Company Press Release
ROSS Technology Closing $50 Million Recapitalization and Debt
Reduction; Announces Other Agreements With Fujitsu Limited
AUSTIN, Texas, Oct. 1 /PRNewswire/ -- ROSS Technology, Inc. (Nasdaq:RTEC) (``ROSS'' or the ``Company'')
announced today that it had executed definitive agreements (including a Stock Purchase Agreement) to sell $50 million
of a new Series B Convertible Preferred Stock (``Preferred Stock'') to its majority shareholder, Fujitsu Limited
(``Fujitsu'' or ``Buyer''), in a recapitalization. The proceeds from the sale will reduce its bank indebtedness. Funding of
the transaction is planned to be completed on October 1, 1997.
Following the stock sale and debt reduction, ROSS' maximum aggregate bank debt guaranteed by Fujitsu will be $20
million. On September 30, 1997, pro forma, giving effect to the reduction of bank indebtedness described above, the
Company had $6 million of bank debt outstanding.
The Company's listing on the Nasdaq National Market is expected to continue due to this recapitalization. The Nasdaq
Stock Market had established several criteria for the continued listing of the Company's stock on the Nasdaq National
Market; among such criteria were the completion of the recapitalization and facilitation of the bank line of credit
described above. The Company believes that it has complied with the criteria for continued listing except for the filing
of a Current Report on Form 8-K by October 3, 1997, which would include a pro forma balance sheet as of August 31,
1997, reflecting the results of the recapitalization. The Company intends to file the Form 8-K on or before the required
date to complete the specific requirements for continued Nasdaq listing.
In conjunction with the recapitalization, ROSS and Fujitsu also entered into an Agreement in Principle covering pricing
and other business terms of a Wafer Supply Agreement for silicon wafers purchased by ROSS from Fujitsu after June
30, 1997. The parties anticipate promptly completing a definitive Wafer Supply Agreement based upon the Agreement
in Principle. The parties also executed a Reimbursement Agreement regarding pricing for silicon wafers purchased by
the Company from Fujitsu prior to July 1, 1997, and including mutual releases of silicon-related claims for the periods
through June 30, 1997 (except for certain warranty claims by the Company and certain invoices rendered in the
ordinary course by Fujitsu for purchases by the Company). Pursuant to the Reimbursement Agreement, Fujitsu will pay
the Company approximately $2.3 million, which amount had previously been accrued in the Company's financial
statements.
Jack W. Simpson, Sr., President and Chief Executive Officer of the Company, stated that, ``By reducing our bank debt
from $56 million to $6 million, by having a line of credit to enable borrowing of an additional $14 million, and with
shareholders' equity at October 1, 1997, estimated to be over $20 million, we believe we will have the financial
structure required to move the business forward to implement our turnaround plan. The employees and management of
ROSS very much appreciate the strong support demonstrated by Fujitsu. Our attention will now clearly be focused on
developing the world-class 64-bit Viper microprocessor under our Joint Development Agreement with Fujitsu, and we
will be hiring additional talent to supplement the Company's current development team.
``In addition, our attention to improved yields and cost reduction for our current products will continue and we expect
progress over time. Our current 32-bit products are being enhanced with a 250 MHz processor and our sales force
continues to expand with highly competent, experienced sales people. The entire ROSS organization is focused on
'Making Things Happen.'
``This recapitalization, including the $50 million reduction in debt, is a major financial event in the turnaround of ROSS
and our challenge is to now deliver the results indicated in our three-year business plan. The plan is challenging but
doable with the talent that is at ROSS and the additional talent we expect to attract.''
The Stock Purchase Agreement, the Reimbursement Agreement, the Agreement in Principle, and the amendment to
the Joint Development Agreement were approved by a Special Committee of the Company's Board of Directors
comprised of Fred T. May, the Company's Chairman of the Board, who is not associated in any way with Fujitsu. In
connection with this transaction, the Special Committee had independent legal and financial advice and received an
opinion dated September 30, 1997, from an independent investment banking firm to the effect that, as of such date, the
recapitalization transaction (comprising the stock sale and the bank debt guarantee by Fujitsu) was fair to the
Company's stockholders (other than Fujitsu) and the Company from a financial point of view.
The Stock Purchase Agreement contains the following provision, among others: ``The Company acknowledges that,
based on the Business Plan through fiscal year 1998, the funding provided through the purchase of the Series B
Preferred Stock and the availability of a credit line of $20 million guaranteed by Buyer, should (assuming the
Company's timely receipt of $13.5 million in funding through payments contemplated to be payable to the Company
under the Viper Development Agreement between the parties (dated June 25, 1997) (the ''Joint Development
Agreement``) or otherwise provided to the Company by Buyer after the date hereof and prior to March 31, 1998) avoid
any cash flow shortages through fiscal year 1998. Based on the foregoing, Buyer and the Company agree that Buyer's
obligations to the Company under that certain Letter dated June 18, 1997 from Buyer to the Company shall be fully
satisfied and extinguished on and as of the Closing'' (of the recapitalization). (In the Letter dated June 18, 1997, Fujitsu
stated that ``In accordance with our plan for ROSS Technology, we (Fujitsu) are ready to provide the necessary funding
through debt guarantees or other types of financing for ROSS Technology not to incur cash flow shortages through April
1, 1998.'')
F.S. (Kit) Webster III, Chief Financial Officer of the Company, noted that the Company and its independent public
accountants would be reviewing whether the foregoing provision of the Stock Purchase Agreement has any impact on
the Company's past financial statements.
Mr. Webster also noted that, as previously announced, the Company and Fujitsu have been discussing the final
specifications for the 64-bit microprocessor design to be developed under the Joint Development Agreement and that
Fujitsu's funding obligations and rights to the intellectual property under the Joint Development Agreement could be
affected if the parties ultimately fail to agree. On September 29, 1997, the Company and Fujitsu entered into an
amendment to the Joint Development Agreement which redefined certain milestone objectives in reflection of the
discussions, which are continuing.
The principal terms of the Preferred Stock include:
1. The Preferred Stock may be converted in whole or in part into Common
Stock at any time. The number of Common shares into which the
Preferred Stock may be converted, except when a Special Conversion
Condition applies, will be the liquidation preference per share
($100.00) divided by the average of the closing prices of the Common
Stock on the five trading days immediately prior to the date of
conversion (but in no event less than $1.00) (the "Market Price").
The Common Stock issuable upon conversion is eligible for registration
at the Company's expense under an existing Shareholders Agreement.
2. There are two Special Conversion Conditions: (1) For two years from
the date of closing, the number of shares of Common Stock into which
the Preferred Stock may be converted will be the liquidation
preference per share ($100.00) divided by $2.50. (2) Not withstanding
(1), if ROSS declares bankruptcy, or if ROSS requests future
additional funding or credit support from Fujitsu, subject to certain
limited exceptions, the number of shares of Common Stock into which
the Preferred Stock may be converted will be the liquidation
preference per share ($100.00) divided by the lower of the Market
Price or $2.00.
3. The Preferred Stock carries no stated dividend but will participate
pro rata in any dividends on the Common Stock on an "as converted"
basis. The Preferred Stock has no voting rights for directors but may
vote as a class on certain matters.
4. No Nasdaq listing or trading market is planned for the Preferred
Stock.
Safe Harbor Statement under Private Securities Litigation Reform Act of 1995:
To the extent that this release contains forward-looking statements with respect to the financial condition, results of
operations and business of the Company, such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially and adversely from those set forth in the forward-looking statements, including
without limitation, the availability of financial resources adequate to the Company's short-, medium- and long-term
needs, the Company's dependence on the timely development, pre-production qualification, manufacture, introduction
and customer acceptance of new higher-speed, higher-margin products, the ability of the Company to successfully
implement its strategy of expanding into the system products business, the various effects on revenue, margins,
inventories and operating expenses of repositioning the Company's product lines and overall business, the effects of
building and maintaining product inventories in the Company's hands and in its distribution channels, product return and
credit risks with distributors, resellers and customers, the Company's dependence on distributors and resellers for
certain product sales to end-users, the impact on revenue, margins and inventories of rapidly changing technology,
competition, downward pricing pressures and allocations of product among different distribution channels, the effects
of routine price degradation over time in each of the Company's product lines, varying customer demand for the
Company's products, supply and manufacturing constraints and costs, the Company's dependence on outside
suppliers for wafer fabrication and raw materials, components and certain manufacturing services, changes in plans,
programs or expenses for research, development, sales or marketing, the Company's ability to build and maintain
adequate staff infrastructures in the areas of microprocessor design, product engineering and development, sales and
marketing, finance, accounting, and administration, supplier disputes, customer warranty claims, general economic
conditions, and the other risks and uncertainties described from time to time in the Company's public announcements
and Securities and Exchange Commission filings, including without limitation the Form S-1 and Final Prospectus filed
in November 1995 and the Company's Current, Quarterly and Annual Reports on Forms 8-K, 10-Q and 10-K,
respectively. The Company cautions that the foregoing list of important factors is not exclusive. The Company does not
undertake to update any written or oral forward-looking statement that may be made from time to time by or on behalf of
the Company.
ROSS Overview
ROSS Technology, founded in 1988, is a majority-owned subsidiary of Fujitsu Limited. A minority position in ROSS is
held by Sun Microsystems, Inc. As of June 30, 1997, the Company's outstanding Common Stock was held 60 percent
by Fujitsu, 5 percent by Sun, and 35 percent by employees and the public. The Company's objective is to produce
extremely high SPARC performance in a very compact space, leading the industry in delivering the most SPARC
computing power per cubic inch. ROSS is one of the industry's most prominent suppliers of SPARC microprocessors
and SPARC system products to both the OEM and end-user markets.
SOURCE ROSS Technology, Inc. |
