common Stock"), is registered
under Section 12(g) of the Act. The information set forth in the Information
Statement under the caption "Market Price Data" is incorporated herein by
reference.
(c)-(e) The information concerning the principal market in which the Common
Stock is traded, certain information regarding the high and low sales prices for
the Common Stock in such principal market, dividends and certain offerings set
forth in the Information Statement under the caption "Market Price Data" is
incorporated herein by reference.
(f) The information set forth in the Information Statement under the
caption "Special Factors -- Transactions with Fujitsu -- Credit Guarantees and
the Recapitalization" is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) This Statement is being filed by the Company, Fujitsu, and the
Buyer. The name, business or residence address, principal occupation or
employment at the present time and during the last five years, and the name of
any corporation or other organization in which such employment or occupation was
conducted, of the directors and executive officers (or in the case of Fujitsu,
of persons carrying out functions in Fujitsu similar to those of directors or
executive officers in a United States corporation) of the Company, Fujitsu and
Buyer is set forth, (i) with respect to the Company, in the Information
Statement under the caption "Certain Additional Information Concerning the
Company" and Schedule I of the Information Statement, (ii) with respect to
Fujitsu, in the Information Statement under the caption "Certain Information
Concerning Fujitsu" and Schedule II of the Information Statement and, (iii) with
respect to the Buyer, in the Information Statement under the caption "Certain
Information Concerning the Buyer" and Schedule III of the Information Statement,
and such information is incorporated herein by reference.
(e)-(f) During the last five years, none of the Company, Fujitsu or the
Buyer and, to the best knowledge of the Company or Fujitsu or Buyer, no director
or executive officer (or in the case of Fujitsu, persons carrying out functions
in Fujitsu similar to those of directors or executive officers in a United
States corporation) of the Company, Fujitsu or the Buyer, respectively, (i) has
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) was party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining further
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws.
(g) The jurisdiction of incorporation of the Company, Fujitsu and the Buyer
and the citizenship of the directors and executive officers (or in the case of
Fujitsu, of persons carrying out functions in Fujitsu similar to those of
directors or executive officers in a United States corporation) of the Company,
Fujitsu and Buyer is set forth, (i) with respect to the Company, in the
Information Statement under the caption "Certain Additional Information
Concerning the Company" and Schedule I of the Information Statement, (ii) with
respect to Fujitsu, in the Information Statement under the caption "Certain
Information Concerning Fujitsu" and Schedule II of the Information Statement
and, (iii) with respect to the Buyer, in the Information Statement under the
caption "Certain Information Concerning the Buyer" and Schedule III of the
Information Statement, and such information is incorporated herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) The information set forth in the Information Statement under the
captions "Special Factors -- Transactions with Fujitsu -- Supply of Wafer
Products"; "Special Factors -- Transactions with Fujitsu -- Purchase of OEM
Products", "Special Factors -- Transactions with Fujitsu -- The Colorado-4
Development
6
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Agreement and License", "Special Factors -- Transactions with Fujitsu -- The
Viper Development Agreement and License", "Special Factors -- Transactions with
Fujitsu -- Termination Agreement", "Special Factors -- Transactions with
Fujitsu -- Credit Guarantees and the Recapitalization" and "Special Factors --
Background of the Asset Purchase Agreement -- Agreements between the Buyer and
Fujitsu" is incorporated herein by reference.
(a)(2) The information set forth in the Information Statement under the
captions "Special Factors -- Transactions with Fujitsu -- Credit Guarantees and
the Recapitalization", "Special Factors -- Transactions with Fujitsu -- The IP
Sale", "Special Factors -- Transactions with Fujitsu -- The Sale of RIL",
"Special Factors -- Background of the Asset Purchase Agreement" and "Special
Factors -- Background of the Asset Purchase Agreement -- Agreements between
Buyer and Fujitsu" is incorporated herein by reference.
(b) The information set forth in the Information Statement under the
captions "Special Factors -- Attempted Sale of the Company or its Various Assets
Other than to Fujitsu or the Buyer -- Attempted Sale to Sun", "Special
Factors -- Attempted Sale of the Company or its Various Assets Other than to
Fujitsu or the Buyer -- Attempted Sale of the Viper Design Team and 64-bit
Intellectual Property", "Special Factors -- Attempted Sale of the Company or its
Various Assets Other than to Fujitsu or the Buyer -- Attempted Sale of 32-bit
Intellectual Property" and "Special Factors -- The RIL Sale" is incorporated
herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in the Information Statement under the
captions "Introduction", "Summary", "Special Factors -- The IP Sale", "Special
Factors -- The Sale of RIL" and "The Sale of Assets" is incorporated herein by
reference.
(b) Not applicable.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) The information set forth in the Information Statement under the
captions "Special Factors -- General Background", "Special Factors -- Special
Matters Relating to the IP Sale and the Sale of RIL -- Plans for the Company
After the IP Sale and the Sale of RIL", "The Asset Purchase Agreement -- Plans
for the Company After the Sale of Assets", "Special Factors -- Use of Proceeds;
Liquidation and Dissolution" and "The Plan of Complete Liquidation and
Dissolution" is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in the Information Statement under the
captions "Special Factors -- Transactions with Fujitsu -- The IP Sale", "Special
Factors -- Transactions with Fujitsu -- The Sale of RIL" and "Special
Factors -- Background of the Asset Purchase Agreement -- Buyer's Funding of the
Sale of Assets" is incorporated herein by reference.
(b) The information set forth in the Information Statement under the
caption "Fees and Expenses" is incorporated herein by reference.
(c) The information set forth in the Information Statement under the
caption "Special Factors -- Background of the Asset Purchase
Agreement -- Buyer's Funding of the Sale of Assets" is incorporated herein by
reference.
(d) Simultaneously with the filing of this Schedule 13E-3, the Buyer is
filing a request with the Secretary of the SEC that the name of the bank making
a loan to the Buyer in the ordinary course of business not be made available to
the public.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(c) The information set forth in the Information Statement under the
captions "Introduction", "Summary", "Special Factors -- General Background",
"Special Factors -- Attempted Sale of the Company or its Various Assets Other
Than to Fujitsu or Buyer", "Special Factors -- Special Matters Relating to the
7
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IP Sale and the Sale of RIL -- Approval of the Board of Directors;
Recommendation of the Executive Committee and Ad Hoc Committee; Fairness of the
IP Sale and the Sale of RIL", "Special Factors -- Special Matters Relating to
the IP Sale and the Sale of RIL -- Purpose of the IP Sale and the Sale of RIL",
"The Sale of Assets -- Approval of the Board of Directors and Reasons for the
Sale of Assets; Recommendation of the Ad Hoc Committee; Fairness of the Sale of
Assets", "The Sale of Assets -- Purpose of the Asset Purchase Agreement and the
Sale of Assets; Reasons for the Sale of Assets" and "The Plan of Complete
Liquidation and Dissolution" is incorporated herein by reference.
(d) The information set forth in the Information Statement under the
captions "Introduction", "Summary -- The Plan", "Special Factors -- General
Background", "Special Factors -- Special Matters Relating to the IP Sale and the
Sale of RIL -- Plans for the Company After the IP Sale and the Sale of RIL",
"Special Factors -- Background of the Asset Purchase Agreement -- Agreements
Between the Buyer and Fujitsu", "The Sale of Assets -- Purpose of the Asset
Purchase Agreement and the Sale of Assets; Reasons for the Sale of Assets", "The
Sale of Assets -- Plans for the Company After the Sale of Assets", "The Sale of
Assets -- Use of Proceeds; Liquidation and Dissolution", "The Plan of Complete
Liquidation and Dissolution" and "Certain Federal Income Tax Consequences" is
incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(b) The information set forth in the Information Statement under the
captions "Special Factors -- General Background", "Special
Factors -- Transactions with Fujitsu -- The IP Sale", "Special Factors --
Transactions with Fujitsu -- The RIL Sale", "Special Factors -- Special Matters
Relating to the IP Sale and the Sale of RIL -- Approval of the Board of
Directors; Recommendation of the Executive Committee and Ad Hoc Committee;
Fairness of the IP Sale and the Sale of RIL", "Special Factors -- Special
Matters Relating to the IP Sale and the Sale of RIL -- Position of Fujitsu
Regarding the Fairness of the IP Sale and the Sale of RIL", "Special
Factors -- Special Matters Relating to the IP Sale and the Sale of RIL -- The
KPMG Japan Valuation Analysis", "Special Factors -- Background of the Asset
Purchase Agreement -- The Asset Purchase Agreement", "Special Factors -- Absence
of Fairness Opinions", "The Sale of Assets -- Approval of the Board of Directors
and Reasons for the Sale of Assets; Recommendation of the Ad Hoc Committee;
Fairness of the Sale of Assets", "The Sale of Assets -- Position of the Buyer
Regarding the Fairness of the Sale of Assets" and "The Sale of
Assets -- Appraisal Report of Houlihan Lokey" is incorporated herein by
reference.
(c)-(d) The information set forth in the Information Statement under the
captions "Summary -- The Stockholder Consent to the Sale of Assets and The
Plan", "Special Factors -- Special Matters Relating to the IP Sale and the Sale
of RIL -- Approval of the Board of Directors; Recommendation of the Executive
Committee and Ad Hoc Committee; Fairness of the IP Sale and the Sale of RIL" and
"The Sale of Assets -- Approval of the Board of Directors and Reasons for the
Sale of Assets; Recommendation of the Ad Hoc Committee; Fairness of the Sale of
Assets" is incorporated herein by reference.
(e) The information set forth in the Information Statement under the
captions "Special Factors -- Transactions with Fujitsu -- The IP Sale", "Special
Factors -- Transactions with Fujitsu -- The Sale of RIL", "Special
Factors -- Special Matters Relating to the IP Sale and the Sale of RIL",
"Special Factors -- Special Matters Relating to the IP Sale and the Sale of
RIL -- Approval of the Board of Directors; Recommendations of the Executive
Committee and the Ad Hoc Committee; Fairness of the IP Sale and the Sale of
RIL", "Special Factors -- Potential Conflicts of Interest" and "The Sale of
Assets -- Approval of the Board of Directors and Reasons for the Sale of Assets;
Recommendation of the Ad Hoc Committee; Fairness of the Sale of Assets" is
incorporated herein by reference.
(f) The information set forth in the Information Statement under the
captions "Special Factors -- Attempted Sale of the Company or its Various Assets
Other Than to Fujitsu or Buyer -- Attempted Sale of RIL" and "Special
Factors -- Transactions with Fujitsu -- The Sale of RIL" is incorporated herein
by reference.
8
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ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) The information set forth in the Information Statement under the
captions "Special Factors -- Special Matters Relating to the IP Sale and the
Sale of RIL -- The KPMG Japan Valuation Analysis", "Special Factors -- Absence
of Fairness Opinions" and "The Sale of Assets -- Appraisal Report of Houlihan
Lokey" is incorporated herein by reference. See also, the Houlihan Lokey report
attached hereto as Exhibit (b)(1) and the KPMG Japan valuation analysis attached
hereto as Exhibit (b)(2).
(b)-(c) The information set forth in the Information Statement under the
captions "Special Factors -- Special Matters Relating to the IP Sale and the
Sale of RIL -- The KPMG Japan Valuation Analysis" and "The Sale of
Assets -- Appraisal Report of Houlihan Lokey" is incorporated herein by
reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in the Information Statement under the
caption "Security Ownership of Certain Beneficial Owners and Management" and in
Schedule II and Schedule III of the Information Statement is incorporated herein
by reference.
(b) The information set forth in the Information Statement under the
captions "Certain Additional Information Concerning the Company", "Certain
Information Concerning Fujitsu" and "Certain Information Concerning the Buyer"
is incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
Not applicable.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a)-(b) The information set forth in the Information Statement under the
captions "Special Factors -- Transactions with Fujitsu -- The IP Sale", "Special
Factors -- Transactions with Fujitsu -- The Sale of RIL", "Special
Factors -- Special Matters Relating to the IP Sale and the Sale of
RIL -- Approval of the Board of Directors; Recommendation of the Executive
Committee and Ad Hoc Committee; Fairness of the IP Sale and the Sale of RIL",
"Special Factors -- Background of the Asset Purchase Agreement -- The Asset
Purchase Agreement" and "The Sale of Assets -- Approval of the Board of
Directors and Reasons for the Sale of Assets; Recommendation of the Ad Hoc
Committee; Fairness of the Sale of Assets" is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in the Information Statement under the
caption "Absence of Appraisal Rights" is incorporated herein by reference.
(b)-(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a)(1) The information set forth in the Information Statement under the
captions "Audited Financial Statements -- Consolidated Balance Sheets as of
March 30, 1998 and March 31, 1997", "Audited Financial
Statements -- Consolidated Statements of Operations for the years ended March
30, 1998, March 31, 1997 and April 1, 1996", "Audited Financial
Statements -- Consolidated Statements of Cash Flows for the years ended March
30, 1998, March 31, 1997 and April 1, 1996" and "Audited Financial
Statements -- Notes to Consolidated Financial Statements" is incorporated herein
by reference.
(a)(2) The information set forth in the Information Statement under the
captions "Unaudited Condensed Financial Statements -- Condensed Balance Sheets
as of June 29, 1998 and March 30, 1998", "Unaudited Condensed Financial
Statements -- Condensed Consolidated Statements of Operations for the
9
<PAGE> 10
three and six months ended September 28, 1998 and September 29, 1997",
"Unaudited Condensed Financial Statements -- Condensed Consolidated Statements
of Cash Flows for the three and six months ended September 28, 1998 and
September 29, 1997", and "Unaudited Condensed Financial Statements -- Notes to
Condensed Consolidated Financial Statements" is incorporated herein by
reference.
(a)(3) The information set forth in the Information Statement under the
caption "Selected Consolidated Financial Data" is incorporated herein by
reference.
(a)(4) The information set forth in the Information Statement under the
caption "Selected Consolidated Financial Data" is incorporated herein by
reference.
(b) The information set forth in the Information Statement under the
caption "Pro Forma Condensed Consolidated Balance Sheet" is incorporated herein
by reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in the Information Statement under the
captions "Special Factors -- General Background", " -- Transactions with
Fujitsu -- The IP Sale", " -- Transactions with Fujitsu -- The Sale of RIL", and
"-- Background of the Asset Purchase Agreement" is incorporated herein by
reference.
(b) Not applicable.
ITEM 16. ADDITIONAL INFORMATION.
The information set forth in the Information Statement and in the Asset
Purchase Agreement attached as Annex A to the Information Statement is
incorporated herein by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
(a)(1)* -- Loan and Security Agreement between the Buyer and [Bank]
(a)(2)* -- Senior Subordinated Loan and Security Agreement between
the Buyer and [Bank]
(b)(1) -- Report of Houlihan Lokey dated June 4, 1998, including
supporting materials provided to the Company
(b)(2) -- Preliminary Valuation Analysis of KPMG Japan dated
January 1998, including supporting materials provided to
Fujitsu
(c) -- Not applicable.
(d) -- [Preliminary] Information Statement dated November ,
1998 (incorporated herein by reference to [Preliminary]
Information Statement filed by the Company with the SEC
on October 30, 1998)
(e) -- Not applicable.
(f) -- Not applicable.
</TABLE>
- ---------------
* To be filed by amendment
10
<PAGE> 11
SIGNATURES
After due inquiry and to the best of his knowledge and belief, each of the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
ROSS TECHNOLOGY, INC.
By: /s/ JACK W. SIMPSON, SR.
----------------------------------
Name: Jack W. Simpson, Sr.
------------------------------------
Title: President and Chief
Executive Officer
------------------------------------
FUJITSU LIMITED
By: /s/ YOSHIRO YOSHIOKA
----------------------------------
Name: Yoshiro Yoshioka
------------------------------------
Title: Senior Vice President and
Group President, Strategy
and Planning Group
------------------------------------
BRIDGEPOINT TECHNICAL
MANUFACTURING CORPORATION
By: /s/ JOE D. JONES
----------------------------------
Name: Joe D. Jones
------------------------------------
Title: President and Chief
Executive Officer
------------------------------------
Dated: October 30, 1998
11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
(a)(1)* -- Loan and Security Agreement between the Buyer and [Bank]
(a)(2)* -- Senior Subordinated Loan and Security Agreement between
the Buyer and [Bank]
(b)(1) -- Report of Houlihan Lokey dated June 4, 1998, including
supporting materials provided to the Company
(b)(2) -- Preliminary Valuation Analysis of KPMG Japan dated
January 1998, including supporting materials provided
to Fujitsu
(c) -- Not applicable.
(d) -- [Preliminary] Information Statement dated November ,
1998 (incorporated herein by reference to [Preliminary]
Information Statement filed by the Company with the SEC
on October 30, 1998)
(e) -- Not applicable.
(f) -- Not applicable.
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT (b)(1)
[HOULIHAN LOKEY HOWARD & ZUKIN LETTERHEAD]
June 4, 1998
CONFIDENTIAL
Mr. Fred T. May
Chairman, Special Committee of the Board of Directors
Ross Technology, Inc.
5316 Highway 290 West
Suite 500
Austin, TX 78735-8930
Dear Mr. May:
We have completed our analysis of the business and intangible assets of Ross
Technology, Inc. ("Ross" or the "Company") and have summarized our findings in
this letter and attachments.
At your request, we have completed a due diligence review of the Company for
purposes of performing a valuation of Ross' business and intangible assets
assuming a sale to a third-party buyer. We did not evaluate any of the tangible
assets of the Company.
Our analysis was performed on behalf of the Special Committee of the Board of
Directors of the Company to assist it in evaluating strategic alternatives
available to the Company. We were not asked to, and did not solicit third party
indications of interest in acquiring some or all of the assets of the Company.
The assets that we analyzed included: (a) the VIPER ("VIPER") intellectual
property, (b) the Company's engineering staff, which we evaluated as part of
VIPER and as a separate asset and (c) the Company's test facility, Bridge
Point.
In connection with our analysis, we have conducted such reviews and made such
inquiries as we deemed necessary and appropriate under the circumstances. The
scope of our investigation related to the valuation of the intangible assets
included:
1. discussions with management concerning the current and prospective
operations of the business;
<PAGE> 2
Mr. Fred May
June 4, 1998
Page 2
2. a visit to the corporate offices of the Company and the test facility;
3. a review of certain audited historical financial data as well as projected
financial data regarding VIPER;
4. a review of the projected performance of the test facility as a stand-alone
business;
5. a comparable transaction analysis involving similar intellectual property
and/or engineers;
6. an income approach based on projected revenues and cash flow theoretically
available to a buyer. In the case of VIPER, given the uncertainty and
extreme high level of risk, we de-emphasized the income approach;
7. a cost to reproduce approach for VIPER;
8. discussions with various design people involved in similar technology
companies; and
9. consideration of other data and factors which we deemed necessary and
appropriate under the circumstances.
In preparing our analyses, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by the
Company. We have accepted this data as fairly reflecting the operations,
trends, and financial position of the business. We have neither independently
investigated nor otherwise verified the accuracy or completeness of this
information, and therefore, we express no opinion or other form of assurance as
to their accuracy or completeness. Furthermore, we have relied upon this
information and assumed that all data provided to us by management is not
false, inaccurate, incomplete or misleading in any material respect and that no
fact or information that would have a material bearing on our conclusion has
been withheld or otherwise omitted.
We estimate that the intellectual property of the VIPER business, in total, has
a fair market value in an approximate range of $5 - $10 million exclusive of
the engineering staff and $12 - $19 million inclusive of the engineering staff.
We estimate that the engineering staff, which we valued on a comparable
transaction and cost to recreate basis, has a fair market value in the
approximate range of $7 - 9 million. The comparable transaction approach
assumes 45 engineers would be included in the transaction.
We analyzed Bridge Point primarily on the basis of the income approach and
capitalization of future earnings and revenues approaches. We believe that the
value of Bridge Point is reasonably estimated to be in the range of $6 - $7
million.
<PAGE> 3
Mr. Fred May
June 4, 1998
Page 3
The attached schedules and worksheets provide more detail and backup as to our
approaches, methodologies and assumptions.
In accordance with our professional ethics, our fees for this service are not
contingent upon the conclusion expressed herein, and neither Houlihan Lokey
Howard & Zukin Financial Advisors, Inc. nor any of its employees have a present
or intended financial interest in the Company.
Sincerely,
/s/ JAMES L. MASSEY
James L. Massey
Senior Vice President
<PAGE> 4
ROSS TECHNOLOGY INC.
- --------------------------------------------------------------------------------
MAY 1998
HOULIHAN LOKEY HOWARD & ZUKIN
Investment Banking Services
2200 Ross Avenue, Suite 4350 West
Dallas, Texas 75201
(214) 754-1677 o http://www.hlhz.com)
Los Angeles o New York o Chicago o San Francisco o Washington, D.C.
o Minneapolis o Atlanta o Toronto
<PAGE> 5
OVERVIEW
<PAGE> 6
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SECTION
-------
Overview.................................................. 2
Houlihan Lokey Howard & Zukin Qualifications.............. 2
Valuation Analysis........................................ 3
Transaction Summaries
Valuation Conclusions..................................... 4
Value Considerations...................................... 5
Engagement Procedures..................................... 6
<PAGE> 7
OVERVIEW
- -------------------------------------------------------------------------------
* SCOPE OF ENGAGEMENT
* HOULIHAN LOKEY QUALIFICATIONS
* VALUATION ANALYSIS
* VALUATION CONCLUSIONS
* VALUATION CONSIDERATIONS/KEY ISSUES
* ENGAGEMENT PROCEDURES
2
<PAGE> 8
OVERVIEW
- -------------------------------------------------------------------------------
* Houlihan Lokey was originally engaged on March 30, 1998, to provide
financial advisory services to the Company. In connection with the
analysis, Houlihan Lokey was to review the Company's financial position,
cash flow requirements, financial history, operations, competitive
environment and assets to assist the Company in determining its various
strategic alternatives.
* In addition, Houlihan Lokey was engaged to assist the Company in valuing
the fair market value of the Company on a going concern basis including a
discrete valuation of its intangible assets including both in-process
research and development, patented technology and proprietary unpatented
technology.
3
<PAGE> 9
HOULIHAN LOKEY QUALIFICATIONS
<PAGE> 10
HOULIHAN LOKEY QUALIFICATIONS
- --------------------------------------------------------------------------------
Established in 1974; Eight U.S. offices and one Canadian office;
150+ professionals
* SPECIALTY INVESTMENT BANKING
- Financial advisory services
- Investment banking
- Merchant banking
- Financial restructuring
* INDUSTRY FOCUS
- Technology
- Media, communications & entertainment
- Healthcare
- Engineering & construction
- Government technical services
5
<PAGE> 11
HOULIHAN LOKEY QUALIFICATIONS
- --------------------------------------------------------------------------------
* FINANCIAL ADVISORY SERVICES
- Valuation of businesses and securities
- Fairness opinions
- Solvency opinions
- Specialized opinions
* INVESTMENT BANKING
- Private placements
- Mergers & acquisitions
* MERCHANT BANKING
- Distressed companies and securities
- ESOP funding
* FINANCIAL RESTRUCTURING
- One of nation's leading financial restructuring groups
- Debtor and Creditor representation
- Distressed mergers and acquisitions
6
<PAGE> 12
HOULIHAN LOKEY QUALIFICATIONS
- --------------------------------------------------------------------------------
RECENT TECHNOLOGY ENGAGEMENTS
* 8X8 * MAXTOR
* ATHENA NEUROSCIENCES * MICROCOM
* AUREAL SEMICONDUCTOR * MICRON DISPLAY TECHNOLOGY
* CHIRON * NCUBE
* CLARIS * NETWORK COMPUTER, INC.
* COMPAQ COMPUTER * SEIKO COMMUNICATIONS
* CONNECT, INC. * SEMAPHORE
* DIGITAL EQUIPMENT CORP. * SPLASH TECHNOLOGY
* DPIX * STORAGE DIMENSIONS
* DYNAMIC CIRCUITS * SYQUEST
* EXPONENTIAL * TESSERA
* GATEFIELD * TOSHIBA AMERICA ELECTRONIC COMPONENTS
* GENERAL MAGIC * VIEWSONIC
* HMT TECHNOLOGY * ZILONG
* XEROX LIVEWORKS
7
<PAGE> 13
VALUATION ANALYSIS
<PAGE> 14
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
PRICING METHODOLOGIES
* MARKET CAPITALIZATION - COMPARATIVE ANALYSIS
- Publicly traded semiconductor and related devices companies
- M&A transactions
- Transactions involving the sale of engineering teams
- Transactions involving the sale of a portfolio of patents and pending
patents
* DISCOUNTED CASH FLOW
* ASSET/COST
9
<PAGE> 15
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
TRANSACTION SUMMARY
<TABLE>
<CAPTION>
====================================================================================================================================
SELLER ACQUIRER DATE TRANSACTION CONSIDERATION TIC/REV COMMENTS
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Odeum Microsystems Oak Technology 4/27/98 12 engineers, two sales $4 million; cash N/A Hyundai is divesting
persons and IP Odeum as a result of
the Asian currency
crisis.
- ------------------------------------------------------------------------------------------------------------------------------------
Plessey Semiconductor Mitel 2/13/98 Operating company and $225 million; cash .82(a) Process lines,
related entities communication IC and
700 general design
engineers. Most
interested in .35
micron fab.
- ------------------------------------------------------------------------------------------------------------------------------------
CommQuest IBM 2/12/98 Operating company $180 million; cash N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Fincitec Components Oy Amtel 10/30/97 A group of 14 N/A N/A
design/development
employees in Helsinki
Finland
- ------------------------------------------------------------------------------------------------------------------------------------
Future Integrated National 11/11/97 Operating company N/A N/A FIS had 17 engineers.
Systems Semiconductor Acquired to complete
"system-on-a-chip"
concept.
- ------------------------------------------------------------------------------------------------------------------------------------
Mint Technology LSI Logic 8/18/97 Operating company $9.5 million; $7.0 N/A
million in cash and
$2.5 million in
options
- ------------------------------------------------------------------------------------------------------------------------------------
National Semiconductor Information 4/14/97 Digital speech processor $5.1 million; cash N/A Engineers responsible
Storage Devices business unit - for developing the
CompactSpeech product will join ISD's
Israel Design Center.
- -----------------------------------------------------------------------------------------------------------------------------------
Case Technology Intel 1/20/97 Operating company $72 million; cash Case is based in
Copenhagen, Denmark.
- ------------------------------------------------------------------------------------------------------------------------------------
Ten Mountains Design Advanced Micro 4/23/98 Operating company N/A N/A Ten Mountains is a
circuits Corp design house that makes
physical media devices.
Company consists
primarily of seven
design engineers.
- ------------------------------------------------------------------------------------------------------------------------------------
Focus Semiconductor American 5/5/97 Operating company N/A Focus consists of 11
Microsystems engineers.
- ------------------------------------------------------------------------------------------------------------------------------------
SIS Microelectronics Aspec Technology 4/21/98 Operating company $ 5.2million; 400,000 3.1(b) SIS is an engineering
shrs stock (b) design services
company; $1.7 million
in revenues;
approximately 20
employees.
====================================================================================================================================
</TABLE>
10
<PAGE> 16
<TABLE>
<CAPTION>
====================================================================================================================================
SELLER ACQUIRER DATE TRANSACTION CONSIDERATION TIC/REV COMMENTS
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Weitek Brooktree 12/16/96 Non-exclusive license to $3 million; cash N/A Weitek filed for Chapter
Weitek's technology, 11 protection. The primary
contents of of design purpose of the acquisition
center and employment was to hire the
20 engineers. engineering team.
- ------------------------------------------------------------------------------------------------------------------------------------
Interra IKOS 1/21/98 Rights to certain EDA and $8.5 million; cash N/A
R&D expertise and stock
- ------------------------------------------------------------------------------------------------------------------------------------
ComCore National 4/24/98 Operating company $122 million; cash N/A The impetus of the
Semiconductor Semiconductor acquisition is ComCore's
in-process R&D.
- ------------------------------------------------------------------------------------------------------------------------------------
Excellent Design Cadence Design 3/24/98 Operating company N/A N/A Approx 50 engineers; EXD
Systems had approx. $12 million in
revenue in fiscal 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
VLSI Technology Avant! 7/31/97 Compass Design Automation $44 million; cash 0.88 Compass LTM 6/30/97 revenue
and stock was $50.3 million. (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Exponential S3 9/30/97 Portfolio of 25 patents $11.25 million; cash N\A Company went out of
Technology and 20 pending patents business after Apple
stopped buying its chip.
Lawsuit pending.
- ------------------------------------------------------------------------------------------------------------------------------------
Ross Technology Motorola Pending Team of 22 design engineers $4.2 million; cash N\A Pending.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(a) The company did not file an 8K. However, the article reports that Plessey
generates approximately $275 million in revenues annually.
(b) IPO on April 28, 1998 at $13.00 per share. As a result, the value of the
transaction is $5.2 million.
(c) Avant! 8K dated July 31, 1997.
================================================================================
11
<PAGE> 17
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
TRANSACTION SUMMARY (CONTINUED)
ADDITIONAL INFORMATION REGARDING THE ACQUIRED COMPANY/ASSET(S):
* ODEUM MICROSYSTEMS - The 12 engineers, two salespeople and acquired
intellectual property of Odeum will be used to form the Cable/Satellite
Business Unit of Oak Technology's Consumer Group.
* PLESSEY SEMICONDUCTOR - Plessey produces semiconductors for the
telecommunications, personal computer and media markets. Mitel was
interested in the Company largely because of its .35 micron semiconductor
fabrication facilities.
* COMMQUEST - CommQuest is a chip design company specializing in making
advanced semiconductor devices for cellular telephones and satellite
communications.
* FINCITEC COMPONENTS OY - The design group at Fincitec has concentrated on
developing digital signal processing (DSP) and analog circuits for the
telecommunications, PC, digital audio, energy metering and industrial data
acquisition markets. The Company has developed proprietary and patented
circuit designs in DSP as well as Sigma-Delta analog-to-digital and
digital-to-analog converters.
12
<PAGE> 18
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
* Future Integrated Systems - FIS is a supplier of graphics hardware and
software solutions for the PC market. The Company's competencies are in
thin-film transistors; dual scan, twisted, flat-panel interfaces; and
power-management technologies.
* Mint Technology - Mint is an engineering services company that provides
expertise in the areas of system architecture and system level design
verification used in the development of complex chips. The Company's
engineering services include system architectural design, simulation,
verification, synthesis/timing analysis and testing and other consulting
services.
* National Semiconductor (CompactSpeech) - With this acquisition
(CompactSpeech line from National's Personal Systems division), ISD gained
a fully developed product, inventory, intellectual property, an existing
customer base and a few key engineers. CompactSpeech grew out of National's
embedded RISC processor in the late 1980s and was targeted specifically to
digital telephone answering machines. The Company's products offer advanced
DSP technology, speech compression algorithms and flash memory.
* Case Technology - Case was a subsidiary of Anite Group plc, a London based
technology group. Case is an award-winning innovator in Fast Ethernet
networking technology. The Company has experience and products in the 10
and 100 Mbps Ethernet switching and small business and branch office
routing areas.
* Ten Mountains Design - Ten Mountains is a design house that makes physical
media devices (PMDs). AMCC is expected to use the PMD technology to develop
the analog portion of its new Sonet chips. At the time of the transaction,
Ten Mountain had seven employees, which consisted mainly of design
engineers.
13
<PAGE> 19
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
* Focus Semiconductor - 11 engineers, who remain its sole employees, founded
Focus 2 1/2 years ago. Focus' expertise is concentrated in mixed-signal
CMOS.
* SIS Microelectronics - SIS is an engineering design services company that
has approximately 20 employees and reported revenues of approximately $1.7
million for fiscal 1997. The acquisition is expected to further Aspec's SIP
cell libraries and design services capabilities.
* Weitek - Weitek was a chipset manufacturer that designed, manufactured and
marketed high performance integrated circuits which accelerate the
performance of personal computers and workstations. The Company filed for
Chapter 11 bankruptcy protection in December 1996. Consequently, the
Company sold the bulk of its assets to Brooktree for $3 million. The sale
includes a non-exclusive license to Weitek's technology, the contents of
the Company's design center and an offer of employment to 20 of Weitek's 24
engineers and staff. The sale is for assets only and does not include the
transfer of stock or debt assumption. Brooktree is buying the technology
relating to Weitek's SPARC Power processor, VGA cores, Unified Memory
Architecture (UMA) chips and floating point technology. The primary impetus
of the acquisition was to hire the engineering team.
* Interra - Interra provides customizable software components and services to
meet the needs of IC design, system design and software design engineers.
IKOS acquired engineering resources and rights to certain EDA technology
from Interra for approximately $8.5 million in cash and stock. With this
acquisition, IKOS nearly doubles its engineering resources and gains access
to "world-class talent" with expertise in language-based simulation and RTL
compilation. The Interra technology provides expansion capabilities for
IKOS in three areas: 1) fast functional verification; 2) application
specific solutions; and 3) IP modeling.
14
<PAGE> 20
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
* ComCore Semiconductor - ComCore designs and manufactures ICs for computer
networking and broadband communications. The Company uses powerful
mathematical techniques combined with advanced Digital Signal Processing
(DSP) and customized design methodologies to create high-performance
communications solutions. The majority of the $122 million acquisition is
related to the acquisition of ComCore's in-process R&D.
* Excellent Design - Excellent provides VLSI design and development
environments by combining the expertise of ASIC designers, system
architecture engineers and EDA tool engineers. The acquisition adds nearly
50 chip designers to Cadence's Japanese operations and will focus on
providing ASIC and system-on-a-chip (SOC) design services and library
development. Excellent reported approximately $12 million in revenue in
fiscal 1997.
* VLSI Technology (Compass) - Compass is a leading provider of EDA tools and
libraries for the design of deep-submicron ASICs and ASSPs. The Company
supplies products in four areas including formal verification,
floorplanning, place and route physical libraries. Latest twelve months
(LTM) ending May 31, 1997, Compass reported $50.3 million in revenue. The
acquisition price and consideration is $44 million in cash and stock.
* Exponential Technology - Before auctioning off its portfolio of 45 pending
and in place patents for $11.25 million to S3, Inc., Exponential was
developing a faster version of Apple's PowerPC microprocessor. The patents
and pending patents may be useful in reverse engineering Intel's coming
Merced microprocessor. As a consequence of the Company selling its only
asset, it is no longer an operating entity. The Company is suing Apple, the
Company's largest shareholder and only customer, for $100 million claiming
that Apple conspired with others to impede PowerTool's line of Macintosh
clones. In turn, Apple is counter suing Exponential claiming that the
Company illegally auctioned its patents.
15
<PAGE> 21
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
* Ross Technology - Ross is in negotiations (expected May 30, 1998, close
date) to sell a team of 22 engineers in Israel to Motorola for $4.2 million
in cash. The group of engineers is developing a chip to run embedded
operations.
16
<PAGE> 22
VALUE CONCLUSIONS
<PAGE> 23
VALUATION CONCLUSIONS
- --------------------------------------------------------------------------------
===============================================================================
VIPER
===============================================================================
<TABLE>
<CAPTION>
(in thousands) Range
<S> <C> <C>
Market approach $5,000 $10,000
Value of engineers $7,000 $9,000
Total value $12,000 $19,000
</TABLE>
- -------------------------------------------------------------------------------
===============================================================================
TEST FACILITY
===============================================================================
<TABLE>
<CAPTION>
(in thousands) Range
<S> <C> <C>
Value $6,000 $7,000
</TABLE>
- -------------------------------------------------------------------------------
18
<PAGE> 24
VALUE CONSIDERATIONS
<PAGE> 25
VALUE CONSIDERATIONS
- --------------------------------------------------------------------------------
* Ross is substantially smaller and less capitalized than its competitors.
* Ross is in financial distress; LTM December 31, 1997, revenue = $49.1
million and adjusted net income = ($42.8) million.
* The Company is extremely constrained by the lack of its access to capital.
* Despite having strong technology, Ross is not on its most important
customer's roadmap.
* The Company's VIPER technology is nine months behind schedule. As a
consequence of the delay and if/when the VIPER technology is released to
the public, it will not offer "next generation" performance.
* The Company has been unable to find a third party investor to "take-out"
Fujitsu.
* Fujitsu favors dissolving the Company.
* The Company's financial results continue to weaken due to a drop in
business from certain key customers. Such financial performance would be of
great concern to any alternative buyers and to any sources of debt or
equity financing.
* Based on the completion and successful rollout of VIPER, the Company's
revenues are projected to increase approximately $223.7 million or 469
percent from $47.7 million to $271.4 million in FY 2000.
* Again, based on the completion and successful rollout of VIPER, the
Company's revenues are projected to increase approximately $334.3 million
or 123 percent from $271.4 million to $605.7 million in FY 2001. During the
same time period, operating profit is projected to increase $196.2 million
or 267 percent from $73.5 million to $269.7 million.
* Due to the Company's negative EBITDA, EBIT and earnings, capitalization of
these parameters was not utilized.
* Concluded values do not included consideration of debt or preferred
securities.
20
<PAGE> 26
ENGAGEMENT PROCEDURES
<PAGE> 27
ENGAGEMENT PROCEDURES
- --------------------------------------------------------------------------------
In connection with our analysis, we have conducted various reviews and made such
inquiries as we deemed necessary and appropriate under the circumstances. They
included:
* Interviews with senior and middle management of Ross concerning
- Nature and history of the company; business operations
- Financial statements
- History of relationship by and between Ross, Sun and Fujitsu
- VIPER technology
* Modeling, sensitivity and reasonableness of Company's forecast
* Conducted various interviews with certain technological companies to obtain
market data
* Transactions
- Comparable public company transactions
- Transactions where the principal asset being acquired was a team of
engineers
- Transaction where the principal asset being acquired was a portfolio
of patents and pending patents
* Cost to duplicate the creation of the VIPER technology
* Review of publicly available data (including 10Qs, 10Ks and 8Ks) on
comparable companies and other information we deemed relevant under the
circumstances
* Performed valuation analysis
* Internal review procedures
22
<PAGE> 1
EXHIBIT (b)(2)
Ross Semiconductors (Israel) Ltd.
(Preliminary Valuation Analysis)
Valuation Summary
The following summarizes the valuation results for Ross Semiconductors (Israel)
Ltd. ("RIL" or the "Company") based on the analysis performed using Replacement
Cost Approach and Market Multiple Approach:
<TABLE>
<CAPTION>
(US$ in millions) High Low
---- ---
<S> <C> <C>
Replacement Cost Approach 1.6 - 2.0
Market Multiple Approach 2.2 - 3.1
</TABLE>
The above valuation results are presented on the basis of "debt-free",
"operating" enterprise value. As such, the valuation ranges presented do not
include the value of cash and cash equivalent assets (approximately US$ 460,000
as of 12/31/97) and the amount of due to RTI (approximately US$ 2,250,000 as of
12/31/97).
Overview of the Company
1. RIL is a 100% owned subsidiary of Ross Technology Inc. of Austin, Texas
USA ("RTI").
2. RIL designs VLSI products for RTI's sole use or resale in exchange for full
reimbursement of the non-recurring engineering expenses (NRE) and agreed
upon royalties from the sale of chips embodying the Company's design.
3. Based on the Founder's Agreement, RTI has, in all commercially reasonable
respect:
3.1 Secured funding and design projects for RTL.
3.2 Provided access to enabling technologies, VLSI capabilities and VLSI
design technology and tool.
3.3 Maintained production, manufacturing, testing, selling and
distribution of products based on RIL's designs.
4. All the funding requirement of RIL is provided by RTI, based on RIL's
Capital Budget and Expense Budget, in the form of equity investment,
secured promissory note or expense reimbursement.
5. RTI provides a license to RIL, at no cost, to use RTI's VLSI design
technology and tools required for design of the requested product and
future derivatives.
6. All works created by RIL during the performance of the project is agreed to
be the property of RIL and all intellectual property rights remain with
RIL.
7. In return for expense and royalty payments and for equity investments and
loans, RIL grants to RTL a perpetual, non-exclusive license to use, modify,
develop and sell products based on the RIL design.
8. RTI is entitled to alter the development plans of the Company at its will
and to change or cancel the manufacturing or sale of any chips based on the
Company's designs.
<PAGE> 2
Basic Approach to the Valuation
General Approach:
In a broad sense, there are basically 3 conceptual approaches for determining
the value of privately held businesses. The approaches are 1) market approach,
2) income approach, and 3) cost approach. When relevant and practical,
valuation results from more than one approaches are considered in judging the
value of the business in order to cross examine the valuation results.
Valuation Approach for RIL:
The following summarizes the unique characteristics of the RIL business:
1. The Company relies on its parent, who is ultimately controlled by Fujitsu,
for future projects (business), for engineering supports and resources,
including VLSI capabilities, technologics and tools.
2. The Company is also reliant on the businesses generated from RTI's future
projects. The Company currently has no other source of businesses.
3. The Company's development activities all relate to RTI projects and there
is limited accumulation of independent R&D efforts.
4. Although the Company is entitled to the intellectual property rights
arising from the performance of RTI projects, the value attributable to
such rights is limited as long as currently structure of business is
maintained because the Company also grants to RTI, a perpetual license to
utilize RIL designs.
Considering the above, the following sets out the basic valuation approach for
RIL.
1. For the valuation analysis of RIL, market and cost approach are used as
primary valuation alternatives. The following describes the valuation
methods adopted under the respective valuation approach as mention above:
1.1 Replacement Cost Approach (Cost Approach)
Under the cost approach, the value of business is determined based on
the replacement costs for the investor. For the case of RIL, focus is
given to the amount of cash that must be spent in order to
re-establish the currently in place assembled workforce and to
re-acquire the business assets of RIL.
1.2 Market Multiple Approach (Market Approach)
Under the market approach, the value of a business is determined by
comparing the business of the subject-company to those of comparable
publicly traded or quoted companies. For the purpose of this analysis,
market multiple to be adopted is revenue multiple (derived by
comparing the total capitalization to the revenue volume of the
comparable companies). The revenue multiple calculated is then applied
to the potential revenue of RIL in order to estimate the value of the
Company.
2. If income approach was to be adopted for the valuation analysis of RIL,
the level of income must be examined from the perspective of the whole VLSI
business. Then, depending on the contribution level of RIL to the whole
VLSI business, income attributable to RIL should be determined. However,
quantifying the contribution of RIL to the VLSI business is both a
<PAGE> 3
difficult and a subjective task. Therefore, for the purpose of this
valuation analysis, valuation based on income approach is not performed.
Valuation Analysis Based on Replacement Cost Approach
The value of assembled workforce, or workforce in place (WFTP) is commonly
determined on an avoided cost basis using the premise that if they were not
acquired as part of the transaction the acquirer would have to recruit and
train a new work force. As well as engineers, management, finance, marketing
and administration personnel are included in the calculation.
Recruiting Conditions in Israel:
The following summarizes the recruiting and labor market conditions in Israel
obtained from local contacts:
l. The Israeli labor market for Hi-Tec engineers and designers in recent
years is witnessing an increasing shortage of highly qualified engineers,
due to the high demand from local and international companies.
2. According to the local information, the average cost of an engineer in the
Hi-Tec industries is around US$100,000 per year, costs which near rapidly
the level of US market.
3. Newly established companies generally recruit their senior (experienced)
workers mainly from their competitors using "head hunting" agencies.
4. The factors influencing the candidates' decision include the potential
salary increase, additional benefits (a company car is a must), stock
option plan, the potential of the company and it's market image.
(The summary of compensation and benefits provided to the employees of RIL, is
presented on Attachment 2-4 to 2.6)
Recruiting Process:
1. Regular recruiting costs, according to local standard, are usually between
1-2 month salaries. These costs include a fee for the "headhunters",
bonuses to employees who bring in new hires, signing bonus, etc.
2. In order to launch a noticeable recruiting activities, a new company must
invest in the public exposure in the form of PR campaigns. The PR budget
can vary from several thousand US$ per month and upward.
3. The expected recruiting time in the Israeli labor market in the Hi-Tec
industry is 2 to 6 months, depending on the timing, the skills needed and
the seniority of the workers.
Valuation of RIL's WFIP:
Attachment 2-2 summarizes the valuation of the WFIP of RIL. The following
summarizes the areas of cost savings, if RIL's WFIP were to be acquired:
1. Cost of Recruiting and Training - Recruiting cost of 5% to 20% of base
salary is estimated based on the respective positions/categories of
employees. Training costs are estimated at US$ 3,000 per head for engineers
and US$ 1,000 for non-engineering employees.
2. Losses of Productivity Cost - Starting productivity and time to full
productivity for the respective positions/categories of employees are
estimated to calculate the effects of productivity losses.
3. PR Campaign Cost - US$ 20,000 PR campaign cost is estimated for the period
of 6 months.
<PAGE> 4
Attachment 2-1 summarizes the valuation based on Replacement Cost Approach by
adding the value of WFIP and the estimated fair value of RIL's operating assets
which is considered to approximate the book value of such assets.
Other than the operating assets disclosed in the balance sheet, businesses
often have other valuable intangibles such as:
1. Company and product names
2. Customer lists
3. Key employee non-competition agreement
4. Developed technology and related patents and copyrights
5. In-process research and development value
In the case of RIL, no specific value to such intangible assets are considered
because the Company uses Ross name, does not have customers other than RTI, all
the developments as well as other operating activities are funded by RTI.
Valuation Analysis Based on Allocated Earnings
Estimation of Revenue Multiple:
5 companies involved in the designing of semiconductor products, as presented on
Attachment 3-2, are considered comparable companies of RIL. Based on the
analysis and explanations presented on the Attachment, revenue multiple of
approximately x 0.5 to x 0.7 times is considered appropriate for a company
having the business size and the nature of operation similar to RIL.
Application of the Revenue Multiple to RIL:
1. Since RIL's researches are funded by RTI in the form of cost
reimbursements, RIL, on its financial statements, do not present any
revenues. For the purpose of this valuation analysis, revenue level of RIL
is estimated, by hypothetically assuming that the designing and development
works were billed based on the operating costs of RIL plus 20% margin on
all billings, as if the services of the Company were provided to outside
customers. Based on such assumptions, annual revenue level was estimated by
annualizing the RIL's operating expense for the first 3 quarters of FY
1998.
2. The calculated hypothetical revenue is then multiplied by the range of
revenue multiple as estimated. The details of the analysis are presented on
the Attachment 3-1.
<TABLE>
<CAPTION>
Attachments
<S> <C>
Attachment 1-1 Balance Sheets of RIL
Attachment 1-2 Profit and Loss Statement of RIL
Attachment 2-1 Valuation Summary - Replacement Cost Approach
Attachment 2-2 Valuation of WFIP - Replacement Cost Approach
Attachment 2-3 Position/Category of Employees - Replacement Cost Approach
Attachment 2-4 Compensation Table
Attachment 2-5 Options
Attachment 2-6 Employment
Attachment 3-1 Valuation Summary - Market Multiple Approach
Attachment 3-2 Estimation of Revenue Multiple - Market Multiple Approach
</TABLE>
<PAGE> 5
Attachment I-1
Provided by Ross Semiconductors (Israel) Ltd.
<TABLE>
<CAPTION>
(Unit:US$)
- ----------------------------------------------------------------------------------------------------------
Unaudited Audited Unaudited Unaudited Unaudited
Balance Sheet Statement 3Q F96 4Q F96 1Q F97 2Q F97 3Q F97
=========================================================================================================
<S> <C> <C> <C> <C> <C>
Cash and cash equivalent 67,874 63,707 77,626 64,786 163,292
Receivable and prepaid expenses 19,372 34,769 13,184 8,266 19,564
---------- ---------- ---------- ---------- ----------
Total Current Assets 87,246 98,476 90,810 73,052 182,856
Cost 246,842 533,458 835,429 1,027,655 1,088,960
Accumulated depreciation 9,257 26,204 77,537 147,403 247,634
---------- ---------- ---------- ---------- ----------
Total Fixed Assets, net 237,585 507,254 757,892 880,252 841,326
---------- ---------- ---------- ---------- ----------
Total Assets 324,831 605,730 848,702 953,304 1,024,182
---------- ---------- ---------- ---------- ----------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Unaudited Audited Unaudited Unaudited Unaudited
Liabilities and Shareholder's Equity 3Q F96 4Q F96 1Q F97 2Q F97 3Q F97
=========================================================================================================
<S> <C> <C> <C> <C> <C>
Short-term credit 12,813
Accounts payable 280,317 156,361 46,699 110,211 83,590
Other payable and accrued expenses 91,608
---------- ---------- ---------- ---------- ----------
Total Current Liabilities 280,317 260,782 46,699 110,211 83,590
Parent company 70,062 251,359 773,587 909,300 965,970
Provision for severance pay, net 7,851 7,851 7,851 7,851
Share capital 3,339 3,339 3,339 3,339
Share premium 156,698 156,698 156,698 296,698
Accumulated losses (25,548) (74,299) (139,472) (234,095) (333,266)
---------- ---------- ---------- ---------- ----------
Total Shareholder's Equity (25,548) 85,738 20,565 (74,058) (33,229)
---------- ---------- ---------- ---------- ----------
Total Liab. and Shareholder's Equity 324,831 605,730 848,702 953,304 1,024,182
---------- ---------- ---------- ---------- ----------
<CAPTION>
- --------------------------------------------------------------------------------------------
Audited Unaudited Unaudited Unaudited
4Q F97 1Q F98 2Q F98 3Q F98
============================================================================================
<S> <C> <C> <C> <C>
Cash and cash equivalent 280,664 137,502 133,947 456,028
Receivable and prepaid expenses 48,995 27,052 46,096 63,670
---------- ---------- ---------- ----------
Total Current Assets 329,659 164,554 180,043 519,698
Cost 1,208,488 1,288,345 3,200,341 2,277,305
Accumulated depreciation 330,989 431,233 576,705 765,986
---------- ---------- ---------- ----------
Total Fixed Assets, net 877,499 857,112 1,623,636 1,511,319
---------- ---------- ---------- ----------
Total Assets 1,207,158 1,021,666 1,803,679 2,031,017
---------- ---------- ---------- ----------
<CAPTION>
- --------------------------------------------------------------------------------------------
Audited Unaudited Unaudited Unaudited
Liabilities and Shareholder's Equity 4Q F97 1Q F98 2Q F98 3Q F98
============================================================================================
<S> <C> <C> <C> <C>
Short-term credit
Accounts payable 159,474 277,537 162,576 460,664
Other payable and accrued expenses 272,581
---------- ---------- ---------- ----------
Total Current Liabilities 432,055 277,537 162,576 460,664
Parent company 894,686 966,760 2,032,489 2,249,075
Provision for severance pay, net 28,156 28,156 28,156 48,156
Share capital 3,339 3,339 3,339 3,339
Share premium 296,698 296,698 296,698 296,698
Accumulated losses (447,776) (550,824) (719,579) (1,026,915)
---------- ---------- ---------- ----------
Total Shareholder's Equity (147,739) (250,787) (419,542) (726,878)
---------- ---------- ---------- ----------
Total Liab. and Shareholder's Equity 1,207,158 1,021,666 1,803,679 2,031,017
---------- ---------- ---------- ----------
</TABLE>
<PAGE> 6
DRAFT
Attachment 1-2
Provided by Ross Semiconductors (Israel) Ltd.
(Unit: USS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Unaudited Audited Unaudited Unaudited Unaudited Audited Audited Unaudited Unaudited
Profit and Loss Statement 3Q F96 4Q F96 1Q F97 2Q F97 3Q F97 4Q F97 FY F97 1Q F98 2Q F98
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payroll 91,248 212,519 254,468 385,207 389,354 482,188 1,511,217 386,719 564,712
Executive search 0 18,233 0 4,451 0 6,694 11,145 0 0
Advertising 5,643 3,699 3,609 1,286 12,820 11,623 29,338 172 11,103
Travel abroad 23,577 11,420 17,551 13,350 20,734 14,471 66,106 21,536 12,698
Meals and entertainment 1,365 4,458 9,704 21,831 16,083 19,475 67,093 8,000 12,916
Office rental 10,803 12,025 18,108 24,023 12,056 19,212 73,399 18,922 30,715
Computer maintenance 0 0 7,730 4,521 2,105 35,176 49,532 29,911 121,713
Office maintenance 716 3,279 2,193 4,666 7,210 7,736 21,805 3,469 7,743
Office expenses 3,633 2,183 3,419 5,606 874 3,844 13,743 2,313 6,345
Telephone 0 0 3,057 5,883 9,660 14,372 32,972 2,468 2,577
Telecommunications 0 7,638 1,350 1,988 2,602 2,192 8,132 2,065 2,028
Depreciation 9,257 16,947 51,333 69,866 100,231 83,355 304,785 100,244 145,472
Professional fees 0 14,418 0 0 5,000 0 5,000 0 0
Bookkeeping 1,500 832 857 677 1,003 1,338 3,875 753 1,198
Municipal taxes 0 2,657 2,895 3,664 2,253 3,305 12,117 1,990 2,940
Insurance 0 0 2,548 0 398 1,031 3,977 2,994 0
Consumables (Lab. equip.) 0 0 0 0 11,252 1,229 12,481 193 (193)
Import expenses 0 0 1,253 264 2,373 436 4,326 897 367
Sundry expenses (Car) 756 575 1,187 1,585 1,054 2,283 6,109 2,761 2,335
- ------------------------------------------------------------------------------------------------------------------------------------
Operating and G&A 148,498 310,883 381,262 548,868 597,062 709,960 2,237,152 585,407 924,669
Less: reimbursement of exp. 126,223 269,892 324,073 476,829 510,641 615,672 1,927,215 498,936 798,180
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Loss, net 22,275 40,991 57,189 72,039 86,421 94,288 309,937 86,471 126,489
Interest and bank charges 1,273 (637) 984 2,476 (3,054) (1,320) (914) 1,577 3,262
Interest to parent company 2,000 2,323 7,000 8,000 12,522 5,858 33,380 15,000 27,900
- ------------------------------------------------------------------------------------------------------------------------------------
Finance expenses, net 3,273 1,686 7,984 10,476 9,468 4,538 32,466 16,577 31,162
Currency exchange differences 0 6,074 0 12,108 3,282 15,684 31,074 0 11,104
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss for the period 25,548 48,751 65,173 94,623 99,171 114,510 373,477 103,048 168,755
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated Loss - Beg. 0 25,548 74,299 139,472 234,095 333,266 74,299 447,776 550,824
Accumulated Loss - End. 25,548 74,299 139,472 234,095 333,266 447,776 447,776 550,824 719,579
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Unaudited Projection Projection
3Q F98 4Q F98 FY 1998
==========================================================================
<S> <C> <C> <C>
Payroll 812,351 640,000 3,216,133
Executive search 0 0 0
Advertising 5,398 3,000 25,071
Travel abroad 21,477 21,000 98,188
Meals and entertainment 19,916 21,000 81,748
Office rental 27,085 30,000 133,809
Computer maintenance 23,402 46,000 244,428
Office maintenance 9,652 12,000 42,516
Office expenses 3,729 3,000 19,116
Telephone 6,011 6,000 23,067
Telecommunications 2,269 3,000 11,629
Depreciation 189,281 210,000 834,278
Professional fees 15,270 10,000 40,540
Bookkeeping 1,566 3,000 8,084
Municipal taxes 3,257 6,000 17,444
Insurance 192 3,000 6,378
Consumables (Lab. equip.) 0 0 0
Import expenses 226 0 1,716
Sundry expenses (Car) 44,743 24,000 118,583
- --------------------------------------------------------------------------
Operating and G&A 1,185,826 1,041,000 4,922,728
Less: reimbursement of exp. 912,678 892,500 4,014,972
- --------------------------------------------------------------------------
Operating Loss, net 273,148 148,500 907,756
Interest and bank charges 7,910 9,000 29,659
Interest to parent company 26,278 30,000 125,456
- --------------------------------------------------------------------------
Finance expenses, net 34,188 39,000 155,115
Currency exchange differences 0 0 11,104
- --------------------------------------------------------------------------
Net loss for the period 307,336 187,500 1,073,975
- --------------------------------------------------------------------------
Accumulated Loss - Beg. 719,579
Accumulated Loss - End. 1,026,915
</TABLE>
<PAGE> 7
Attachment 2-1
REPLACEMENT COST APPROACH
(VALUATION SUMMARY)
<TABLE>
<CAPTION>
Ref. ($)
----------------------------------------------------------------------------------
<S> <C> <C>
Net operating assets of RIL per B/S (12/31/97):
Receivables and prepaid expenses 1-1 63,670
Fixed assets*
Cost 1-1 2,277,305
Accumulated Depr. 1-1 (765,986)
---------
Net 1,511,319
Total assets 1,574,989
Accounts payable 1-1 460,664
---------
Net assets 1,114,325
Value of Workforce-In-Place 2-2 707,653
---------
Projected replacement costs of RIL operation 1,821,978
---------
Approximately (+ and - 10%) US$ 1.6 mil - 2.0 mil
========= =========
</TABLE>
* According to the information provided by RIL management, the depreciated
book value of the fixed assets reflects approximately the fair market value
of RIL assets.
<PAGE> 8
Attachment 2-2
REPLACEMENT COST APPROACH
(VALUATION OF WORKFORCE-IN-PLACE)
Avoided Recruiting & Training Costs
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AVOIDED
AVERAGE ESTIMATED ESTIMATED RECRUITING RECRUITING
NO. OF BASE RECRUITING RECRUITING RECRUITING & TRAINING & TRAINING
POSITION REF. EMPLOYEE SALARY ($) COST (%) COST ($) COST ($) COST ($) COST($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Top Management 2-3 149,157 20.0% 29,831 29,831 29,831
Core Engineering Team 2-3 78,205 20.0% 15,641 3,000 18,641 111,846
Administrative Manager 2-3 57,303 10.0% 5,730 1,000 6,730 6,730
Engineering Staffs 2-3 48,707 15.0% 7,306 3,000 10,306 154,591
Engineering Contractor 2-3 75,506 15.0% 11,326 1,000 12,326 12,326
Part-timers 2-3 25,948 5.0% 1,297 1,297 11,676
Administrative Staff 2-3 23,596 5.0% 1,180 1,180 1,180
---------
328,181
---------
Avoided Loss of Productivity Costs
- -----------------------------------------------------------------------------------------------------------------------------------
TIME TO
AVERAGE AVERAGE FULL AVOIDED
NO. OF BASE BENEFIT TOTAL STARTING PRODUCTIVITY PRODUCTIVITY
POSITION EMPLOYEE SALARY ($) LOAD (%) COMPENSATION EFFICIENCY (MONTH) COST ($)
- -----------------------------------------------------------------------------------------------------------------------------------
Top Management 149,157 40.0% 208,820 60.0% 4 13,921
Core Engineering Team 78,205 40.0% 109,487 40.0% 5 82,115
Administrative Manager 57,303 40.0% 80,225 60.0% 3 4,011
Engineering Staffs 48,707 40.0% 68,190 40.0% 6 153,428
Engineering Contractor 75,506 0.0% 75,506 60.0% 3 3,775
Part-timers 25,948 0.0% 25,948 80.0% 1 1,946
Administrative Staff 23,596 40.0% 33,034 80.0% 1 275
---------
259,472
---------
PR Campaign
- -----------------------------------------------------------------------------------------------------------------------------------
PR AVOIDED
LENGTH OF CAMPAIGN PR
CAMPAIGN COST PER CAMPAIGN
IN MONTH MONTH ($) COST ($)
----------------------------------------
6 20,000 120,000
-----------
707,653**
===========
</TABLE>
* Productivity Cost = [(Average Total Comp.) x (1 - Starting Eff.) x
(Time / 12) x 1/2] x Number of Employees.
** Income tax deduction benefit is not considered as the company is in tax
holiday period.
<PAGE> 9
Attachment 2-3
DRAFT
REPLACEMENT COST APPROACH
(Position/Category of Employees - January 1998)
<TABLE>
<CAPTION>
(Ref 2-3)
Annual
Base
** Salary
# Name Department Section Title/Function Level (US$) *
- ------ ---------- ------- -------------- ----- --------
<S> <C> <C> <C> <C> <C>
1 TM 149,157
2 Engineering DANlite M 101,124
3 Engineering DANlite M 81,647
4 Engineering Architecture/DANlite M 84,270
5 Engineering CAD/Sys-Admin M 63,988
6 Engineering DANlite ES 61,011
7 Engineering DANlite ES 61,011
8 Engineering DANlite ES 59,087
9 Engineering DANlite M 80,899
10 Engineering DANlite ES 72,472
11 Finance - AM 57,303
12 Engineering Physical Design M 57,303
13 Engineering DANlite ES 55,230
14 Engineering Physical Design ES 48,876
15 Engineering DANlite ES 54,148
16 Engineering Composer Conversion ES 54,081
17 Engineering DANlite ES 46,588
18 Engineering DANlite ES 45,094
19 Engineering DANlite ES 40,510
20 Engineering CAD/Sys-Admin ES 36,863
21 Engineering DANlite ES 36,863
22 Engineering DANlite ES 36,863
23 Administration - AS 23,596
24 Engineering Physical Design ES 21,910
25 Engineering Physical Design C 75,506
26 Engineering DANlite PT 34,517
27 Engineering DANlite PT 32,360
28 Engineering DANlite PT 29,663
29 Engineering Composer Conversion PT 20,494
30 Engineering Composer Conversion PT 20,494
31 Engineering DANlite PT 20,494
32 Engineering DANlite PT 20,494
33 Engineering DANlite PT 17,798
34 Engineering Architecture PT 37,213
</TABLE>
* At $ 1 = NIS 3.56 (1/8/98)
** Position/Category:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Number of Employees Avg. Base Salary
------------------- ----------------
<S> <C> <C>
TM = Top Management 1 149,157
M = Managers / DL / Core Employee (Base Salary > $80K) 6 78,205
AM = Administrative Managers 1 57,303
ES = Engineering Staffs 15 48,707
C = Contractor 1 75,506
PT = Part time 9 25,948
AS = Administrative Staff 1 23,596
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 10
Attachment 2-4 DRAFT
Provided by RIL
(Compensation Table - January 1998)
<TABLE>
<CAPTION>
Pension
Monthly Monthly Annual Fund or
Base Hourly Wages Base Manager's Study Yearly
Salary Wage (160 hrs) Salary (x12) Insurance Fund Bonus
# Name (NIS) (NIS) (NIS) (NIS) (US$)* (%)** (US$) (%)** (US$) (%)** (US$) Vacation Benefits
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 44,250 na na 531,000 149,157 15.83% 23,612 7.50% 11,187 16.67% 149,157 34 C
2 30,000 na na 360,000 101,124 15.83% 16,008 7.50% 7,584 16.67% 101,124 24 C
3 24,222 na na 290,664 81,647 15.83% 12,925 7.50% 6,124 16.67% 81,647 14 C
4 25,000 na na 300,000 84,270 15.83% 13,340 7.50% 6,320 16.67% 84,270 20 C
5 18,983 na na 227,796 63,988 15.83% 10,129 7.50% 4,799 16.67% 63,988 14 A
6 18,100 na na 217,200 61,011 15.83% 9,658 7.50% 4,576 16.67% 61,011 20 A
7 18,100 na na 217,200 61,011 15.83% 9,658 7.50% 4,576 16.67% 61,011 14 A
8 17,529 na na 210,348 59,087 15.83% 9,353 7.50% 4,431 16.67% 59,087 20 X
9 24,000 na na 268,000 80,899 15.83% 13,806 7.50% 6,067 16.67% 80,899 20 X
10 21,500 na na 258,000 72,472 15.83% 11,472 7.50% 5,435 16.67% 72,472 14 X
11 17,000 na na 204,000 57,303 15.83% 9,071 7.50% 4,298 16.67% 57,303 14 C
12 17,000 na na 204,000 57,303 15.83% 9,071 7.50% 4,298 16.67% 57,303 14 C
13 16,385 na na 196,620 55,230 15.83% 8,743 7.50% 4,142 16.67% 55,230 20 X
14 14,500 na na 174,000 48,876 15.83% 7,737 7.50% 3,666 16.67% 48,876 14 A
15 16,064 na na 192,768 54,148 15.83% 8,572 7.50% 4,061 16.67% 54,148 18 X
16 16,044 na na 192,528 54,081 15.83% 8,561 7.50% 4,056 16.67% 54,081 14 X
17 13,821 na na 165,852 46,588 15.83% 7,375 7.50% 3,494 16.67% 46,588 15 X
18 13,378 na na 160,536 45,094 15.83% 7,138 7.50% 3,382 16.67% 45,094 14 X
19 12,018 na na 144,216 40,510 15.83% 6,413 7.50% 3,038 16.67% 40,510 14 X
20 10,936 na na 131,232 36,863 15.83% 5,835 7.50% 2,765 16.67% 36,863 14 X
21 10,936 na na 131,232 36,863 15.83% 5,835 7.50% 2,765 16.67% 36,863 14 X
22 10,936 na na 131,232 36,863 15.83% 5,835 7.50% 2,765 16.67% 36,863 14 X
23 7,000 na na 84,000 23,596 13.33% 3,145 7.50% 1,770 16.67% 23,596 14 X
24 6,500 na na 78,000 21,910 13.33% 2,921 7.50% 1,643 16.67% 21,910 14 X
25 na 140 22,400 268,800 75,506 na na na na na na 14 pro X
26 na 64 10,240 122,880 34,517 na na na na na na 14 pro X
27 na 60 9,600 115,200 32,360 na na na na na na 14 pro X
28 na 55 8,800 105,600 29,663 na na na na na na 14 pro X
29 na 38 6,080 72,960 20,494 na na na na na na 14 pro X
30 na 38 6,080 72,960 20,494 na na na na na na 14 pro X
31 na 38 6,080 72,960 20,494 na na na na na na 14 pro X
32 na 38 6,080 72,960 20,494 na na na na na na 14 pro X
33 na 33 5,280 63,360 17,798 na na na na na na 14 pro X
34 na 69 11,040 132,480 37,213 na na na na na na 14 pro X
</TABLE>
* At ($) = NIS 3.56 (1/8/98)
** % of Base Salary
*** C = Car
A = Car Allowance
X = Refund
<PAGE> 11
DRAFT
Attachment 2-5
PROVIDED BY RIL
(OPTIONS - JANUARY 1998)
<TABLE>
<CAPTION>
Name Status Grant Date Plan S Option No. option Comments
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Full Time 05/01/95 1 3.75 20,000
06/01/96 3 1.0625 50,000
pending 2 YT expects proportional grant to
employees 11/18/97 grant to maintain
- 2/3 of RIL granted options and/or
level of allocation per position.
Full time 12/14/95 2 3.125 5,000
11/18/97 3 1.167 35,000
Full time 11/03/95 2 3.125 3,975
11/18/97 3 1.167 30,000 As agreed with Jack Letter pending
Full Time 11/15/97 3 1.167 25,000 Request for 10,000 more pending
Full Time 08/15/97 2 3.125 1,423
11/18/97 3 1.167 10,000
Full Time 11/15/95 2 3.125 1,261
11/18/97 3 1.167 10,000
Full Time 07/15/96 2 3.125 1,114
11/18/97 3 1.167 10,000
Full Time 01/19/96 2 3.125 1,160
11/18/97 3 1.167 10,000
Full Time 03/01/97 2 3.125 3,197
11/18/97 3 1.167 7,500
Full Time 10/31/95 2 3.125 3,976
11/18/97 3 1.167 7,500
Full Time 11/18/97 3 1.167 7,500
Full Time 02/12/96 2 3.125 1,308
11/18/97 3 1.167 7,500
Full Time 05/01/97 2 3.125 1,267
11/18/97 3 1.167 7,500
Full Time 08/01/97 2 3.125 1,172
11/18/97 3 1.167 7,500
Full Time 08/06/95 2 3.125 3,694
11/18/97 3 1.167 5,000
Full Time 11/21/97 2 3.125 1,174
11/18/97 3 1.167 5,000
Full Time 07/20/97 2 3.125 1,089
11/18/97 3 1.167 5,000
Full Time 08/12/96 2 3.125 833
11/18/97 3 1.167 5,000
Full Time 03/04/97 2 3.125 877
11/18/97 3 1.167 3,000
Full Time 03/10/96 2 3.125 803
11/18/97 3 1.167 3,000
Full Time 07/14/96 2 3.125 676
11/18/97 3 1.167 3,000
Full Time 01/28/00 2 3.125 676
11/18/97 3 1.167 3,000
Full Time 02/12/96 2 3.125 379
11/16/97 3 1.167 1,750
Full Time 06/15/97 2 3.125 419
11/18/97 3 1.167 1,000
Contractor n/a n/a n/a
Part time n/a n/a n/a
Part time n/a n/a n/a
Part time n/a n/a n/a
Part time n/a n/a n/a
Part time n/a n/a n/a
Part time n/a n/a n/a
Part time n/a n/a n/a
Part time n/a n/a n/a
Part time n/a n/a n/a
</TABLE>
There have been three option plans in effect for ROSS employees:
(1) Old Plan: 40% vesting 24 months after the grant date and 1.67% on the last
day of each succeeding month for the next 36 months.
(2) Repricing Plan: 25% vesting 2/28/98 and 2.08% on the last day of each
succeeding month for the next 36 months.
(3) New Plan: 25% vesting 12 months after the grant date and 2.08% on the last
day of each succeeding month for the next 36 months.
<PAGE> 12
DRAFT
Attachment 2-6
PROVIDED BY RIL
(EMPLOYEE SUMMARY)
<TABLE>
<CAPTION>
Status Name Start Date End Dates Cause of Termination
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Active Full Time 01/05/95
01/02/96
01/01/95
21/11/95
15/06/97
12/01/96
15/07/96
01/03/96
01/03/97
09/12/95
12/10/97
27/02/96
01/05/97
01/08/97
01/12/95
01/01/96
20/07/97
12/08/96
04/03/97
10/03/96
14/07/96
26/03/96
16/01/96
15/06/97
Active Part Time 10/07/96
10/07/96
05/03/96
29/04/97
04/05/97
29/04/97
10/09/97
28/12/97
09/12/97
Active Contract 18/07/96 15/11/97 Changed status from part time to contract
Terminated/Resigned 16/08/96 14/02/97 Resigned for a promotion at Metalink
17/10/95 14/08/97 Performance review
20/07/97 15/09/97 Performance review
</TABLE>
*Contractors who have finished their contract and temporaries like student who
have finished for tenure are not shown.
<PAGE> 13
Attachment 3-1
DRAFT
MARKET MULTIPLE APPROACH
(VALUATION SUMMARY)
<TABLE>
<CAPTION>
Valuation of RIL based on Sales Multiple:
- ----------------------------------------------------------------------------------------------------
Annualized
($ Thou.) First 3Q
RIL FY 1998 Low High
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Estimation of RIL Revenue:
Operating Expenses (Gross) 3,595
Hypothetical Revenue at GP of 20%* 4,493
Valuation Using Estimated Sales Multiple:
Range of Sales Multiple (Ref:3.2) 0.5 0.7
Enterprise value (debt-free basis) of RIL (Revenue x Multiple) 2,247 3,145
Illiquidity Discount of 20%** (449) (629)
Control Premium of 20%*** 449 629
--------- ---------
Enterprise value of RIL after considering private company factors 2,247 3,145
Approximately US$ 2.2 mil. 3.1 mil.
========= =========
</TABLE>
* For the purpose of this valuation, billing on operation expenses
(non-recurring expenses) is hypothesized to have 20% gross profit
margin.
** Illiquidity Discount is estimated to be at 20% (20% to 30% discount is
commonly applied for transactions involving unquoted businesses in the
US market.
*** Control Premium is estimated at approximately 20%.
<PAGE> 14
Attachment 3-2
DRAFT
MARKET MULTIPLE APPROACH
(ESTIMATION OF REVENUE MULTIPLE)
<TABLE>
<CAPTION>
Revenue Multiple: US Companies Involved in Designing and Development of Semiconductor Products
- --------------------------------------------------------------------------------------------------------
Net Income Margin
($ Mil.) Market L/T Total Sales on Sales
Companies Cap Debt Cap Sales Multiple (3 yr Avg) (Latest)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Siliconix Inc 460 6 466 269 1.7 8.5% 9.7%
International Rectifier Corp 699 162 861 486 1.8 4.2% Loss
Optec Technology Inc 144 3 147 67 2.2 14.0% 19.1%
Semtech Corp 286 1 287 65 4.4 10.3% 11.7%
Quality Semiconductor Inc 41 1 42 45 0.9 5.2% Loss
</TABLE>
Notes:
1. Revenue multiples of the companies with less than 10% net income margin
(Siliconix and International Rectifier) are below x 2 times (2.0).
2. Revenue multiple of a company with small sales volume and market
capitalization (Quality Semiconductor Inc.) is even lower (approximately
x 1 times <1.0>).
The equity interest in micro capitalization companies (capitalization of
less than US$ 100 million) is often valued at 20% to 50% less compared to
more financially stable companies.
3. Considering the size of the operation of RIL, the range of revenue
multiple are estimated at approximately x 0.9 to x 1.0. on independent
company basis.
4. The Company is highly dependent on RTI for its funding requirements and
sources of projects. For the investment community in general, the value of
the businesses that are not independent with regard to the source of
future revenues and fundings are less attractive compared to independently
operated businesses. In other words, the operating status of the Company
is not yet at the level of independent companies such as those listed on
stock markets.
Share value of the companies in Hi-Tec industry commonly sore several 100
percent, or at least 50 percent at the time of initial public offering.
When the value of RIL is compared against those of the listed companies in
the US Hi-Tec industry, at least 30% to 50% discount for the pre-mature
stage of operation should be considered. Taking into the account such
discount factor, the range of revenue multiple for RIL is estimated to be
approximately x 0.5 to x 0.7 times.
