Securities and Exchange Commission
Washington, D.C. 20549
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Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 28, 1997 Commission File
Number 0-12064
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Stratus Computer, Inc.
(Exact name of registrant as specified in its Charter)
Massachusetts No. 04-2697554
(State of Incorporation) (I.R.S. Employer Identification No.)
55 Fairbanks Boulevard, Marlborough, Massachusetts 01752
(Address of principal executive office) (Zip)
(508) 460-2000
(Telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes x No.
Number of Common Shares outstanding at the latest practicable date,
November 4, 1997: 27,490,544
STRATUS COMPUTER, INC.
INDEX TO 10-Q
Part I Financial information
Item 1 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Consolidated statements of income -
three months and nine months ended September 28, 1997
and September 29, 1996
Consolidated balance sheets -
September 28, 1997 and December 29, 1996
Consolidated statements of cash flows -
nine months ended September 28, 1997 and September 29, 1996
Notes to consolidated financial statements
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II Other information
Item 1 Legal proceedings
Item 5 Other information
Item 6 Exhibits and reports on form 8-K
Exhibit 10 - Material contracts
Signatures
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
STRATUS COMPUTER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Third Quarter Ended Nine Months Ended
September 28, September 29,
1997 1996 1997 1996
--------- --------- --------- ---------
Revenues:
Product sales $124,999 $101,618 $348,944 $282,256
Service 50,024 48,392 149,316 150,980
--------- --------- --------- ---------
Total revenues 175,023 150,010 498,260 433,236
Costs and expenses:
Product cost of sales 65,013 55,117 180,912 150,949
Service expense 31,034 29,094 92,480 91,634
Research and development
expense 24,189 19,439 65,833 59,310
Selling, general, and
administrative expense 33,813 33,726 102,161 98,436
Restructuring charge - - - 4,623
--------- --------- --------- ---------
Total costs and expenses 154,049 137,376 441,386 404,952
--------- --------- --------- ---------
Operating income 20,974 12,634 56,874 28,284
Other income 3,718 1,520 9,073 5,149
--------- --------- --------- ---------
Income before provision
for income taxes 24,692 14,154 65,947 33,433
Provision for income taxes 5,432 3,397 14,508 7,638
--------- --------- --------- ---------
Net income $ 19,260 $ 10,757 $ 51,439 $ 25,795
========= ========= ========= =========
Net income per common share $ 0.77 $ 0.45 $ 2.10 $ 1.09
========= ========= ========= =========
Weighted average number of
shares of common stock
and common stock
equivalents 25,055 23,816 24,473 23,719
========= ========= ========= =========
See accompanying notes.
STRATUS COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
September 28, December 29,
1997 1996
ASSETS ------- -------
- ------- (Unaudited)
Current assets:
Cash and cash equivalents $ 166,560 $ 131,683
Marketable securities 81,080 43,187
Accounts receivable, net 132,293 175,061
Inventories:
Finished products 42,560 35,921
Work-in-process 3,133 1,542
Parts and assemblies 37,712 25,820
----------- ----------
Total inventories 83,405 63,283
Prepaid expenses 13,664 14,540
Other current assets 20,242 13,773
----------- ----------
Total current assets 497,244 441,527
Property, plant, and equipment, at cost 399,972 355,097
Less: accumulated depreciation (253,847) (232,341)
----------- ----------
Net property, plant, and equipment 146,125 122,756
Other assets 66,408 74,638
----------- ----------
Total assets $ 709,777 $ 638,921
=========== ==========
LIAIBILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,868 $ 30,357
Accrued expenses:
Payroll 23,567 17,422
Other 33,783 34,204
Income taxes payable 25,656 13,564
Short-term borrowings and obligations 1,626 2,667
Deferred revenue 24,282 17,589
----------- ----------
Total current liabilities 136,782 115,803
Long-term obligations and deferrals 750 3,634
Stockholders' equity:
Common stock, $.01 par value, 150,000,000
shares authorized , 27,478,703 and
26,252,242 shares issued and outstanding,
respectively 275 263
Junior common stock, $.01 pre value, 500,000 - -
shares authorized
Additional paid-in capital 244,896 219,237
Retained earnings 442,863 391,424
Cumulative translation adjustment (4,638) (2,826)
----------- ----------
Subtotal 683,396 608,098
Less: shares in treasury, at cost, 3,600,000
and 2,934,300, shares respectively (111,151) (88,614)
----------- ----------
Total stockholders equity 572,245 519,484
----------- ----------
Total liabilities and stockholders'
equity $ 709,777 $ 638,921
=========== ===========
See accompanying notes.
STRATUS COMPUTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
Sept. 28, Sept. 29,
1997 1996
--------- ---------
Cash flows from operating activities:
Net income $ 51,439 $ 25,795
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 59,781 48,801
Restructuring charge - 4,623
Add (deduct) changes in working capital:
Decrease (increase) in accounts receivable 42,768 (3,203)
Increase in inventory (20,122) (12,041)
Increase (decrease) in accounts payable
and accrued liabilities 3,235 (17,484)
Increase (decrease) in income taxes payable 12,092 (5,465)
Increase in other working capital items 40 2,570
--------- ---------
Net cash provided by operating activities 149,233 43,596
Cash flows from investing activities:
Acquisition of property, plant and equipment (59,479) (39,112)
Purchase of marketable securities (123,255) (22,047)
Proceeds from sale and maturity of marketable
securities 85,362 45,435
Acquisition of other assets (18,030) (20,704)
--------- ---------
Net cash used in investing activities (115,402) (36,428)
Cash flows from financing activities:
Net proceeds from employee stock plans 25,671 5,648
Acquisition of treasury stock (22,537) -
Reduction of long term debt (1,479) (3,150)
--------- ---------
Net cash provided by financing activities 1,655 2,498
Effect of exchange rate changes on cash (609) (588)
--------- ---------
Net increase in cash and cash equivalents 34,877 9,078
Cash and cash equivalents at beginning of year 131,683 91,592
Cash and cash equivalents at end of period $166,560 $100,670
See accompanying notes.
STRATUS COMPUTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 1997 and September 29, 1996
(Unaudited)
(In thousands, except share amounts)
1. The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly-owned.
The information herein should be read in conjunction with the annual report
on Form 10-K for the year ended December 29, 1996. It is management's
opinion that the accompanying statements reflect all adjustments necessary
for a fair presentation of the results for this interim period and the
comparable periods presented. The balance sheet at December 29, 1996 has
been derived from the audited financial statements at that date.
2. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
3. Primary earnings per share is based on the weighted average number of
shares of common stock and common stock equivalents (stock options)
outstanding. Fully diluted earnings per share has not been separately
presented as the amount does not differ significantly from primary earnings
per share.
4. There were no non-cash investing and financing activities for the
first nine months of 1997 or 1996. The Company made interest payments of
$178 and $568 and tax payments of $7,145 and $10,447 in the first nine
months of 1997 and 1996, respectively.
5. During the first quarter of 1997, the Company completed its current
stock repurchase program. This program to purchase 1,200,000 shares of
Stratus common stock on the open market was authorized by the Company's
Board of Directors on October 22, 1996.
6. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted on
December 28, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating basic earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to result in an increase in basic earnings per share for the three
and nine months ended September 28, 1997 of $.04 and $.10 per share,
respectively, with a $.01 increase to both the third quarter and first nine
months of 1996. The impact of Statement 128 on the calculation of diluted
earnings per share for these periods is not material.
7. In the third quarter of 1997, the Company purchased the third building
and underlying land (all of which had been leased under an operating lease)
at its corporate headquarters site in Marlborough, Massachusetts for
$21,631 in cash.
8. During the second quarter of 1996, the Company restructured its software
business to improve operating results by aligning revenues with expenses,
and to focus on new strategic product offerings to be launched in the
following months. The restructuring actions resulted in a charge of $4.6
million and included charges for workforce reductions and asset dispositions
related to the discontinuation of certain product programs.
STRATUS COMPUTER, INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations. (In thousands)
Revenues
Revenues of $175,023 for the third quarter of 1997 increased 17% from
the corresponding period in 1996. For the first nine months of 1997,
revenues were $498,260, an increase of 15% from the same 1996 period.
The Company's total product revenue increased 23% and 24% for the
third quarter and first nine months of 1997, respectively, compared to the
same prior year periods. Hardware product revenue grew 25% and 24%,
respectively, in the third quarter and first nine months of 1997 compared to
the same 1996 periods, with strong year over year growth in the
telecommunications market of 44% for the third quarter and 50% for the first
nine months. As a percentage of total product revenue, sales in the
telecommunications market were 54% and 52% for the third quarter and first
nine months of 1997, respectively. Application software license revenue
decreased 35% and increased 15% in the third quarter and first nine months
of 1997, respectively, compared with the corresponding prior year periods.
The decrease from third quarter 1996 was primarily due to a decline in U.S.
revenues, while the year over year increase was due to stronger sales in the
financial services and healthcare markets.
Direct product revenues in the U.S. increased 20% for the third quarter
and 10% for the first nine months of 1997 from the same prior year periods
primarily due to strong sales in the financial services markets.
International direct product revenues decreased 24% from 1996's third
quarter with decreases in both the Europe and Asia-Pacific regions. For the
first nine months of 1997, international direct product revenues declined 9%
compared with the same period in 1996 due to lower revenues in Europe,
Canada, and Mexico.
Product revenue from indirect channels increased 64% for the third
quarter and 68% for the first nine months of 1997 compared to the same prior
year periods. Sales to NEC increased 53% and 75% for the third quarter and
first nine months, respectively, compared to the same 1996 periods, and
represented 34% and 33% of total product revenue in the respective 1997
periods. Product revenue from other international distributors increased
104% and 54% in the third quarter and first nine months of 1997,
respectively, compared to the same 1996 periods with strong sales through
Olivetti and in the Asia-Pacific and Latin America regions. Sales to
Olivetti were primarily in the gaming and telecommunications markets. As a
percentage of total product revenue, sales from other international
distributors was 13% for both the third quarter and first nine months of
1997.
Total service revenue increased 3% for the third quarter and decreased
1% for the first nine months of 1997 from the same prior year periods.
Professional service revenues decreased 5% and 16% in the third quarter and
first nine months of 1997, respectively, compared to the same periods in
1996 primarily due to lower professional service revenue in the application
software business. Maintenance revenues increased 5% in the third quarter
and 2% in the first nine months of 1997 compared with the corresponding
prior year periods.
Cost of Sales
Total gross margin of 45% for the third quarter and first nine months
of 1997 increased one percentage point during both periods from the total
gross margin in the corresponding 1996 periods.
Product gross margin of 48% for the third quarter and the first nine
months of 1997 increased two and one percentage point(s), respectively, from
the gross margin on product revenue achieved in the corresponding 1996
periods. The product margin increase was primarily related to an increase
in average system configuration sizes, favorable product mix, and
manufacturing efficiencies gained as a result of increased volume.
The gross margin on service revenue was 38% for the third quarter and
first nine months of 1997. This compares to 40% and 39% for the third
quarter and first nine months, respectively, in 1996. The decrease was
primarily due to the investments made in the core service business to
support new product introductions and lower professional service revenues.
Other Operating Expenses
Total operating expenses for the third quarter and first nine months of
1997, excluding the 1996 restructuring charge, increased 9% and 6%,
respectively, from the corresponding 1996 periods, primarily due to
increased research and development expenses. As a percentage of total
revenues, operating expenses, excluding the 1996 restructuring charge,
decreased to 33% for the third quarter and 34% for the first nine months of
1997 from 35% and 36% in the corresponding 1996 periods.
Research and development expense increased 24% and 11%, respectively,
for the third quarter and first nine months of 1997 compared to the same
periods in 1996. As a percentage of total revenues, research and
development expense increased one percentage point to 14% for the third
quarter and decreased one percentage point to 13% for the first nine months
of 1997 compared to the corresponding 1996 periods. Throughout the
remainder of 1997, the Company will continue its long-standing commitment to
provide leading edge hardware and software products to the
telecommunications and reliable enterprise server marketplaces, particularly
in support of mission critical applications. Research and development
efforts directed towards the Company's Continuum (R) and RADIO Cluster (TM)
product lines will be ongoing. The Company will continue to enhance its
Continuum product line, leveraged by the successful incorporation of the
Hewlett-Packard (TM) industry leading PA-RISC microprocessor, HP-UX (TM),
FTX (TM), and VOS operating system technologies. Within the Microsoft (R)
Windows NT (R) marketplace, the Company will continue to support the RADIO
Cluster which combines availability software from the Company's Isis
Distributed (TM) Systems division with industry-standard hardware,
networking components, and operating systems.
Selling, general, and administrative expenses were essentially
unchanged in the third quarter and were up 4% for the first nine months
compared to the same 1996 periods. In the third quarter, selling, general,
and administrative expenses were 19% of net revenues down from 22% in 1996.
For the first nine months, selling, general, and administration expenses
were 21% of net revenues compared to 23% in 1996. The Company's strategy is
to continue to focus the sales and marketing organizations on strategic
opportunities within targeted vertical industries, expand indirect sales
channels, and improve selling efficiencies. In addition, the Company will
continue to focus on effective cost management.
During the second quarter of 1996, the Company restructured its
software business to improve operating results by aligning revenues with
expenses, and to focus on new strategic product offerings to be launched in
the following months. The restructuring actions resulted in a charge of
$4.6 million and included charges for workforce reductions and asset
dispositions related to the discontinuation of certain product programs.
Other Income and Expense
Other income increased $2,198 and $3,924 for the third quarter and
first nine months of 1997, respectively, compared to the same prior year
periods. This was primarily due to an increase in interest income earned on
higher levels of invested cash, and a decrease in interest expense resulting
from lower levels of long-term debt.
The effective tax rate in the third quarter and the first nine months
of 1997 of 22% decreased from 23% for the full year 1996. The tax rate for
the third quarter decreased two percentage points from the corresponding
1996 period. The reduction was due to a change in the mix of taxable income
in the Company's international subsidiaries.
Liquidity and Capital Resources
At September 28, 1997, the Company had cash and cash equivalents of
$166,560, an increase of $34,877 from the balance at the beginning of the
year. This was primarily due to collection of accounts receivable and
proceeds from employee stock plans, partially offset by purchases of
marketable securities, the stock repurchase program completed in the first
quarter, capital expenditures, and inventory purchases.
In the third quarter of 1997, the Company purchased the third building
and underlying land (all of which had been leased under an operating lease)
at its corporate headquarters site in Marlborough, Massachusetts for
$21,631 in cash.
On January 3, 1997, the Company canceled its $50 million Multi-currency
Revolving Credit Agreement because management believes it is no longer
needed. There were never any borrowings against this Agreement.
At September 28, 1997, the Company had $1,626 in outstanding debt
related to the Isis(TM) acquisition.
Certain subsidiaries have entered into credit arrangements with local
banks, principally Overdraft Agreements, for the purpose of short-term
liquidity management. There were no outstanding borrowings under these
agreements at September 28, 1997.
The ratio of current assets to current liabilities for the Company as
of September 28, 1997 was 3.6 to 1. Based upon its current cash position,
and expected cash flow from operating activities, supplemented by ongoing
stock issuance from the Employee Stock Purchase Plan and stock option plans,
management believes that the Company's capital resources are sufficient to
meet its financial requirements for the foreseeable future.
The Company plans to invest approximately $90 million in capital
improvements and software technologies in 1997.
Outlook and Factors That May Affect Future Results
Future operating results of the Company will be dependent, in part,
upon its ability to continue to execute its strategy for growth in its two
principal business areas: 1) the telecommunications and reliable enterprise
server markets with focus on the core product line of Continuum fault
tolerant computer systems, and 2) the application software markets addressed
by the Company's S2 (TM) and TCAM (TM) subsidiaries. The Company will align
its product strategies to meet the industry-specific requirements of
targeted growth markets.
The Company will continue to invest in its core business by developing
and introducing products which will expand the breadth of the Continuum
product family. In addition, the Company plans to continue to support
customer needs for its distributed computing products. The development and
delivery of telecommunications middleware, application software and
professional services will be targeted towards those market segments where
computer availability is a critical need.
Forward looking statements made within this report speak only as of
the date made. The Company cautions readers to recognize that actual
results could differ materially from historical results and/or those
suggested, as a result of the following factors:
The Company's future operating results are dependent upon the timing
and market acceptance of new and enhanced product introductions. The
transition of customers from existing to new products in a rapidly changing
technological environment, as well as unexpected delays and/or cancellations
in customer purchases of existing products in anticipation of new products,
are inherent risks in this process.
The Company historically ships a large percentage of its revenues
towards the end of each quarter, making revenue forecasting unpredictable.
In addition, product volumes and product and service mixes comprising the
forecast are dependent upon customers' changing demands and needs. As the
Company increases its product and service offerings, the process of planning
and forecasting revenue becomes increasingly difficult. Each of these
factors may subject the Company to fluctuations in revenues and earnings.
A substantial portion of the Company's product manufacturing and many
suppliers are located outside the United States. In conjunction with the
forecast process discussed above, the Company must adjust operations to satisfy
production requirements as the need for demand changes. Production capacity is
dependent upon the ability of the Company's suppliers to provide components on
time and at reasonable prices. Supply constraints, foreign currency exchange
rate fluctuations, foreign country political and economic changes, as well as
changes in export and trade regulations could adversely impact the Company's
operations.
In addition to its direct channels, the Company continues to expand its
indirect distribution channels through resellers and distributors. In the third
quarter and first nine months of 1997, one reseller, NEC, represented 24% and
23%, respectively, of total Company sales. The financial condition of, and
ongoing business relationship with NEC and such other resellers and distributors
is important to the Company's financial success. As such, any decrease or
weakening in the financial health, business relationship, and/or historical
performance of such resellers and distributors could have a material and adverse
impact on the Company's operations and financial condition. Fluctuations in
channel mix may be significant and can have a significant impact on gross
margins as a percentage of revenue and therefore on earnings per share. The
turmoil in the Far East may cause some of the Company's customers to defer
acquisitions of computer-based solutions.
As the technology marketplace continues to evolve in anticipating our
customers' changing needs, the industry continues to experience competitive
pressures on price and gross margins. Downward pressures on price and gross
margins and unexpected revenue and margin trends may cause the Company to change
its operations and as such, may adversely impact the Company's financial
results.
As the Company continues to execute its growth strategy discussed above,
there can be no assurance that adjustments to the Company's operations will not
be required as a result of future revenue and margin trends. Such operational
adjustments may result in variations in the Company's operating results; which,
along with changes in revenue and earnings estimates by investment analysts,
company product and/or service announcements, and general market and economic
conditions in the technology industry may cause the Company's stock price to
fluctuate and may adversely affect the Company's stock price in the future.
Stratus, the Stratus logo, and Continuum are registered trademarks, and
RADIO Cluster, Isis, Isis Distributed, and FTX are trademarks of Stratus
Computer, Inc. S2 is a trademark of S2 Systems, Inc. TCAM is a trademark of
TCAM Systems, Inc. Hewlett-Packard and HP-UX are trademarks of the Hewlett-
Packard Company. Xylogics and Gradient Technologies are registered trademarks
of the respective companies. Microsoft and Windows NT are registered trademarks
of Microsoft Corporation. All other trademarks are the property of their
respective owners.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to legal proceedings and claims, including claims of
patent infringement and other matters, which arose in connection with the
acquisition of businesses. Management believes that the outcome of those
matters will not have a material adverse effect on the Company's financial
condition or results of operations.
Item 5. Other Information
On August 1, 1997, Robert E. Donahue resigned from his position as Chief
Financial Officer, Treasurer, and Vice President of Finance and Administration.
On August 25, 1997, Maurice L. Castonguay was appointed as Chief Financial
Officer, Treasurer, and Vice President of Finance and Administration. Mr.
Castonguay previously served as Vice President of Finance and Chief Financial
Officer at Gradient Technologies, Inc. from March, 1996 to August, 1997. He also
served as Chief Financial Officer of Xylogics, Inc. from September, 1990 to
March, 1996.
On October 27, 1997, Roderick K. Randall was appointed as Vice President of
Worldwide Marketing. Mr. Randall previously served as Vice President of
Strategic Market Development at Madge Networks, Inc. from May, 1996 to
September, 1997, when the company he co-founded in 1987, Teleos Communication,
Inc. was acquired by Madge Networks, Inc. in 1996.
On October 27, 1997, Edward J. Mezzanotte was appointed as Vice President
and General Manager, Software Business Group. Mr. Mezzanotte previously served
as Vice President and General Manager of the Company's Isis Distributed Systems
Division.
Item 6. Exhibits and reports on Form 8-K
No reports on Form 8-K have been filed during the third quarter ended September
28, 1997.
Exhibit 10 - Material Contracts
October 23, 1997
Mr. Roderick K. Randall
Dear Roderick:
On behalf of Stratus Computer, Inc. ("Stratus") it is my pleasure to offer you
the position of Vice President of Marketing, reporting to me. In this position,
as an Officer of the Company, you will be subject to the requirements of Section
16 of the Securities Exchange Act of 1934.
You will be paid in accordance with Stratus' Executive Variable Compensation
Program which is composed of the following elements:
Base Salary of $9038 bi-weekly, which is equivalent to $235,000
annually.
Variable compensation component at a rate of 48% of your base salary
as listed above under Stratus' current Variable Compensation Plan ("VC
Plan"). This equates to $115,000 annually at 100% attainment of your
goals. The annual variable compensation is based on your attainment of
certain individual goals in combination with the Company meeting or
exceeding designated financial performance goals, as approved by the
Board of Directors and the Compensation Committee. The terms of the VC
Plan will be discussed with you after having been set by the Board and
the Compensation Committee at the beginning of each fiscal year. Should
your start date be during the fourth quarter 1997, you will be paid the
pro rata portion of your variable compensation for that portion of the Q4
performance period for 1997.
Guaranteed variable compensation for the first twelve (12) months of
your employment, at the annual rate of $115,000. Your 1998 annual
variable compensation shall be paid to you on a pro-rata basis for those
months remaining in 1998 following the end of your guaranteed twelve (12)
month period, in accordance with the terms of the VC Plan.
Your total compensation at 100% attainment of goals is $350,000
annually. You will also be eligible for the overachievement rates, if
applicable, as outlined in the VC Plan documents.
You will have the option to purchase 100,000 shares of Stratus
common stock under the Company's 1983 Employee Stock Option Plan and/or
the 1997 Non-Qualified Stock Option Plan ("Plans"). The purchase price
for these options will be the closing price of the stock as stated on the
NYSE on October 28, 1997 or, in the event your employment commences after
October 28, 1997, the date that you commence employment. All options
will vest over a four (4) year period and have a ten (10) year exercise
period as provided in the Plans.
Participation in such Stratus executive officer and employee benefit
programs as shall be in effect from time to time.
Regarding your relocation from New Jersey to the Marlboro area,
within thirty (30) days of your employment start date, you will be paid
$135,000 as a complete Relocation Sum. This Sum shall cover all
relocation expenses from New Jersey to Massachusetts including but not
limited to the broker's fee for the sale of your New Jersey home,
transfer taxes and/or fees on the sale of your New Jersey home and the
purchase of your Massachusetts home, temporary living expenses while
searching for a Massachusetts home, travel expenses between New Jersey
and Massachusetts, personal property moving expenses and closing costs
and other expenses associated with the purchase of a Massachusetts home.
This Relocation Sum shall be the total amount of money paid to you by the
Company for any and all relocation related costs and expenses regardless
of the actual sums you incur. Under current IRS regulations, you should
be aware that all monies paid by the Company in connection with your
relocation as appropriate, must by law, be included in your gross
earnings and will be subject to applicable taxes. Should your employment
with the Company end within twelve (12) months of your date of hire, you
agree to promptly repay the Company the entire amount of $135,000. Any
questions on this Agreement and/or your relocation should be coordinated
through John Young.
Additionally, to assist you with the purchase of your new principal
residence in Massachusetts, the Company shall grant you a nontransferable
demand loan in the amount of $300,000, which shall be secured by having
you grant the Company a second priority secured lien on the property you
purchase or build as your principal residence in the Marlboro area. This
loan shall be forgiven over a four (4) year period, whereby twenty-five
percent (25%) of the entire loan amount shall be forgiven upon each
annual anniversary of your employment start date, so long as you continue
to be employed by the Company at that time. Should your employment with
the Company end prior to forgiveness in full of the loan, you agree to
promptly repay the Company any outstanding portion of the loan which has
not been forgiven. To eliminate any interest on the loan, we will require
that you certify to the Company in writing that you are entitled to and
will itemize deductions for each year the loan is outstanding and the
loan proceeds will be used only to purchase the new principal residence
in Massachusetts. Upon acceptance of this offer letter, a formal loan
agreement will be presented to you for your signature.
Due to the Immigration Control and Reform Act of 1986, you will be required to
verify your identity and employment eligibility by completing the I-9 Employment
Eligibility Form and supplying Stratus with the required documents on your fist
day of employment. Your acceptance of this offer of employment is contingent
upon compliance with the Immigration Act of 1986. Failure to complete the I-9
form or provide original documentation may result in termination of employment.
You will be required to sign Stratus' Standard Employee Proprietary Information
Agreement covering inventions, concepts and protection of confidential and
proprietary information. A copy of this agreement is attached for your review.
Roderick, I am excited about the prospect of having an individual with your
background and experience on the Executive Management Team at Stratus. I would
like your official start date to be on or before October 28, 1997, if possible.
If this letter sets forth the terms of the offer we have negotiated with you,
kindly indicate your acceptance in the space provided and send one signed
original back to me or John Young, Vice President, Human Resources, or to Eileen
Casal, Vice President and General Counsel, on my behalf.
Welcome aboard.
Very truly yours, I accept the position of Vice President of
Marketing commencing on or before
October 28, 1997 in accordance with
the terms hereof.
- ----------------------- ----------------------------------
Bruce I. Sachs Roderick K. Randall
President
Chief Executive Officer ----------------------------------
Date
----------------------------------
Start Date
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned duly authorized.
STRATUS COMPUTER, INC.
(Registrant)
Date: November 13, 1997
_____________________________________
Maurice L. Castonguay
Vice President, Finance and Administration,
Chief
Financial Officer and Treasurer, hereunto
duly authorized