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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE FISCAL YEAR ENDED: OCTOBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ________________ TO _________________
COMMISSION FILE NUMBER: 0-11552
TELEVIDEO, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2383795
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2345 HARRIS WAY, SAN JOSE, CALIFORNIA 95131
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 954-8333
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
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(TITLE OF CLASS)
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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 NO X
--- ---
THE APPROXIMATE AGGREGATE MARKET VALUE OF REGISTRANT'S COMMON STOCK
HELD BY NON-AFFILIATES ON JANUARY 12, 2000 (BASED UPON THE CLOSING SALES PRICE
OF SUCH STOCK AS REPORTED IN THE OVER THE COUNTER MARKET AS OF SUCH DATE) WAS
$5,948,750.
AS OF JANUARY 12, 2000, 11,271,085 SHARES OF REGISTRANT'S COMMON STOCK
WERE OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of the Registrant's
Definitive Proxy Statement to be used in connection with Registrant's Annual
Meeting of Stockholders to be held on April 18, 2000 have been incorporated
by reference into Part III of this Annual Report on Form 10-K.
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ ]
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal year ended October 31,
1999 includes certain statements that may be deemed to be "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. All statements, other than statements of historical
facts, included in this Annual Report that address activities, events or
developments that the company expects, believes or anticipates will or may occur
in the future, including, but not limited to, such matters as future product
development, business development, marketing arrangements, future revenues from
contracts, business strategies, expansion and growth of the company's operations
and other such matters are forward-looking statements. These kinds of statements
are signified by words such as "believes," "anticipates," "expects," "intends,"
"may," "will" and other similar expressions. However, these words are not the
exclusive means of identifying such statements. These statements are based on
certain assumptions and analyses made by the company in light of its experience
and perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the circumstances.
Such statements are subject to a number of assumptions, risks and uncertainties,
including the risk factors discussed below, general economic and business
conditions, the business opportunities (or lack thereof) that may be presented
to and pursued by the company, changes in law or regulations and other factors,
many of which are beyond control of the company. Investors are cautioned that
any such statements are not guarantees of future performance and that actual
results or developments may differ materially from those projected in the
forward-looking statements.
(Remainder of this page was intentionally left blank)
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INTRODUCTORY STATEMENT
References in this Form 10-K to "TeleVideo," the "Registrant" or the
"Company" refer to TeleVideo, Inc. and its subsidiaries unless the context
indicates otherwise. This report contains registered and unregistered trademarks
of other companies.
PART I
ITEM 1. BUSINESS
THE COMPANY
Founded in 1975, TeleVideo is a market leader providing innovative high
performance terminal and network computer products to the business and consumer
markets. The Company markets its products worldwide primarily through
distributors, value-added resellers ("VARs"), systems integrators and original
equipment manufacturers ("OEMs").
The Company first became a leader in the video display terminal
industry by introducing a new generation of "smart" terminals based on the Intel
microprocessor at a time when dumb terminals were the industry standard.
TeleVideo holds a number of proprietary terminal emulations, including the TV910
and TV9425, which have been an industry standard for more than 15 years and are
currently used in millions of terminals worldwide. Today, TeleVideo is utilizing
its expertise in server-based network computing to forge new ground in
delivering thin-client solutions.
TeleVideo operates in one industry segment.
PRODUCTS
TeleCLIENT Family
TeleVideo's TeleCLIENT products consist of a family of thin-client
Windows-based terminals. The TC7000 is a stand alone design that can be
connected to a variety of monitors to meet specific needs. The TC7150 and
TC7170 are integrated units with 15 and 17 inch color CRT monitors,
respectively. The TeleCLIENT TC7300 Series is a fully-integrated
Windows-based thin-client with a built-in high resolution TFT LCD screen.
Bundled as an all-in-one design, the TC7300 Series is designed for use in
limited workspaces. The TeleCLIENT family of products is designed for use in
the healthcare, government, education, retail and other task-oriented
client/server based computing environments. TeleVideo's thin-clients are
accelerated by a Pentium-class 233MHz microprocessor. TeleCLIENT thin-clients
are powered by Windows CE, enabling fast and easy access to business-critical
applications. The TeleCLIENT family of products also provides flexibility to
choose the Remote Desktop Protocol that executes either the Windows NT 4.0
Terminal Server Edition, or the Citrix ICA protocol through Citrix MetaFrame
or WinFrame. Windows CE gives the TC7000, TC7150, TC7170 and the TC7300
Series server-side access to popular Windows-based business applications such
as the Microsoft Office suite and Java, as well as the Internet.
Video Display Terminals
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The 990 is a general purpose terminal with ASCII, ANSI and PC TERM
operating modes. For maximum versatility and flexibility, the terminal is
compatible with a wide variety of keyboard styles and allows users to
interface to a bar code scanner, wand reader, credit card reader, electronic
scale or other specialized keyboards for point-of-sale or
point-of-transaction processing.
The TeleVideo 995-65 14-inch monochrome terminal allows the user
AlphaWindowing capability at a non-windowing price for new or existing software
applications. The windows capability provides increased productivity for
applications running on UNIX. The 995 also has a power management screen saver
which protects the environment and promotes energy conservation.
iTelePC
Televideo's iTelePC iT2000 is an "internet appliance," a new and
relatively low-cost PC designed for Internet access and specialized business
use, but without the full capabilities of a personal computer. The iT2000 comes
integrated with a 15-inch monitor that brings the Internet to the household or
business in a small, easy-to-use design. Powered by Microsoft Windows CE, the
233 MHz iT2000 comes with no set-up required.
PRODUCT DEVELOPMENT
TeleVideo serves markets that are characterized by rapid
technological change and the Company has continuous ongoing programs to
develop new products. Although the Company's research and development staff
consists of 10 employees as of January 12, 2000, various joint projects of
the Company are supported by engineers from participating companies. During
fiscal 1999, TeleVideo spent approximately $0.6 million on Company-sponsored
research and development. Company-sponsored research and development expenses
for fiscal 1998 and 1997 were approximately $0.4 million and $0.8 million,
respectively. The Company did not engage in any customer-sponsored research
and development program during such years.
Because of the fast pace of technological advances, the Company must be
prepared to design, develop and manufacture new and more powerful low-cost
products in a relatively short time. TeleVideo believes it has had mixed success
to date in accomplishing these goals simultaneously. Like other companies in the
computer industry, it will continue to experience delays in completing new
product design and tooling. There is no assurance that the Company will be able
to design and manufacture new products, including its iTelePC and TeleCLIENT
family of products, that respond to the rapid changes in the marketplace.
SALES, MARKETING AND CUSTOMERS
North American sales are handled from TeleVideo sales offices located
in San Jose, California; Lake Forest, California; Wharton, New Jersey; Hoffman
Estates, Illinois; Gainsville, Georgia; and Dallas, Texas. Products are sold
through distributors, mass merchants, retail stores, VARs, systems integrators
and OEMs.
Products sold in Europe, Asia Pacific, Africa and Latin America are
handled by the Company's office in San Jose, California through distributors,
OEMs and international representatives. The Company also appointed an agent in
the United Kingdom in fiscal 1999 to manage existing customer relationships and
to build new ones throughout Europe.
TeleVideo distributors generally do not have exclusive geographic
territories. Distributor contracts can generally be terminated by either party
without cause upon advanced written notice of 30 days or 60 days. TeleVideo's
distributors typically handle a variety of computer-related products, including
products competitive with those of TeleVideo. The typical distribution
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arrangement requires the distributor to purchase TeleVideo products with certain
limited stock rotation rights. Distributors may also exercise price protection
rights should the Company's product price be reduced.
TeleVideo, through its headquarters' marketing and supporting staff,
continues to work closely with its distributors, mass merchants, retail
stores, VARs, systems integrators and original OEMs. TeleVideo's marketing
staff also provides the customers with training, sales and promotional
materials, cooperative advertising programs, trade show participation and
sales leads. The marketing organization also leads the product marketing role
giving direction to product management and competitive positioning. The
Company spent approximately 9% ($0.7 million), 7% ($1.1 million) and 7% ($1.3
million) of its net revenues on advertising in fiscal 1999, 1998 and 1997,
respectively.
TeleVideo's customers typically purchase the Company's products on an
as-needed basis. Therefore, the Company will continue to manufacture its
products based on sales forecasts and upon customer orders. As a result of this
strategy, the Company believes that backlog is not material to its business
taken as a whole. Because of the possibility of customer changes in delivery
schedules or cancellation of orders, which is not uncommon in the computer
industry, the Company's backlog as of any particular date may not be indicative
of actual net sales for any succeeding period. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
For the fiscal year ended October 31, 1999, TeleVideo's largest
customer (Savior, Inc.) accounted for 10% of the Company's sales, while
another customer accounted for 9%. TeleVideo's sales terms are primarily cash
in advance or upon delivery, or on credit terms that are typically net 30 or
net 45 days.
INTERNATIONAL SALES
The Company had export sales (primarily to Europe, Asia and Latin
America) of approximately $1.6 million in fiscal 1999 (representing 19.8% of
total net sales), $2.1 million in fiscal 1998 (14.2% of total sales) and $2.7
million in fiscal 1997 (13.6% of total net sales). In fiscal 1999, the
Company appointed an agent in the United Kingdom to manage existing customer
relationships and to build new ones throughout Europe. The Company is
evaluating the feasibility of establishing a fully equipped TeleVideo
presence in Europe but has made no commitments in this regard.
TeleVideo's international sales are subject to certain risks common to
non-United States operations, including but not limited to governmental
regulations, import restrictions and export control regulations, changes in
demand resulting from fluctuations in exchange rates, as well as risks such as
tariff regulations. TeleVideo's international sales are generally U.S.
dollar-denominated and, therefore, are not directly subject to international
currency fluctuations. The strength of the dollar in relation to certain
international currencies may, however, adversely affect the Company's sales to
international customers.
FOREIGN JOINT VENTURE ACTIVITY
TELEVIDEO-RUS
In January 1996, TeleVideo established a company called "TeleVideo-RUS"
in the Commonwealth of Independent States with an initial investment of
$150,000. In fiscal 1997, the Company sold this investment for $250,000 and
recognized a profit of $100,000.
THREE H
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Three H Partners, owned equally by TeleVideo and a Russian entity, was
formed in fiscal 1991. The Company invested a total of $76,000 into Three H. The
Company wrote off this investment in fiscal year 1996.
TLK, INC.
In November 1996, the Company invested $150,000 in exchange for a 20%
ownership in TLK, Inc. for the China Power Plant projects in Lin Zhang, Quin
Yuan and Henan Provinces in China. The Company wrote off this investment in
fiscal year 1997.
KORAM, INC.
On March 3, 1997, the Company deposited $224,820 in escrow in Korea,
which amount was used to purchase a 50% interest in a restaurant venture in
Seoul, Korea. The amount deposited has been written down to $109,820 due to the
devaluation of the Korean won. The Company accounts for this investment on the
equity basis of accounting.
COMPETITION
TeleVideo believes that brand recognition, product quality,
availability, extensive standard product features, service and price are
significant competitive factors in the Company's markets. In addition to the
factors listed above, the principal considerations for distributors and
resellers in determining which products to offer include profit margins,
immediate delivery, product support, and credit terms. TeleVideo has continued
and in the future will likely continue to face significant competition, with
respect to these factors, particularly from the large international
manufacturers. Most of these companies have significantly greater financial,
marketing and technological resources than the Company, and may be able to
command better terms with their suppliers due to higher purchasing volumes.
Therefore, there is no assurance that the Company will be able to successfully
compete in the future.
PRODUCTION
The Company subcontracts substantially all of the manufacture of its
products to manufacturers in Taiwan, The People's Republic of China and South
Korea. The testing, inspection and some minor assembly work are done at its
California headquarters. The Company believes its current manufacturing
facilities in California will continue to be adequate for its purposes for the
foreseeable future.
The Company generally uses standard parts and components for its
products, although certain components are presently available and secured
only from a single source. The Company's largest supplier accounted for
approximately 61% (approximately $3.2 million) of net purchases in fiscal
1999. Loss of this supplier might have an adverse effect on the product
supply of the Company. The Company believes, however, that in most cases,
alternative sources of supply could be arranged as and when needed by the
Company. To date, TeleVideo has not experienced any significant difficulties
or delays in production of its terminal products.
PROPRIETARY RIGHTS
The Company regards certain aspects of its products as proprietary and
relies upon a combination of trademark and copyright laws, trade secrets,
confidentiality procedures and
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contractual provisions to protect its proprietary rights. The Company has
registered trademarks in the United States and in over 20 foreign countries for
"TeleVideo" and the TeleVideo logo.
The continuing development of the Company's products and business is
dependent, primarily, on the knowledge and skills of certain of its employees.
To protect its rights to its proprietary information, the Company requires all
employees and consultants to enter into confidentiality agreements that prohibit
the disclosure of confidential information to persons unaffiliated with the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's technology or other confidential
information in the event of any unauthorized use or disclosure. There also can
be no assurance that third parties will not independently develop products
similar to or duplicative of products of the Company. The Company believes that
due to the rapid pace of technological change in its industry, the Company's
success is likely to depend more upon continued innovation, technical expertise,
marketing skill and customer support than on legal protection of the Company's
proprietary rights.
GOVERNMENT REGULATIONS
Most of the Company's products are subject to regulations adopted by
the Federal Communications Commission ("FCC"), which establishes radio frequency
emanation standards for computing equipment. TeleVideo believes that all of the
Company's products that are subject to such regulations comply with these
regulations. Although there can be no assurance, the Company has no reason to
believe that new products will not also be approved. Failure to comply with the
FCC specifications could preclude the Company from selling non-complying systems
in the United States until appropriate modifications are made. To date, the
Company has not encountered any FCC compliance problems.
EMPLOYEES
As of January 19, 1999, the Company's full-time employees totaled
43, as compared with 41 reported at the end of fiscal 1998. Of the total
number of employees, 20 are engaged in product research, engineering,
development and manufacturing; 14 in marketing and sales; and 9 in general
management and administration. The Company believes that its future success
will depend, in part, on its ability to continue to attract and retain highly
skilled technical, marketing and management personnel.
None of the Company's employees is subject to a collective bargaining
agreement or represented by a union, and the Company has never experienced a
work stoppage. The Company believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company's headquarters, research and development and
administrative operations are housed in a 69,630 square foot building located
on 2.5 acres in San Jose, California, which was owned by the Company. On
December 28, 1998, the Company sold the building and has leased it back. The
aggregate monthly lease amounts to $104,000. Please refer to Note 6 of the
financial statements ("Sale and Leaseback of Building") for additional
details. The lease expires on December 31, 2013.
The Company leases domestic sales offices in Hoffman Estates, Illinois;
Lake Forest, California; Wharton, New Jersey; Gainsville, Georgia; and Dallas,
Texas. The lease terms range from month-to-month tenancy to a term of three
years. Management believes that the Company would be able to secure an extension
to the leases if such an extensions are deemed necessary in the future. All of
the leases are operating leases.
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ITEM 3. LEGAL AND OTHER PROCEEDINGS
TAX AUDITS
On July 14, 1997, the State of Massachusetts issued to the Company a
certificate of withdrawal to do business in the state. Consequently, $250,000
was removed from deferred taxes and was recognized as other income.
OTHER LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1999.
EXECUTIVE OFFICERS
The following sets forth certain information with regard to
executive officers of TeleVideo (ages are as of January 19, 2000):
<TABLE>
<CAPTION>
Executive Officer Age Position
- ----------------- --- --------
<S> <C> <C>
Dr. K. Philip Hwang 64 Chairman of the Board and Chief
Executive Officer
TeleVideo, Inc.
Jun Keun Yum 48 Vice President of Operations, Chief
Technology Officer and
Director of TeleVideo, Inc.
James D. Wheat 42 Vice President of Finance and
Chief Financial Officer
TeleVideo, Inc.
Joseph Burroughs 61 Vice President of Worldwide Sales
TeleVideo, Inc.
</TABLE>
- ----------------
Dr. K. Philip Hwang, age 64, is the founder of the Company and has
been Chairman of the Board and Chief Executive Officer since October 1976.
From August 1990 to April 1991, he served as the Acting Chief Financial
Officer. Since 1992, Dr. Hwang has also served as Chairman of AdMOS (Advanced
MOS Systems), an engineering firm specializing in ASIC chip design. AdMOS is
a private corporation in which TeleVideo holds a 20% interest.
Jun Keun Yum, age 48, joined TeleVideo in January 1999 as Vice
President of Operations and Chief Technology Officer. Prior to that, Mr. Yum
was a General Manager and Executive Director of Samsung Electronics Co.,
Ltd., Seoul, Korea from January 1993 to December 1998. Previously from
October 1986 to December 1992, he was co-founder and President of Pixelab,
Inc. of Lisle, Illinois. Mr. Yum has a BS degree in Electrical Engineering
from Han Yang University of Seoul, Korea and an MS degree in Electrical
Engineering from Illinois Institute of Technology.
James D. Wheat, age 42, joined TeleVideo in March 1999 as Vice
President of Finance and Chief Financial Officer. Prior thereto, from
November 1997 to February 1999, Mr. Wheat served as Vice President and
Corporate Controller of Sunterra, a public timeshare company. From 1991 to
November 1997, Mr. Wheat served as internal auditor, division controller and
external reporting manager of Raychem Corporation, a materials manufacturing
company. Mr. Wheat is a Certified Public Accountant, Certified Management
Accountant, Certified Internal Auditor and is a licensed real estate broker
in California. He received a B.B.A. degree from the University of Michigan
and an M.B.A. degree from The Wharton School of Business at the University of
Pennsylvania.
Joseph Burroughs, age 61, joined TeleVideo in July 1999 as Vice
President of Worldwide Sales. Prior to joining TeleVideo, beginning in
January 1997, Mr. Burroughs was President of B&A Channel Consultants, San
Ramon, California, a consulting company owned by Mr. Burroughs. From February
1997 to October 1998, he served as channel manager with Meridian Data, Inc.,
Scotts Valley, California, a networking storage company. From August 1995 to
September 1996, Mr. Burroughs served as Channel Marketing and Sales Director
for SBE, San Ramon, California, a networking products company. From July 1993
to August 1995, Mr. Burroughs served as Channel Marketing Manager for
Networth, Inc., Irving, Texas, a networking products company. Mr. Burroughs
received a B.S. in marketing from the Rochester Institute of Technology.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded in the over-the-counter market
and quoted on the NASD electronic bulletin board under the symbol "TELV". The
following table sets forth for the periods indicated the high and low last
sales prices for the Common Stock. The prices quoted below reflect
inter-dealer prices, without retail mark-ups, markdowns or commissions and
may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
FISCAL 1998:
First Quarter $3.3750 $1.7500
Second Quarter 3.1250 1.3750
Third Quarter 2.0625 0.9688
Fourth Quarter 1.0313 0.7188
FISCAL 1999:
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First Quarter $1.0000 $0.6250
Second Quarter 1.0938 0.3750
Third Quarter 1.0312 0.3750
Fourth Quarter 0.8125 0.5625
</TABLE>
There were 746 holders of record of the Company's Common Stock at
January 12, 2000. On January 12, 2000, the closing price of the Company's Common
Stock in the over-the-counter market, was $1.4375 per share.
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. The Company
presently intends to retain any earnings for use in its business.
(The remainder of this page was left blank intentionally.)
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data reflect the continuing
operations of TeleVideo. The data below has been derived from the Company's
audited consolidated financial statements for the fiscal years presented and
should be read in conjunction with such audited financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" presented elsewhere herein.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended October 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 8,070 $14,751 $19,884 $21,576 $16,914
Income (loss) from continuing
operations (4,570) (4,727) (3,115) (4,638) (4,741)
Net (loss) income (3,707) (8,881)(1) (3,444)(2) (2,993)(3) 415(4)
Net (loss) income (per share),
Basic and diluted (0.33) (0.79) (0.31) (0.26) 0.04
BALANCE SHEET DATA:
Cash and cash equivalents $ 4,487 $ 1,640 $ 3,604 $ 4,496 $5,145
Working capital 5,596 2,533 9,208 13,239 13,035
Total assets 18,317 10,433 17,692 23,014 24,600
Stockholders' equity 2,504 6,211 15,062 18,468 21,435
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the accompanying Notes to Consolidated Financial
Statements for a discussion of operating results, liquidity needs and
acquisitions and dispositions during the periods.
(1) Includes net loss from investment in APT venture of $4,076,903.
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(2) Includes net gains(loss) from the following (in thousands):
<TABLE>
<S> <C>
(A) Loss from investment in APT venture $ (623)
(B) Gain from Russian investment 100
(C) Gain from tax settlement 250
(D) Korean currency valuation adjustment (115)
(E) Loss from write-off of TLK (150)
-----
$ (538)
------
------
</TABLE>
(3) Includes net gain from the sale of InterTerminal joint venture
interest of $1,370,000.
(4) Includes net gains (loss) from the following (in thousands):
<TABLE>
<S> <C>
(A) Sale of building $1,350
(B) Disposition of Russian joint venture interest 1,910
(C) Sale of interest in Kabil Electronics 1,422
(D) Disposal of SMS product line (346)
------
$4,336
------
------
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company continues to focus its efforts toward providing
high-performance Windows-based terminals to the business and consumer markets.
In recent years, the Company has phased out the sale of multimedia products and
monitors to focus on utilizing its expertise in server-based network computing
to forge new ground in delivering thin-client solutions. In November 1998, the
Company launched its Windows-based terminal products.
The Company has strengthened its sales organization in fiscal 1999 to
provide more efficient geographical coverage and market penetration for its
thin-client products. The Company faces strong competition in the marketplace
and continues to look for ways to improve operating efficiency. In order to
lower the production costs, the Company has continued to negotiate with its
suppliers and has also shifted many production processes overseas.
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales for fiscal year 1999 were approximately $8.1 million,
compared with $14.8 million in fiscal 1998, a decrease of $6.7 million, or 45%.
The decrease in net sales reflects the Company's continued shift away from the
sale of monitors and multimedia products. In fiscal 1999, monitor and multimedia
sales totaled $1.0 million as compared with fiscal 1998, when sales
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of monitors and multimedia products totaled $6.3 million. Sales of terminals
decreased in fiscal 1999 to $6.0 million from $7.5 million in fiscal 1998.
Cost of sales for fiscal year 1999 was approximately $8.1 million,
compared with $13.4 million in fiscal 1998, a decrease of $5.3 million, or
40%. However, cost of sales as a percentage of net sales increased from 90.7%
in 1998 to 100.1% in 1999. The increase in cost of sales as a percentage of
sales in 1999 is due in part to royalty payments that the Company began
making in fiscal 1999 under a licensing agreement for the operating system
software used in the Company's TeleCLIENT products, which the Company began
selling in fiscal 1999. For accounting purposes, the royalty expense is being
amortized on a straight line basis over the life of the licensing agreement
which results in a larger proportion of expense, relative to sales, during
the initial months when the TeleCLIENT product is being introduced into the
marketplace. The Company also recorded a provision for obsolescence in the
fourth quarter of fiscal 1999 for multimedia products and monitors, which the
Company is in the process of phasing out.
Sales and marketing expenses for fiscal year 1999 were approximately
$2.2 million, compared with $2.4 million in fiscal 1998, a decrease of $0.2
million, or 8%. As a percentage of net sales, sales and marketing expenses
increased to 27% in fiscal 1999 from 16% in fiscal 1998. The increase primarily
represents costs incurred by the Company to launch its TeleCLIENT product line
in fiscal 1999.
Research and development expenses were $0.6 million in fiscal 1999,
compared with $0.4 million in fiscal 1998. As a percentage of net sales,
research and development expenses increased to 7% in fiscal 1999 compared with
3% in fiscal 1998. The increase represents increased costs associated with the
continued development of new products, including the Company's TeleCLIENT
product line.
General and administrative expenses were $1.8 million in fiscal
1999, compared with $3.3 million in fiscal 1998, a decrease of $1.5 million
or 45%. As a percentage of net sales, general and administrative expenses
were 22% in fiscal 1999 and 1998. In fiscal 1999, the Company began incurring
lease expenses in accordance with the sale and leaseback of the Company's
headquarters facility. Additional details about the sale and leaseback
transaction can be found in "Liquidity and Capital Resources" and in Note 6
to the financial statements, "Sale and Leaseback of Building." In fiscal
1998, the Company incurred a charge of approximately $2.0 million to reflect
a write-off of its accounts and notes receivable from Applied Computer
Technology, Inc.
The Company's loss from operations was approximately $4.6 million in
fiscal 1999 as compared with $4.7 million in fiscal 1998.
Interest income, net of interest expense, was $30,000 in fiscal
1999, as compared with $77,000 in fiscal 1998. Other income was $0.5 million
in fiscal 1999 as compared with none in fiscal 1998. Other income represents
primarily the amortization of the deferred gain on the December 1998 sale of
the Company's building.
The net loss for fiscal year 1999 was approximately $3.7 million,
compared with a net loss of $8.9 million in fiscal 1998, a decrease of $5.2
million, or 58%. In fiscal 1998, the Company recorded a loss of approximately
$4.1 million from its equity investment in Applied Photonics Technology, Inc.
Net loss per share in fiscal 1999 was $0.33 based on 11,271,085
weighted average shares outstanding, compared to a net loss per share in fiscal
1998 of $0.79 based on 11,267,685 weighted average shares outstanding.
11
<PAGE>
An income tax credit of 0.4 million was recorded in fiscal 1999 as
the Company reduced its tax liability originally set up for various tax
exposure. The Company has approximately $102 million in federal net operating
loss and credit carryovers and approximately $34 million in state net
operating loss carryovers to offset future federal and state corporate income
tax liabilities. No net deferred tax asset has been recognized by the Company
for any future tax benefit to be provided from the loss carry forwards since
realization of any such benefit is not assured.
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal year 1998 were approximately $14.8 million,
compared with $19.9 million in fiscal 1997, a decrease of $5.1 million, or 26%.
The decrease in net sales reflects the decrease in the sale of multimedia
products, which the Company is gradually phasing out, from approximately $6.5
million in 1997 to approximately $1.9 million in 1998, a decrease of 71%.
Additionally, there were decreases in the sales of OMTI boards, spares, repairs
and miscellaneous products from approximately $2.3 million in 1997 to $1.2
million in 1998, or 48%. Sales of OMTI boards have decreased as demand from
customers has shifted toward newer technologies. Sales of spares, repairs and
miscellaneous products decreased in 1998 as price decreases made it more cost
effective for customers to replace, rather than to repair, their related
equipment. However, net sales of monitors increased from $3.5 million in 1997 to
$4.4 million in 1998, an increase of 26%, to partially offset the decrease in
net sales of multimedia and other products.
Cost of sales for fiscal year 1998 were approximately $13.4 million,
compared with $17.8 million in fiscal 1997, a decrease of $4.4 million, or 25%.
Cost of sales as a percentage of net sales increased from 89.5% in 1997 to 90.7%
in 1998, due primarily to lower profit margins on sales of both multimedia
products and monitors. During 1998, the Company phased out its multimedia
product lines and sold most of its multimedia inventory at below average gross
margins to reduce its excess stock. The Company's net inventory level decreased
by 21% in 1998, to $2.3 million, from $2.9 million at October 31, 1997. The
Company also experienced competitive pricing pressure on the sale of monitors,
leading to lower gross margins in fiscal 1998 as compared with fiscal 1997.
Manufacturing expenses (which are included in cost of sales) decreased from
approximately $1.3 million in fiscal 1997 to approximately $1.1 million in
fiscal 1998, a decrease of $0.2 million or 15%. The decrease was mainly due to
the decrease in number of employees from 27 in 1997 to 17 in 1998.
Sales and marketing expenses for fiscal year 1998 were approximately
$2.4 million, compared with $3.0 million in fiscal 1997, a decrease of $0.6
million, or 20%. As a percentage of net sales, sales and marketing expenses
increased slightly to 16% in fiscal 1998 from 15% in fiscal 1997. The decrease
in actual expenses was primarily due to a decrease in employee headcount in the
sales and marketing departments and a reduction in advertising expenses.
Research and development expenses were $0.4 million in fiscal 1998, compared
with $0.8 million in fiscal 1997. As a percentage of net sales, research and
development expenses decreased to 3% in fiscal 1998 compared with 4% in fiscal
1997. The decrease was due mainly to a reduction in engineering headcount in
fiscal 1998.
General and administrative expenses were $3.3 million in fiscal 1998,
compared with $1.5 million in fiscal 1997, an increase of $1.8 million or 120%.
As a percentage of net sales, general and administrative expenses increased to
22% in fiscal 1998 compared with 7% in fiscal 1997. The increase was due
primarily to the increase in bad debts from approximately $293,000 in fiscal
1997 to approximately $2.3 million in 1998. This increase reflected the
Company's write-off of its accounts and notes receivable balance from Applied
Computer Technology, Inc., of approximately $2.0 million in fiscal 1998.
12
<PAGE>
The Company's loss from operations was approximately $4.7 million in
fiscal 1998 as compared with $3.1 million in fiscal 1997. The increase was
primarily due to the increase in general and administrative expenses resulting
from the increase in bad debt expense, and the decrease in net sales from $19.9
million in fiscal 1997 to $14.8 million in fiscal 1998.
The net loss for fiscal year 1998 was approximately $8.9 million,
compared with a net loss of $3.4 million in fiscal 1997, an increase of $4.5
million, or 55%. In fiscal 1998, the Company recorded a loss of approximately
$4.1 million from its equity investment in Applied Photonics Technology, Inc.
Net loss per share in fiscal 1998 was $0.79 based on 11,267,685
weighted average shares outstanding, compared to a net loss per share in fiscal
1997 of $0.31 based on 11,254,810 weighted average shares outstanding.
No income tax expense or credit was provided for in fiscal 1998. At
October 31, 1998, the Company had approximately $98 million in federal net
operating loss and credit carryovers and approximately $32 million in state net
operating loss carryovers to offset future federal and state corporate income
tax liabilities. No net deferred tax asset has been recognized by the Company
for any future tax benefit to be provided from the loss carry forwards since
realization of any such benefit is not assured.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1999, the Company had $4.5 million in cash and cash
equivalents, an increase of approximately $2.9 million over the balance of $1.6
million at October 31, 1998. This includes a $1.0 million certificate of deposit
which the Company purchased in fiscal 1999.
Approximately $1.0 million in certificates of deposit were pledged as
collateral for comparable amounts of stand-by and sight letters of credit. At
October 31, 1999, the Company had no outstanding letters of credit which were
secured by the pledged deposits under this agreement.
In December 1998, the Company sold its 69,360 square foot headquarters
building in San Jose, California, including land and improvements, to TVCA,
LLC, an unaffiliated Delaware limited liability company ("TVCA") for $11.0
million. The nature of the consideration was $8.25 million in cash and a
$2.75 million promissory note. The note bears interest at 7.25% per annum.
Principal and accrued interest are payable in equal monthly installments of
$21,735 on the first day of each month, commencing January 1, 1999. If not
earlier paid in full, any unpaid principal and all accrued interest is due
and payable to the Company on December 1, 2013.
In December 1998, the Company sold its main facility (land and
building) for approximately $11.0 million and concurrently leased back this
facility over a 15 year lease term expiring in December 2013. The land
component has been recorded as an operating leaseback. The building component
has been accounted for as a capital lease, whereby a leased building asset
and capital lease obligation were recorded at the fair value of approximately
$6.27 million. As a result of the sale for $11.0 million (which includes a
$2.75 million note receivable), a deferred gain of approximately $8.0 million
was recorded. The deferred gain attributable to the land element, which
approximates $3.44 million, is being amortized over the 15 year lease life on
a straight line method. The deferred gain attributable to the building
element, which approximates $4.56 million, is being amortized over leased
building asset life, which has been determined to be the 15 year lease term,
on a straight line method.
Net accounts receivable were $1.5 million at October 31, 1999, compared
with $2.4 million at October 31, 1998, a decrease of $0.9 million, or 38%
while net inventories were $1.5 million
13
<PAGE>
at October 31, 1999, as compared with $2.3 million at October 31, 1998, a
decrease of $0.8 million.
Working capital at the end of the fiscal 1999 was approximately $5.6
million, an increase of $3.1 million, or 124%, from the fiscal 1998 year-end
level of approximately $2.5 million, primarily as a result of the proceeds from
the sale of the Company's headquarters facility.
The Company believes that, with respect to its current operations, the
Company's cash balance of approximately $4.5 million at October 31, 1999, which
includes its $1.0 million certificate of deposit, plus revenues from operations
and other non-operating cash receipts, will be sufficient to meet the Company's
working capital and capital expenditure needs for the next twelve months.
FACTORS THAT MAY AFFECT FUTURE RESULTS
COMPETITIVE MARKETS
The terminal market is intensely competitive. The principal elements
of competition are pricing, product quality and reliability, price/performance
characteristics, compatibility, marketing and distribution capability, service
and support, and reputation of the manufacturer. TeleVideo competes with a large
number of manufacturers, most of which have significantly greater financial,
marketing and technological resources than TeleVideo. There can be no assurance
that the Company will be able to continue to compete effectively.
PRODUCT DEVELOPMENT
The computer market is characterized by rapid technological change and
product obsolescence, often resulting in short product life cycles and rapid
price declines. The Company's success will continue to depend primarily on its
ability to continue to reduce costs through manufacturing efficiencies and price
negotiation with suppliers, the continued market acceptance of its existing
products and its ability to develop and introduce new products. There can be no
assurance that TeleVideo will successfully develop new products or that the new
products it develops will be introduced in a timely manner and receive
substantial market acceptance. There can also be no assurance that product
transitions will be managed in such a way to minimize inventory levels and
product obsolescence of discontinued products. The Company's operating results
could be adversely affected if TeleVideo is unable to manage all aspects of
product transitions successfully.
SINGLE SOURCED PRODUCTS
The Company generally utilizes standard parts and components available
from multiple suppliers. However, certain parts and components used in the
Company's products are available from a single source. If, contrary to its
expectations, the Company is unable to obtain sufficient quantities of any
single-sourced components, the Company will experience delays in product
shipments.
RELIANCE ON FORECASTS
The Company offers its products through various channels of
distribution. Changes in the financial condition of, or in the Company's
relationship with, its distributors could cause actual operating results to vary
from those expected. Also, the Company's customers generally order products on
an as-needed basis. Therefore, virtually all product shipments in a given fiscal
quarter result from orders received in that quarter. The Company anticipates
that the rate of new orders will vary significantly from month to month. The
Company's manufacturing
14
<PAGE>
plans and expenditure levels are based primarily on sales forecasts.
Consequently, if anticipated sales and shipments in any quarter do not occur
when expected, expenditure and inventory levels could be disproportionately high
and the Company's operating results for that quarter, and potentially future
quarters, would be adversely affected.
FACTORS THAT COULD AFFECT STOCK PRICE
The market price of TeleVideo's common stock could be subject to
fluctuations in response to quarter to quarter variations in operating results,
changes in analysts' earnings estimates, market conditions in the computer
technology industry, as well as general economic conditions and other factors
external to the Company.
FOREIGN CURRENCY AND POLITICAL RISK
The Company markets its products worldwide. In addition, a large
portion of the Company's part and component manufacturing, along with key
suppliers, are located outside the United States. Accordingly, the Company's
future results could be adversely affected by a variety of factors, including
without limitation, fluctuation in foreign currency exchange rates, changes in a
specific country's or region's political or economic conditions, trade
protection measures, import or export licensing requirements, unexpected changes
in regulatory requirements and natural disasters.
(Remainder of this page was intentionally left blank)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that its exposure to market risk for changes in
interest rates is not significant because the Company's investments are
limited to highly liquid instruments with maturities of three months or less.
At October 31, 1999, the Company has approximately $4.5 million of short-term
investments classified as cash and equivalents. All of the Company's
transactions with international customers and suppliers are denominated in US
dollars.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE NO.
IN 10-K
---------
<S> <C>
Report of Independent Certified Public Accountants.................. 16
Consolidated Balance Sheets - October 31, 1999 and
1998................................................................ 17
Consolidated Statements of Operations for the Years Ended
October 31, 1999, 1998 and 1997..................................... 18
Consolidated Statement of Stockholders' Equity for the Years Ended
October 31, 1999, 1998 and 1997..................................... 19
Consolidated Statements of Cash Flows for the Years Ended
October 31, 1999, 1998 and 1997..................................... 20
Notes to Consolidated Financial Statements ......................... 21
</TABLE>
(Remainder of page left blank intentionally)
15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
TeleVideo, Inc.
We have audited the accompanying consolidated balance sheets of TeleVideo, Inc.
and Subsidiaries as of October 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended October 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TeleVideo, Inc.
and Subsidiaries as of October 31, 1999 and 1998, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended October 31, 1999, in conformity with generally
accepted accounting principles.
/s/ GRANT THORNTON LLP
- -----------------------
Grant Thornton LLP
San Jose, California
December 10, 1999
16
<PAGE>
TELEVIDEO, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
October 31,
----------------------------
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (including restricted cash of
$1,000 in 1999 and 1998) $ 4,487 $ 1,640
Accounts receivable, less allowance of $1,383 in 1999 and $1,352 in 1998 1,523 2,420
Inventories 1,464 2,275
Prepayments and other 987 420
Notes receivable - current 67 0
----------- -----------
Total current assets 8,528 6,755
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 0 890
Building 0 1,035
Production equipment 624 530
Office furniture and equipment 1,152 1,146
Building improvements 0 1,105
Leased property under capital lease 6,270 0
----------- -----------
8,046 4,706
Less accumulated depreciation and amortization 2,010 2,138
----------- -----------
Property, plant and equipment, net 6,036 2,568
INVESTMENTS IN AFFILIATES 1,117 1,110
NOTE RECEIVABLE, LESS CURRENT PORTION 2,636 0
----------- -----------
Total assets $ 18,317 $ 10,433
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Obligation under capital lease - current $ 270 $ 0
Accounts payable 964 541
Notes payable 0 2,500
Accrued liabilities 1,160 820
Income taxes - 361
Deferred gain on sale of land and building - current 538 0
----------- -----------
Total current liabilities 2,932 4,222
----------- -----------
Obligation under capital lease, less current portion 5,812 0
Deferred gain on sale of land and building, less current portion 7,069 0
----------- -----------
Total liabilities 15,813 4,222
----------- -----------
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value;
Authorized--75,000,000 shares
Outstanding--11,271,085 shares at October 31, 1999 and 1998, respectively
(net of 120,000 treasury shares) 453 453
Additional paid-in capital 95,703 95,703
Accumulated deficit (93,652) (89,945)
----------- -----------
Total stockholders' equity 2,504 6,211
----------- -----------
Total liabilities and stockholders' equity $ 18,317 $ 10,433
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
TELEVIDEO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET SALES $ 8,070 $ 14,751 $ 19,884
COST OF SALES 8,082 13,381 17,785
-------- -------- --------
GROSS PROFIT (LOSS) (12) 1,370 2,099
OPERATING EXPENSES:
Sales and marketing 2,183 2,438 2,995
Research and development 598 370 762
General and administrative 1,777 3,289 1,457
-------- -------- --------
Total operating expenses 4,558 6,097 5,214
-------- -------- --------
Loss from operations (4,570) (4,727) (3,115)
EQUITY IN GAIN/(LOSS) OF AFFILIATES 7 (4,077) (888)
INTEREST AND OTHER INCOME (EXPENSE), net 495 (77) 559
-------- -------- --------
Loss before income taxes $ (4,068) $ (8,881) $ (3,444)
Benefit for income taxes 361 -- --
Net Loss $ (3,707) $ (8,881) $ (3,444)
-------- -------- --------
-------- -------- --------
Net loss per share, Basic and diluted $ (0.33) $ (0.79) $ (0.31)
-------- -------- --------
-------- -------- --------
Shares used in computing basic and diluted net loss per share 11,271 11,268 11,255
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
TELEVIDEO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
THREE YEARS ENDED
OCTOBER 31, 1999, OCTOBER 31, 1998, OCTOBER 31, 1997
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------- Paid in Accumulated Srockkholders'
Shares Amount Capital Deficit Equity
-------- -------- ---------- - ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance - October 31, 1996 11,230 $ 449 $95,639 $ (77,620) $ 18,468
Exercise of employee stock options 25 1 37 - 38
Net loss - - - (3,444) (3,444)
-------- -------- -------- --------- --------
Balance - October 31, 1997 11,255 450 95,676 (81,064) 15,062
Exercise of employee stock options 16 3 27 - 30
Net loss - - - (8,881) (8,881)
-------- -------- -------- ---------- --------
Balance - October 31, 1998 11,271 453 95,703 (89,945) 6,211
Net loss - - - (3,707) (3,707)
-------- -------- -------- ---------- --------
Balance - October 31, 1999 11,271 $453 $95,703 $(93,652) $ 2,504
-------- -------- -------- ---------- --------
-------- -------- -------- ---------- --------
</TABLE>
The accompanying notes are an integral part of this financial statement.
19
<PAGE>
TELEVIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(3,707) $(8,881) $(3,444)
Charges (credits) to operations not affecting cash:
Provision for bad debts on receivables 572 2,300 293
Amortization of deferred gain (470) - -
Provision for excess and obsolete inventories 680 123 (379)
Net loss on sales of property and investment - - 12
Loss on investment in unconsolidated affiliates - 4,077 888
Depreciation and amortization 370 204 362
Income tax settlement - - (250)
Changes in operating assets and liabilities:
Accounts receivable 323 564 (697)
Inventories 131 524 3,290
Prepayments and other (567) (200) (159)
Accounts payable 423 (998) (1,540)
Accrued liabilities 342 90 (126)
Income taxes (361) - -
------- ------- -------
Net cash used in operating activities (2,264) (2,197) (1,750)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of land and building 7,859 - -
Additions to property, plant and equipment (100) (12) (55)
Loans to affiliate and other (7) (1,700) (2,300)
Increase in investments in affiliates 0 (1,000) (3,225)
Payments received on notes receivable from affiliate and other 47 415 6,400
------- ------- -------
Net cash provided by (used in) investing activities 7,799 (2,297) 820
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 30 38
Proceeds from note payable - affiliate 0 500 -
Proceeds from note payable - other 0 2,000 -
Payments on notes payable and lease obligations (2,688) 0 -
------- ------- -------
Net cash (used in) provided by financing activities (2,688) 2,530 38
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,847 (1,964) (892)
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE YEAR 1,640 3,604 4,496
------- ------- -------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 4,487 $ 1,640 $ 3,604
------- ------- -------
------- ------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes - $ - $ -
Interest $ 444 $ 98 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
TELEVIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and certain of its majority owned subsidiaries, after elimination of
inter-company accounts and transactions.
INVESTMENTS IN AFFILIATES
All of the Company's unconsolidated affiliates are accounted for using
either the equity or the cost method.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped. The Company
performs periodic evaluations of its customers' financial condition and
maintains a reserve for potential credit losses and adjusts the reserve
periodically to reflect both actual and potential credit losses. Product
warranties are based on the ongoing assessment of actual warranty expenses
incurred.
BASIC AND DILUTED NET LOSS PER SHARE
The Company adopted SFAS No. 128 "Earnings per Share" during the year ended
October 31, 1998. Basic earnings per share is computed using the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed using the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares
consist of the incremental common shares issuable upon conversion of convertible
securities (using the if-converted method) and shares issuable upon the exercise
of stock options and warrants (using the treasury stock method). Common
equivalent shares are excluded from the computation if their effect is
anti-dilutive.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as revenues and expenses during the reporting period. Actual results could
differ from those estimates.
ADVERTISING COSTS
21
<PAGE>
Advertising costs are expensed as incurred. Advertising expense totaled
approximately $0.7 million in fiscal 1999, approximately $1.1 million in
fiscal 1998 and $1.3 million in fiscal 1997.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred for the development and enhancement of new products and
services are charged to expense as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents, accounts receivable, trade
payables and notes payable approximates carrying value due to the short term
nature of such instruments.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is computed
on a currently adjusted standard basis (which approximates average cost) for
both finished goods and work-in-process and includes material, labor and
manufacturing overhead costs. Amounts shown are net of reserves for
obsolescence of $1.0 million and $0.6 million as of October 31, 1999 and
1998, respectively (in thousands):
<TABLE>
<CAPTION>
October 31,
-------------------
1999 1998
------ ------
<S> <C> <C>
Purchased parts and subassemblies $ 216 $1,196
Work-in-process 313 91
Finished goods 935 988
------ ------
$1,464 $2,275
------ ------
------ ------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT, INCLUDING LEASED PROPERTY
Depreciation and amortization are provided over the estimated useful lives
of the assets using both straight-line and accelerated methods.
Building 40 years
Production equipment 1-10 years
Office furniture 1-10 years
Leased property 15 years
RECLASSIFICATIONS
Certain reclassifications have been made to conform to the 1999
presentation, including changes which effect comparability of the annual
financial information to previously filed quarterly information. None of such
reclassifications are material to the financial statements taken as a whole.
22
<PAGE>
2. ACQUISITIONS AND DIVESTITURES
MYSIMON, INC.
In September 1998, the Company invested $1 million in the online
comparison shopping Internet company, mySimon, Inc., receiving convertible
preferred stock. Televideo's investment in mySimon currently represents an
ownership interest of between 3% and 4%. The investment has been accounted
for on the cost method.
mySimon, Inc. uses proprietary intelligent agent technology called
Virtual Learning Agent (VLA) to assist online shoppers by searching the
Internet to find the best prices on products from among thousands of online
merchants.
KORAM, INC.
On March 3, 1997, the Company deposited $224,820 in escrow in Korea, which
amount is to be used to purchase a 50% ownership in a restaurant venture in
Seoul, Korea. In February 1998, the Company completed its purchase of a 50%
interest in Koram, Inc. The Company's investment has been written down to
$109,820 due to the devaluation of the Korean won. This investment is accounted
for under the equity method of accounting.
APPLIED PHOTONICS TECHNOLOGY, INC.
On April 16, 1997, the Company entered into a Common Stock Purchase
agreement with Applied Photonics Technology, Inc. (APT), a California
corporation, whereby the Company purchased a 30% interest in APT for $3.0
million.
Founded in October 1996, APT is a developmental stage enterprise
specializing in the development of electronics display technology. The
anticipated markets for APT's outdoor media display system include the billboard
and illuminated sign markets, sports stadiums and arenas, transportation
terminals, volume retailers and malls, and safety/public information displays.
The Company accounts for its investment in APT using the equity method of
accounting. During the fiscal year ended October 31, 1998, the Company wrote
off its equity investment, related goodwill, and note receivable of
approximately $4.1 million. In December 1998, the Company loaned APT
$176,000. In September 1999, the Company loaned APT $125,000. The $125,000
note bears interest at the rate of 6% per annum and was due on December 1,
1999. As of January 19, 2000, the Company has not yet received payment on the
note, nor has APT received financing. In September 1999, the Company entered
into a consulting agreement with APT in which APT agreed to undertake two
engineering development projects for the Company. The Company made an advance
payment of $125,000 under the Agreement, which is the entire amount of the
Company's obligation. The Company has written off the $426,000 in loans and
advances to APT as of October 31, 1999. The Company has not guaranteed any
obligations of APT and has made no commitments to provide additional
financial support to APT.
23
<PAGE>
3. LETTER OF CREDIT AGREEMENT
The Company has one letter of credit agreement with the bank whereby the
bank will issue up to a total of $1.0 million of standby and sight letters of
credit. These agreements are contingent upon the Company maintaining time
deposits (CD's) at the bank as collateral in a total amount no less than the
outstanding borrowings. At October 31, 1999, the Company had no letters of
credit outstanding.
4. RELATED PARTY TRANSACTIONS
During 1999, 1998, and 1997 the Company has had transactions with its
affiliates as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Note receivable at October 31:
AdMOS (1) $ 4 $ 4 $ 4
AdMOS (1) 180 180 4
Interest receivable at October 31:
AdMOS (1) 69 69 68
AdMOS (1) 94 77 60
</TABLE>
(1) Amounts are fully reserved. The Company acquired a 20% interest in
AdMOS Technologies in fiscal 1991 and the investment was written off
in fiscal 1992.
The Company also borrowed $500,000 from Gem Management, Inc., a company
owned by the majority shareholder's spouse, on September 15, 1998. The
unsecured loan bears annual interest at a prime rate with principal and
interest due on demand. On February 16, 1999, the outstanding loan principal
and interest was paid in full.
24
<PAGE>
5. TRANSACTIONS WITH MAJOR CUSTOMERS
The Company has entered into the following transactions with one of its
major customers, Applied Computer Technology, Inc., (ACT).
1) In June 1997, the Company loaned ACT $2,300,000. Interest on the loan
accrues at 2% per month. All interest income accrued on the loan is being
deferred by the Company until the amounts are received. As of October 31, 1997,
the loan principal balance was $900,000. Since then the loan has been paid down
to $485,000, which was the loan balance at October 31, 1998 prior to the
write-off discussed below.
2) At October 31, 1997, ACT had owed the Company approximately $2.1 million
in trade receivables, which represented approximately 41% of net trade
receivables. Subsequently, the Company agreed to exchange $900,000 of
outstanding trade receivables for $900,000 of Series A convertible preferred
stock of ACT. The preferred shares were convertible into common stock at the
option of the holder, based on the 5 day average closing bid price of ACT common
stock prior to conversion, subject to a floor of $2.50 per share and a ceiling
of $4.25 per share. The conversion rate was subsequently changed. ACT had the
obligation to register the shares by filing a registration statement with the
Securities and Exchange Commission (SEC) and the preferred shares would have
been automatically converted once the registration statement became effective.
However, ACT failed to register the shares with SEC.
The preferred shares were issued in December 1997. As of October 31,
1997, the Company had reflected the $900,000 as a long term receivable and had
further provided a reserve of $292,500 against the $900,000 to reflect the fair
value of the preferred shares ultimately issued, taking into consideration the
lack of liquidity of the securities.
Additionally, $864,620 was outstanding as trade receivables due from ACT
at October 31, 1998.
ACT has experienced a significant downturn in its business and the
Company has written off a total amount of $1,957,120 as uncollectible
receivables as of October 31, 1998, which includes $864,620 trade
receivables, $607,500 long term note receivable and $485,000 note receivable.
6. SALE AND LEASEBACK OF BUILDING
In December 1998, the Company sold its main facility (land and
building) for approximately $11.0 million and concurrently leased back this
facility over a 15 year lease term expiring in December 2013. The land
component has been recorded as an operating leaseback. The building component
has been accounted for as a capital lease, whereby a leased building asset
and capital lease obligation were recorded at the fair value of approximately
$6.27 million. As a result of the sale for $11.0 million (which includes a
$2.75 million note receivable), a deferred gain of approximately $8.0 million
was recorded. The deferred gain attributable to the land element, which
approximates $3.44 million, is being amortized over the 15 year lease life on
a straight line method. The deferred gain attributable to the building
element, which approximates $4.56 million, is being amortized over leased
building asset life, which has been determined to be the 15 year lease term,
on a straight line method. The aggregate monthly lease amounts to $104,000.
These payments escalate to $126,000 through 2013.
Future aggregate minimum lease payments are as follows
October 31, $
---------- -----------
2000 $ 1,231,774
2001 1,241,628
2002 1,241,628
2003 1,293,358
2004 1,303,704
Thereafter 12,958,068
-----------
$19,270,160
The $2.75 million note receivable bears interest at 7.25% per annum.
Principal and accrued interest is payable in equal monthly installments of
$21,735 each on the first day of each month, which the Company began
receiving on January 1, 1999. If not earlier paid in full, any unpaid
principal and all accrued interest shall be due and payable to TeleVideo,
Inc. on December 1, 2018.
25
<PAGE>
7. CAPITAL STOCK
The Company effected a 4-for-1 reverse stock split of its outstanding
common stock on April 23, 1998. All shares and per share amounts have been
retroactively adjusted for such reverse stock split.
PREFERRED STOCK
The Company has authorized 3,000,000 shares of preferred stock. No preferred
stock has been issued to date.
STOCK OPTION PLANS
The Company has three stock option plans, the 1991 ISO Plan ("1991 ISO
Plan"), the 1981 ISO Plan ("1981 ISO Plan") and the 1981 Supplemental Plan
(the "Supplemental Plan") accounted for under the APB Opinion 25 and related
interpretations. The 1991 ISO Plan provides for the granting of incentive
options to employees, including officers, for up to 4,000,000 shares. The
outstanding options have a term of ten years when issued. The exercise price
of each option equals the market price of the Company's stock on the date of
grant. Both the 1981 ISO Plan and the Supplemental Plan expired in October
1991 and the exercise price for options granted under those plans was
re-priced at $0.22 per share in November 1991, the market price of the
Company's common stock at that date. Accordingly, no compensation cost has
been recognized for any of the plans. Had compensation cost for the plans
been determined based on the fair value of the options at the grant dates
consistent with the method of Statement of Financial Accounting Standards
123, Accounting for Stock-Based Compensation ("SFAS 123"), the Company's net
loss and loss per share would have been changed to the pro forma amounts
indicated below. Pro forma results for 1998 and 1997 may not be indicative of
the pro forma results in the future periods because the pro forma amounts do
not include pro forma compensation cost for options granted prior to November
1, 1995.
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
1999 1998
------- -------
<S> <C> <C>
Net loss (in thousands)
As reported ($3,707) ($8,881)
Pro forma ($3,826) ($8,987)
Loss per share, basic and diluted
As reported ($0.33) ($0.79)
Pro forma ($0.34) ($0.80)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1999 and 1998 respectively: no expected
dividends; weighted average risk-free interest rate of 6.00% and 6.69%; stock
volatility 219% in 1999 and 164% in 1998; and expected lives of 10 years. The
weighted average fair value of options granted were $0.84, $1.49 and $1.24 in
1999, 1998 and 1997, respectively.
26
<PAGE>
A summary of the status of the Company's stock option plans as of October
31, 1999, and changes during the three years ending October 31, 1999 is
presented below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
OCTOBER 31, 1999
OUTSTANDING EXERCISABLE
--------------------------------------- ---------------------------
WTD AVG. WTD AVG. WTD AVG.
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONT. LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
1991 ISO PLAN
$0.75 - $0.84 205,500 9.42 $0.84 - -
$0.88 - $1.32 61,750 5.36 $0.98 54,438 $0.99
$1.52 - $2.12 17,375 5.79 $1.72 13,562 $1.67
$2.64 - $2.88 2,875 5.56 $2.77 2,031 $2.78
------- ---- ----- ------ -----
Totals 287,500 8.29 $1.06 70,031 $1.18
------- ---- ----- ------ -----
------- ---- ----- ------ -----
1981 SUPPLEMENTAL PLAN
$0.88 37,500 2.06 $ 0.88 37,500 $ 0.88
1981 ISO PLAN
$0.88 250 2.06 $ 0.88 750 $ 0.88
</TABLE>
Summary of Changes:
1981 ISO PLAN
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE PRICE
------------ --------------
<S> <C> <C>
Balance, October 31, 1996 3,156 $0.88
Granted - -
Exercised (844) $0.88
Canceled (1,083) $0.88
------
Balance, October 31, 1997 1,250 $0.88
Granted - -
Exercised (500) $0.88
Canceled - -
------
Balance, October 31, 1998 750 $0.88
Granted -
Exercised (500) $0.88
Canceled - -
--------
27
<PAGE>
Balance, October 31, 1999 250 $0.88
------
------
</TABLE>
1981 SUPPLEMENTAL PLAN
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE PRICE
----------- --------------
<S> <C> <C>
Balance, October 31, 1996 37,500 $0.88
Exercised - -
Canceled - -
------
Balance, October 31, 1997 37,500 $0.88
Exercised - -
Canceled - -
------
Balance, October 31, 1998 37,500 $0.88
Exercised - -
Canceled - -
------
Balance, October 31, 1999 37,500 $0.88
------
------
</TABLE>
1991 ISO PLAN
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
AVAILABLE OUTSTANDING EXERCISE PRICE
--------- ----------- --------------
<S> <C> <C> <C>
Balance, October 31, 1996 575,219 332,750 $2.08
Granted (12,250) 12,250 $1.24
Exercised - (23,688) $1.58
Terminated/Canceled 110,125 (110,125) $2.20
-------- --------
Balance, October 31, 1997 673,094 211,187 $1.96
Granted (111,875) 111,875 $1.37
Exercised - (10,775) $1.64
Terminated/Canceled 128,288 (128,288) $2.43
-------- --------
Balance, October 31, 1998 688,507 184,000 $1.27
Granted (205,500) 205,500 $0.84
Exercised - - -
Terminated/Canceled 102,000 (102,000) $1.37
-------- --------
Balance, October 31, 1999 585,007 287,500
-------- --------
-------- --------
</TABLE>
28
<PAGE>
8. INCOME TAXES
At October 31, 1999, the Company had tax loss carryforwards of
approximately $97 million for federal income tax and approximately $15.5
million for state income tax reporting purposes, respectively. The net
operating loss carryforwards expire through fiscal 2013. The Tax Reform Act
of 1986 contains provisions which may limit the net operating loss
carryforwards to be used in any given year upon occurrence of certain events,
including significant changes in ownership interests.
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities.
No deferred tax asset or benefit was recorded at October 31, 1999, as all
amounts have been fully reserved. The valuation allowance increased by $1,488 in
fiscal 1999 and increased by $3,823 in fiscal 1998. The components are as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net operating loss $ 36,192 $ 35,168
Other 1,350 1,328
-------- --------
37,542 36,496
Less valuation allowance (37,542) (36,496)
-------- --------
Net benefit $ - $ -
-------- --------
-------- --------
</TABLE>
The following is a reconciliation of expected tax expense (benefit) to
actual for each of the years ended October 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Book loss $(3,707) $(8,881) $(3,444)
------- ------- -------
Expected tax benefit 1,353 3,020 1,170
------- ------- -------
Adjustments to reconcile
expected to actual benefit:
Reduction of estimated
tax liability 361 - -
Effect of change in
valuation allowance (net) (1,353) (3,020) (1,170)
------- ------- -------
Actual tax benefit $ 361 $ - $ -
------- ------- -------
------- ------- -------
</TABLE>
The Company had pending a California Franchise tax exposure estimate of
$361,000 resulting from previous income tax audits. The Company believes that
no further liability exists at October 31, 1999. This amount has been
recorded as a tax benefit in the accompanying statement of operations.
29
<PAGE>
9. CONCENTRATIONS
The Company, which operates in a single industry segment, designs,
produces and markets high performance terminals and monitors designed for
office and home automation both domestically and internationally. The Company
had export sales primarily to Europe, Asia and Latin America of approximately
19.8% ($1.6 million), 14.2% ($2.1 million) and 13.5% ($2.7 million) of net
sales during fiscal 1999, 1998, and 1997, respectively.
For the fiscal year ended October 31, 1999, one customer accounted for
10% of the Company's sales (Savoir, Inc.), while another customer accounted
for 9%. For the fiscal year ended October 31, 1998, one customer accounted
for 12% and another customer accounted for 11% of net sales. For the fiscal
year ended October 31, 1997, one customer accounted for 17% and another
customer accounted for 16% of net sales.
Information about the Company's operations in different geographic
locations is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
United Europe Other Total
(in thousands) States
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Total revenues $ 6,503 $1,023 $ 544 $ 8,070
Operating
(Loss)/income (5,024) 253 201 (4,570)
Identifiable assets 18,317 0 0 18,317
1998
Total revenues $12,681 $1,685 $ 385 $14,751
Operating
(Loss)/income (5,188) 354 107 (4,727)
Identifiable assets 10,433 0 0 10,433
1997
30
<PAGE>
Total revenues $17,197 $2,242 $ 445 $19,884
Operating
(Loss)/income (3,657) 408 134 (3,115)
Identifiable assets 17,692 0 0 17,692
</TABLE>
10. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of fiscal 1999, the Company wrote off $426,000 in
loans and advances to APT (refer to Note 2). The Company also recorded a
$353,000 expense for inventory obsolescence for certain of its computer
monitors in inventory at October 31, 1999. The Company has reduced its
estimated tax liability of $361,000 as any such tax exposure has been reduced
to zero.
11. ACCRUED LIABILITIES
Accrued liabilities consist of the following at October 31: (in thousands)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Employee compensation and benefits $ 209 $173
Warranty 169 169
Legal reserve 200 200
Accrued sales and use tax 0 1
Professional fees 77 60
Royalties 175 0
Other 330 217
------ ----
$1,160 $820
------ ----
------ ----
</TABLE>
12. VALUATION AND QUALIFYING ACCOUNTS
The Company's reserves for doubtful accounts receivable and inventory
obsolescence consist of the following: (in thousands)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT (CREDITED) BALANCE AT
BEGINNING TO COSTS & END OF
OF PERIOD EXPENSE DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1997:
Reserve for doubtful accounts $1,280 $ 293 $(530)(1) $ 1,043
Reserve for inventory obsolescence $ 663 $ 379 $(519)(2) $ 523
YEAR ENDED OCTOBER 31, 1998:
Reserve for doubtful accounts $1,043 $2,300 $(1,991)(1) $ 1,352
Reserve for inventory obsolescence $ 523 $ 813 $ (690)(2) $ 646
YEAR ENDED OCTOBER 31, 1999:
Reserve for doubtful accounts $1,352 $ 572 $ (541)(1) $ 1,383
Reserve for inventory obsolescence $ 646 $ 680 $ (289)(2) $ 1,037
</TABLE>
(1) Deductions represent write-offs of fully reserved receivables.
(2) Reductions due to sales or scrap of fully reserved inventory.
31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
PART III
The following items included in the Company's Definitive Proxy
Statement dated February 28, 2000 used in connection with the Company's Annual
Meeting of Stockholders to be held on April 18, 2000 are incorporated herein
by reference:
<TABLE>
<CAPTION>
PAGES IN
PROXY STATEMENT
---------------
<S> <C>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 4
ITEM 11. EXECUTIVE COMPENSATION 8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 3
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 10
</TABLE>
(The remainder of this page was left blank intentionally.)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report.
1. FINANCIAL STATEMENTS.
The Consolidated Financial Statements, Notes thereto and the Report of
Grant Thornton LLP, Independent Public Accountants, thereon are included in Part
II of this Report on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES.
All schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the accompanying Consolidated Financial
Statements.
3. EXHIBITS.
The following exhibits have been or are being filed herewith and are
numbered in accordance with Item 601 of Regulation S-K:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------------------------------------------------------------------
3.1 (1) Restated Certificate of Incorporation of Registrant, as
amended and currently in effect
3.2 (2) Bylaws of the Registrant
10.1 (3) TeleVideo, Inc. 1991 Incentive Stock Option Plan and form of
Incentive Stock Option Agreement
10.2 (3) TeleVideo, Inc. 1992 Outside Directors' Stock Option Plan+
10.3 (4) Management Bonus Plan effective fiscal 1984, as amended
10.4 (2) Form of Distributor and Licensing Agreement
10.5 (2) Form of Original Equipment Manufacturer Agreement
10.6 (5) Real Estate Purchase Agreement dated December 28, 1998 and
accompanying Lease and Agreement of Lease, Escrow Agreement,
Pledge and Security Agreement and Assignment between the
Registrant and TVCA, LLC, dated December 28, 1998
10.7 (1) Continuing Letter of Credit Agreement with Comerica Bank
21.1 (1) Subsidiaries
23.1 (1) Consent of Grant Thornton LLP
27.1 (1) Financial Data Schedule
+ Denotes a management contract or compensatory plan or arrangement.
- ---------------
(1) Filed herewith.
(2) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1987, filed on January 29, 1988.
(3) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1991, filed January 27, 1992.
(4) Incorporated by reference from the Registrant's Annual Report on Form
10-K, filed January 29, 1985 and Annual Report on Form 10-K, filed January
28, 1986.
(5) Incorporated by reference from the Registrant's Current Report on Form
8-K, filed on January 2, 1999.
32
<PAGE>
(b) Reports on Form 8-K. No report on Form 8-K was filed by the Company
with respect to the quarter ended October
31, 1999.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TELEVIDEO, INC.
-----------------------------------
(Registrant)
Date: January 31, 2000 By: /s/ K. Philip Hwang
-----------------------------------
K. Philip Hwang
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- ----------------------------- ----------
<S> <C> <C>
/s/ K. Philip Hwang Chairman of the Board and January 31, 2000
- --------------------------- Chief Executive Officer
K. Philip Hwang (Principal Executive Officer)
/s/ James D. Wheat Chief Financial Officer January 31, 2000
- -------------------------- (Principal Financial and
James D. Wheat Accounting Officer)
/s/ Robert E. Larson Director January 31, 2000
- ------------------------------
Robert E. Larson
/s/ Woo K. Kim Director January 31, 2000
- ------------------------------
Woo K. Kim
</TABLE>
33
<PAGE>
RESTATED CERTIFICATE OF
INCORPORATION OF
TELEVIDEO SYSTEMS, INC.
TeleVideo Systems, Inc. a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is TeleVideo Systems, Inc., and
the date of filing of its original certificate of incorporation with the
Secretary of State was January 13, 1987.
2. The text of the Certificate of Incorporation is hereby
amended and restated to read in full as follows:
ARTICLE 1
The name of the Corporation is TeleVideo Systems, Inc.
ARTICLE 2
The address of the registered office of the Corporation in the State
of Delaware is 1219 Orange Street, in the city of Wilmington, County of New
Castle. The name of its registered agent at that address is The Corporation
Trust Company.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or
activity for which the corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE 4
The total number of shares of stock of all classes which the
Corporation has authority to issue is 78,000,000 shares, consisting of
75,000,000 shares of common stock with a par value of $0.01 per share, and
3,00,000 shares of Preferred Stock with a par value of $0.01 per share.
The Board of Directors is authorized to provide for the issuance of
the shares of the Preferred Stock in one or more series, to establish from
time to time the number of shares to be included in each such series, to fix
the designation, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof, and to
increase or decrease the number of shares of any such series (but not below
the number of shares of such series then outstanding).
<PAGE>
ARTICLE 5
Stockholders of the Corporation holding a majority of the
Corporation's outstanding voting stock shall have the power to adopt, amend
or repeal Bylaws. The Board of Directors of the Corporation shall also have
the power to adopt, amend or repeal Bylaws of the Corporation, except as such
power may be expressly limited by Bylaws adopted by the shareholders.
ARTICLE 6
Election of Directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
ARTICLE 7
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived
an improper personal benefit.
Any repeal or modification of the foregoing provisions of this
Article 7 shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation
existing at the time of such repeal or modification.
3. This Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, TeleVideo Systems, Inc., has caused this
certificate to be signed and attested by its duly authorized officers this
21 day of January, 1987.
TELEVIDEO SYSTEMS, INC.
By: /s/ K. Philip Hwang
---------------------------
K. Philip Hwang
Chairman of the Board
Attest:
By: /s/ Allan D. Smirni
-------------------------------
Allan D. Smirni
Secretary
-2-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
TeleVideo, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware:
DOES HEREBY CERTIFY:
FIRST: That by unanimous written consent of the Board of Directors,
resolutions were duly adopted setting forth a proposed amendment of the
Restated Certificate of Incorporation of said corporation, declaring said
amendment to be advisable and declaring that the matter should be brought
before the stockholders for consideration at its next annual meeting of the
stockholders or otherwise brought before the stockholders for consideration.
The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Restated Certificate of Incorporation of
this corporation be amended by changing the first paragraph of the
Article thereof numbered "4" so that, as amended, said first paragraph
of such Article shall be and read as follows:
"The total number of shares of stock of all classes which the
Corporation has authority to issue is 78,000,000 shares, consisting of
75,000,000 shares of Common Stock with a par value of $0.01 per share,
and 3,000,000 shares of Preferred Stock with a par value of $0.01 per
share. Upon the amendment of this article to read as herein set forth,
each four shares of Common Stock outstanding shall be combined and
converted into one share of Common Stock. In lieu of fractional shares,
the Company shall pay in cash the fair market value of any fractional
shares based on the last sale price on the last trading day preceding
the date of this amendment."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the corporation's Annual Meeting of Stockholders was duly called
and held upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary
number of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, said corporation has caused this certificate to
be signed by K. Philip Hwang, its authorized officer, this 21st day of April,
1998, and such amendment is effective on the date of filing in the Office of
the Delaware Secretary of State.
/s/ K Philip Hwang
-------------------------------------
K. Philip Hwang
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Attest:
/s/ Kathy K. Cleveland
- -------------------------------------
Kathy K. Cleveland
SECRETARY
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
TeleVideo Systems, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware:
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors on March 24,
1997, resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to
be advisable and declaring that the matter should be brought before the
stockholders for consideration at its next annual meeting of the
stockholders. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the Article thereof numbered
"1" so that, as amended, said Article shall be and read as follows:
"The name of the Corporation is TeleVideo, Inc."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, that the corporation's Annual Meeting of Stockholders was duly
called and held upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary
number of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said corporation has caused this certificate to
be signed by K. Philip Hwang, its authorized officer, this 4th day of April,
1997.
/s/ K. Philip Hwang
--------------------------------------
K. Philip Hwang
Chairman & CEO
Attest:
/s/ Kathy Cleveland
- ------------------------------------
Kathy Cleveland
Assistant Secretary
<PAGE>
EXHIBIT 10.7
CONTINUING LETTER OF CREDIT AGREEMENT
(Security Agreement)
Date: Oct. 25, 1999
-----------------
TO: COMERICA BANK-CALIFORNIA
International Banking Department
333 W. Santa Clara Street
San Jose, California
95113
Gentlemen:
In consideration of your issuance of letters of credit at your option from
time to time substantially in accordance with our applications therefor, as the
same may be amended with our agreement or consent, we hereby agree that, except
as you and we shall otherwise specifically agree in writing in each instance,
the Terms and Conditions hereinafter set forth shall apply to each such
application and to each letter of credit issued pursuant to such application.
TELEVIDEO, INC.
- --------------------------------------------------------------
(Applicant)
2345 HARRIS WAY
- --------------------------------------------------------------
(Address)
SAN JOSE, CA 95131
- --------------------------------------------------------------
/s/ [ILLEGIBLE], CEO & CHAIRMAN
- --------------------------------------------------------------
(Authorized Signature) (Title)
PLEASE SIGN OFFICIALLY
<PAGE>
TERMS AND CONDITIONS
In these provisions:
(1) The "Applicant" means the party or parties identified as such on page
1.
(2) "Application" means each application by the Applicant for a letter of
credit from the Bank, as such application may be amended or modified from time
to time in accordance with the provisions hereof or with the written agreement
or consent of the Applicant.
(3) The "Bank" means Comerica Bank-California.
(4) An "instrument" means any draft, receipt, acceptance or cable or
written demand for payment.
(5) "Property" means goods and merchandise and any and all documents
relative thereto, securities, funds, choses in action, and any and all other
forms of property, whether real, personal or mixed and any right or interest
therein.
(6) "Uniform Customs and Practice" means the Uniform Customs and Practice
for Documentary Credits approved by the International Chamber of Commerce and in
effect and adhered to by the Bank as of the date of issuance of the Credit.
In consideration of the issuance by the Bank, upon application by the
Applicant from time to time, at the Bank's option, of one or more letters of
credit (each such letter of credit as from time to time amended or modified with
the consent of the Applicant being hereinafter referred to as the "Credit"), the
Applicant hereby agrees with the Bank as follows with respect to each Credit:
1. The Applicant will reimburse the Bank at its principal office, in
cash, the amount required to pay each instrument, such reimbursement to be
made on demand in the case of each sight draft or receipt, with interest from
the date of payment of the instrument to the date of reimbursement. If the
instrument is in foreign currency, such reimbursement shall be in United
States currency at the Bank's selling rate for cable transfers to the place
of payment of the instrument current on the date of reimbursement or of the
Bank's settlement of its obligation, as the Bank may require. If, for any
cause, on the date of reimbursement or settlement there is no rate of
exchange generally available for effecting such cable transfers, the
Applicant will reimburse the Bank on demand in an amount in United States
currency equivalent to the Bank's actual cost of settlement of its obligation
as the Bank shall make such settlement, with interest from the date of
settlement to the date of reimbursement. The Applicant will comply with all
governmental exchange regulations now or hereafter applicable to the Credit
or instruments or payments related thereto and will pay the Bank, on demand,
in United States currency, such amount as the Bank may be required to expend
on account of such regulations. Upon the occurrence of an event of default
the Applicant shall pay the Bank in cash an amount sufficient to pay all
monies that are or
<PAGE>
will be due to be paid at any time by the Bank or its correspondents to meet
disbursements of any kind made or they may be required to be made pursuant to
the Letter of Credit regardless of whether the beneficiary under the Letter
of Credit has requested payment or whether those obligations have matured or
remain contingent.
2. The Applicant will pay the Bank such commission as has been agreed
to, the reasonable fees and expenses of the Bank in connection with the
Credit according to the Bank's standard practice, as in effect from time to
time, and interest on the amount paid by the Bank and. not reimbursed as
provided in paragraph 1 hereof including all charges and expenses paid or
in-curred by the Bank in connection therewith, at the rate of three (3%)
percent above the Bank's base rate; and effect shall be given to any change
in the interest rate resulting from a change in the base rate on the date of
such change in the base rate. The "base rate" shall mean the rate of interest
established by the Bank from time to time as its base rate, which may not
necessarily be the lowest interest rate charged by the Bank to its borrowers.
Interest shall be computed on the basis of the actual number of days elapsed,
but computed as if each year consisted of three hundred sixty (360) days.
However, if the actual amount of interest charged for and collected shall
ever exceed the maximum amount permitted by applicable law, interest shall be
calculated on a per diem basis of a year of 365 or 366 days, as the case may
be. The Bank is authorized to charge Applicant's deposit account for all
required payments.
3. Upon any transfer, sale, delivery, surrender or endorsement of any
bill of lading, warehouse receipt or other document at any time(s) held by
the Bank, or held for its account by any of its correspondents, relative to
the Credit, the Applicant will indemnify and hold the Bank, and any such
correspondent(s) harmless from and against each and every claim, demand,
action or suit which may arise against the Bank, or any such
correspondent(s), by reason thereof.
4. The Applicant agrees to indemnify and hold the Bank and its
correspondents harmless from and against any and all claims, damages, losses,
liabilities, costs or expenses whatsoever which the Bank or its
correspondents may incur (or which may be claimed against the Bank or its
correspondents by any person) by reason of, or in connection with, the
execution and delivery or transfer of, or payment or failure to pay under,
the Credit, or by reason of, or in connection with, any other matters arising
under this Application, or any of the transactions contemplated hereby;
provided, however, the Applicant shall not be required to indemnify the Bank
or its correspondents for any claims, damages, losses, liabilities, costs or
expenses to the extent, but only to the extent, caused by such party's
willful and wrongful misconduct or gross negligence.
5. The Applicant will pay on demand all reasonable costs and expenses
(including without limitation, reasonable attorneys' fees and legal expenses)
incurred by the Bank in connection with the enforcement of this Agreement and
such other documents which may be delivered in connection with this Agreement
or any Application or any action or proceeding relating to a court order,
injunction or other process or decree restraining or seeking to restrain the
Bank from paying any amount under the Credit.
6. These Terms and Conditions and the Credit shall be subject to the
Uniform
<PAGE>
Customs and Practice (a copy of which is available upon request), and, in
the event any provision of the Uniform Customs and Practice is or is construed
to vary from or be in conflict with any provision of the California Uniform
Commercial Code, as from time to time amended and in force (the "Commercial
Code"), the Uniform Customs and Practice shall prevail. In addition to other
rights of the Bank hereunder or under application for the Credit, any action,
inaction or omission taken or suffered by the Bank, or by any of its
correspondents, under or in connection with the Credit or the relative
instruments, documents, or property, if in good faith and in conformity with
such foreign or domestic laws, regulations, or customs as the Bank or any of its
correspondents. may deem to be applicable thereto, shall be binding upon the
Applicant and shall not place the Bank or any of its correspondents under any
liability to the Applicant.
7. Except insofar as instructions may be given by the Applicant in
writing or by a Request (as defined in paragraph 8 below) expressly to the
contrary with regard to, and prior to, the Bank's issuance of the Credit: (a)
although shipment(s) in excess of the quantity called for under the Credit
are made, the Bank may honor the relative instrument(s) in an amount or
amounts not exceeding the amount of the Credit, and (b) the Bank may, but
shall not be required to, honor, as complying with the terms of the Credit
and of the application therefor, any instruments or other documents otherwise
in order signed or issued by an administrator, executor, trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver or other legal representative of the party authorized
under the Credit to draw or issue such instruments or other documents.
8. The Applicant authorizes the Bank to honor the Applicant's orders to
issue, amend or pay the Credit for the Applicant's account and risk upon a
request communicated to the Bank by telegram, telex, computer, facsimile
transmission,, or other electronic means (a "Request") subject to the
following: (a) a Request shall be made only by those persons authorized by
the Applicant in accordance with the Bank's established requirements and the
Bank shall not be obligated to identify such persons so authorized beyond the
use of the authorized name or code identification if any is established; (b)
all Requests will be confirmed by the Bank in writing by sending to the
Applicant a copy of the documents authorized or requested by the Applicant
and the Applicant agrees promptly to examine such documents and to report any
discrepancies promptly upon receipt of such continuation; (c) if delinquent
Requests are to be made, the Bank may, but shall not be obligated to, assign
a unique code number or word and require that such code be used by the
Applicant (and if such a code number or word is established, all further
Requests shall refer to such code); (d) the Bank shall not be liable for any
loss that the Applicant may incur as a result of the Bank's compliance with a
Request in accordance with this Application even if unauthorized, provided
that the Bank acted in good faith, and the Applicant indemnifies the Bank and
holds the Bank harmless for any such losses; (e) the Bank will not be liable
for any delays in honoring any Request, nor for any delays caused by others
to whom the Bank may transmit such Request either at the Applicant's
direction or otherwise and the Bank will not be required to honor Requests on
the day on which Requests are received unless the Bank has agreed to do so
and the Applicant has caused such Request to be received before the time the
Bank has specified to honor such Request; (f) the Bank shall not be obligated
to honor any Requests provided that the Bank has notified the Applicant by
telephonic or other prompt means (g) all Requests shall be subject to the
terms of this Agreement and any other written or electronic
<PAGE>
agreement entered into with the Bank by the Applicant in connection with any
transaction relating to such Request. Bank may record any Request made by
telephone and any other telephonic communications between the Applicant and
the Bank regarding the Credit.
9. Applicant agrees that the user(s) of the Credit shall be deemed
agents of the Applicant and neither the Bank nor its correspondents shall be
responsible for: (a) the use which may be made of the Credit or for any acts
or omissions of the user(s) of the Credit; (b) the time, place, manner or
order in which shipment is made; (c) partial or incomplete shipment, or
failure or. omission to ship any or all of the property referred to in the
Credit; (d) losses resulting from the Credit providing that a complete set of
shipping documents including one original bill of lading be forwarded by the
beneficiary directly to Applicant or its customs brokers; (e) the solvency,
responsibility or relationship to the property of any party issuing any
documents in connection with the property; (f) delay in arrival or failure to
arrive of either the property or any of the documents relating thereto; (g)
delay in giving or failure to give notice of arrival or any other notice; (h)
any breach of contract between the shipper(s) or vendor(s) and the
consignee(s) or buyer(s); (i) failure of any instrument to bear any reference
or adequate reference to the Credit, or failure of documents to accompany any
instrument at negotiation, or failure of any person to note the amount of any
instrument on the reverse of the Credit, or to surrender or take up the
Credit or to send forward documents apart from instruments as required by the
terms of the Credit, each of which provisions, if contained in the Credit
itself, it is agreed may be waived by the Bank; (j) the validity, sufficiency
or genuineness of documents, or of any endorsements thereof, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; (k) payment by the Bank made against
presentation of documents which substantially comply with the terms of the
Credit; or (l) any other circumstances whatsoever in making or failing to
make payment under the Credit. In furtherance and not in limitation of the
foregoing, the Bank may accept documents that appear on their face to be in
order, without responsibility for timber investigation, regardless of any
notice or information to the contrary. The Bank shall not be responsible for
any act, error, neglect or default, omission, insolvency or failure in
business of any of its correspondents. The occurrence of any one or more of
the contingencies referred to in this paragraph shall not affect, impair or
prevent the vesting of any of the Bank's rights or powers hereunder or the
Applicant's obligation to make reimbursement. The Applicant will promptly
examine (i) the copy of the Credit (and of any amendments thereof) sent to it
by the Bank and (ii) all documents and instruments delivered to it from time
to time by the Bank, and, in the event of any claim of noncompliance with
Applicant's instructions or other irregularity, will immediately notify the
Bank thereof in writing, the Applicant being conclusively deemed to have
waived any such claim against the Bank and its correspondents unless such
notice is given as aforesaid.
10. The Applicant will promptly procure any necessary import, export or
other licenses for the import, export or shipping of the property shipped
under or pursuant to or in connection with the Credit, and comply with all
foreign and domestic governmental regulations in regard to the shipment of
inch property or the financing thereof; and furnish such certificates in that
respect as the Bank may at any time require, and keep such property
adequately covered by insurance in amounts, against risks and in companies
satisfactory to the Bank, and assign the policies or certificates of
insurance to the Bank, or make the loss or adjustment, if any, payable to the
Bank,
<PAGE>
at its option, and furnish the Bank, on its demand, with evidence of
acceptance by the insurers of such assignment. Should the insurance upon such
property for any reason be unsatisfactory to the Bank, the Bank may, at the
Applicant's expense, obtain insurance satisfactory to the Bank.
11. As security for the payment or performance of any and all of the
Applicant's obligations and/or liabilities hereunder, absolute or contingent,
and also for the payment or performance of any and all other obligations
and/or liabilities, absolute or contingent, due or to become due, which are
now, or may at any time(s) hereafter be owing by the Applicant to the Bank,
or which are now or hereafter existing, the Applicant hereby assigns,
pledges, and grants the Bank a security interest and lien upon, and the right
of possession and disposal to the following property (the "Collateral"): (a)
where applicable, any and all shipping documents, warehouse receipts,
policies or certificates of insurance or other documents or instruments
accompanying or related to drafts drawn under the Credit and in and to all
property shipped, stored or otherwise disposed of under or pursuant to or in
connection with the Credit, or in any way relating thereto or to any of the
drafts drawn thereunder (whether or not such documents, goods, or other
property be released to Bank or upon Bank's order and whether or not any such
release shall be on trust or bailee's receipt), and in and to the proceeds of
each and all of the foregoing; (b) all Applicant's rights and causes of
action against all parties arising from or in connection with the contract,
sale or purchase of any Collateral covered by the Credit, or any guarantees,
agreements or other undertaking (including those in effect between Applicant
and any account party named in the Credit), credits, policies of insurance or
other assurances in connection therewith; and (c) all property rights, choses
in action, claims and demands of every kind now or thereafter belonging to
Applicant and which may now or hereafter be in the posses-sion, custody or
control of, or in transit to or set apart for Bank, Bank's agents, or
correspondents for any purpose. Further, Applicant agrees at any time and
from time to time, on demand, to deliver, convey, transfer or assign to the
Bank additional security of a value and character satisfactory to the Bank,
or to make such payment as the Bank may require. The Applicant execute,
deliver and file such financing statements and other documents as may be
requested by Bank from time to time to create, perfect and preserve the
security interest created hereby; and the right is granted Bank, to be
exercised at its option, to file from time to time financing statements
signed by Bank alone and naming Bank as the secured party and the Applicant
as the debtor, and indicating the types, or describing the items, of
collateral covered hereby, all at the expense of the Applicant.
12. Upon the failure of the Applicant at any time to keep a
margin of security with the Bank satisfactory to the Bank; or upon the
death of any Applicant; or if any of the obligations and/or liabilities of
the Applicant to the Bank shall not be paid or performed when due; or if
there is a breach in any warranty or representation herein; or if the
Applicant shall become insolvent (however such insolvency may be
evidenced) or commit any act of bankruptcy or insolvency, or make a general
assignment for the benefit of creditors, or if the Applicant shall suspend
the transaction of its usual business or be expelled or suspended from any
exchange; or if an application is made by any judgment creditor of the
Applicant for an order directing the Bank to pay over money or to deliver
other property; or if a petition in bankruptcy shall be filed by or against
the Applicant; or if a petition shall be filed by or against the
Applicant or any proceeding shall be instituted by or against the Applicant
for any relief under any bankruptcy or insolvency
<PAGE>
laws or any law relating to the relief of debtors, readjustment of
indebtedness, reorganization, composition or extensions; or if any
governmental authority, or any court at the instance of any governmental
authority, shall take possession of any substantial pan of the property of
the Applicant or shall assume control over the affairs or operations of the
Applicant; or if a receiver shall be appointed of, or a writ of order of
attachment or garnishment shall be issued or made against, any of the
property or assets of the Applicant; or if the Bank shall in good faith deem
itself insecure at any time; thereupon, unless the Bank shall otherwise
elect, any and all obligations and liabilities of the Applicant to the Bank,
whether now existing or hereafter incurred, shall. become and be due and
payable forthwith without presentation, demand or notice, all of which are
waived.
13. If any event described in paragraph 12 above shall have occurred
and be continuing, Bank may exercise in respect to the Collateral all the
rights and remedies of a secured party under the Commercial Code and any
other applicable law and also may, without notice except as specified below,
sell such Collateral or any part thereof in one or more parcels at public or
private sale, at any of Bank's offices or elsewhere, for cash, on credit or
for future delivery, and upon such other terms as Bank may deem commercially
reasonable. The Applicant will pay to Bank on demand all costs and expenses
(including without limitation, reasonable attorneys' fees and legal expenses)
related or incidental to the repossession, custody, preservation, protection,
preparation for sale or sale of, or collection from, or other realization
upon, any such Collateral, or related or incidental to the establishment,
preservation or enforcement of Bank's rights and remedies in respect of any
such Collateral.
14. That if the Applicant is a banking institution, the Applicant
hereby appoints the Bank its agent to issue the Credit in accordance with,
and subject to, these Terms and Conditions and the Application for the Credit.
15. The Applicant submits, in any legal proceeding related to this
Agreement, any Application or the Credit, to the nonexclusive jurisdiction
over the person of the Applicant of any court of competent jurisdiction
sitting in the State of California and agrees to a suit being brought in any
such court; waives any objection that it may now have or hereafter have to
the venue of such proceeding in any such court or that such proceeding was
brought in an inconvenient court; agrees that service of process and any such
legal proceeding may be made, and shall be conclusively deemed sufficient and
adequate, by mailing of copies thereof (by registered or certified mail, if
practicable) postage prepaid, or by teletransmission to the Applicant at its
address set forth herein or such other address of which the Bank shall be
notified in writing, in which event, service shall be deemed complete upon
the filing with the court of a copy of the process mailed or sent and an
affidavit attesting the mailing or sending. The Applicant agrees that nothing
herein shall affect the Bank's right to affect service or process in any
other manner permitted by law.
16. If any law or regulation or the interpretation or implementation
thereof by any court or administrative or governmental authority charged with
the administration thereof shall either: (a) impose, modify or deem
applicable any reserve, capital adequacy, special deposit, limitation or
similar requirement against letters of credit issued by, or assets held by,
or deposits in
<PAGE>
or for the account of; the Bank, or (b) impose on the Bank any insurance
premium or other condition regarding this Agreement or the Credit, and the
result of any event referred to in clause (a) or (b) above shall be to increase
the cost of issuing or maintaining the Credit over that which the Bank assumed
in determining its fees or decrease the yield to the Bank of issuing or
maintaining the, Credit, then, upon demand by the Bank, the Applicant shall
immediately pay to the Bank, from time to time as specified by the Bank,
additional amounts which shall be sufficient to compensate the Bank for such
increased cost or decrease in yield, together with interest on each such amount
from the date demanded until payment in full thereof at the rate and on the.
terms set forth in paragraph 2 above. A certificate as to such increased cost or
decrease in yield incurred by the Bank as a result of any event mentioned in
clause (a) or (b) above, submitted by the Bank to Applicant, shall be
conclusive, absent manifest error, as to the amount thereof.
17. The Bank shall not be deemed to have waived any of its rights
hereunder, unless the Bank or its authorized agents shall have signed such
waiver in writing. No such waiver unless expressly as stated therein, shall
be effective as to any transaction which occurs subsequent to the date of
such waiver, nor as to any continuance of a breach after such waiver.
18. The obligations hereof shall bind the successors and assigns of the
Applicant, and all rights, benefits and privileges conferred on the Bank
shall be and are extended to and conferred upon and may be enforced by its
successors and assigns. If the Applicant is a partnership, the obligations
hereof shall continue in force and apply, notwithstanding any change in the
membership of such partnership, whether arising from the death or retirement
of one or more partners or the accession of one or more new partners. If this
Agreement is signed by two or more Applicants, it shall be the joint and
several agreement of each Applicant.
19. Except as otherwise provided herein, any notice from the Bank to
the Applicant, if mailed, shall be deemed given when mailed, postage paid,
addressed to the Applicant at its address set forth herein or such other
address of which the Bank shall be notified in writing. Whenever possible
each provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
20. Subject to the provisions of paragraph 6 above, this Agreement and
all rights, obligations and liabilities arising hereunder shall be both
governed by, and construed in accordance with the law of the State of
California.
21. This Agreement, any collateral documents relating to security for
the Credit and any Requests constitute the entire agreement of the parties
with respect to the subject matter hereof, and except as provided in
paragraph 8, this Agreement may not be amended except in writing signed by
both parties.
<PAGE>
22. The Applicant acknowledges and agrees that Credits requested will not
be collateral or security for any obligation secured by real property and
thatCredits requested are not intended to guaranty or relate in any way to any
obligation secured by real property. The Applicant further acknowledges and
agrees that Credits requested will not be governed by the California
antideficiency statutes (Code Civ. Proc., sections 580a, 580b, and 580d), the
One-Action Rule (Code Civ. Proc., section 726) or the Security-First Rule (Code
Civ. Proc., section 726), and that they will constitute a separate and
independent obligation.
23. Applicant Warrants that any Request submitted hereunder and any
shipment related to such request is not in violation of U.S. Treasury Foreign
Assets Control or Cuban Assets Control Regulations.
24. The Applicant agrees that the Bank may provide information relating
to any Request, Credit or relating to the Applicant to the Bank's parent,
affiliates, subsidiaries and service providers.
<PAGE>
Security Agreement
- --------------------------------------------------------------------------------
As of OCTOBER 12, 1999, for value received, the undersigned ("Debtor") grants
to COMERICA BANK CALIFORNIA ("Bank"), a CALIFORNIA banking corporation, a
continuing security interest in the Collateral (as defined below) to secure
payment when due, whether by stated maturity, demand acceleration or
otherwise, of all existing and future indebtedness ("Indebtedness" to the
Bank of TELEVIDEO, INC. ("Borrower") and/or Debtor. Indebtedness includes
without limit any and all obligations or liabilities of the Borrower and/or
Debtor to the Bank, whether absolute or contingent, direct or indirect,
voluntary or involuntary, liquidated or unliquidated, joint or several, known
or unknown; any and all obligations or liabilities for which the Borrower
and/or Debtor would otherwise be liable to the Bank were it not for the
invalidity or unenforceability of them by reason of any bankruptcy,
insolvency or other law, or for any other reason; any and all amendments,
modifications, renewals and/or extensions of any of the above; all costs
incurred by Bank in establishing, determining, continuing, or defending the
validity or priority of its security interest, or in pursuing its rights and
remedies under this Agreement or under any other agreement between Bank and
Borrower and/or Debtor or in connection with any proceeding Involving Bank as
s result of any financial accommodation to Borrower and/or Debtor; and all
other costs of collecting Indebtedness, including, without limit attorney
fees. Debtor agrees to pay Bank all such costs incurred by the Bank,
immediately upon demand, and until paid all costs shall bear interest at the
highest per annum rate applicable to any of the Indebtedness, but not in
excess of the maximum rate permitted by law. Any reference in this Agreement
to attorney fees shall be deemed a reference to reasonable fees, costs, and
expenses of both in-house and outside counsel and paralegals, whether or not
a suit or action is instituted and to court costs if a suit or action is
instituted, and whether attorney fees or court costs are incurred at the
trial court level, on appeal, in a bankruptcy, administrative or probate
proceeding or otherwise.
1. Collateral shall mean all of the following property Debtor now or later
owns or has an interest in, wherever located:
- specific item listed below and/or on attached Schedule A, if any,
is/are also included in Collateral:
A CERTIFICATE OF DEPOSIT (#859750000023582) DATED SEPTEMBER 29,
1999, IN THE NAME OF TELEVIDEO, INC., IN THE CURRENT AMOUNT OF
$1,000,117.80 AND ANY AND ALL SUBSEQUENT RENEWALS THEREOF.
- all goods, instruments, documents, policies and certificates of
insurance, deposits, money or other property (except real property
which is not a fixture) which are now or later in possession of
Bank, or as to which Bank now or later controls possession by
documents or otherwise, and
- all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions,
rights of any kind (including but not limited to stock splits,
stock rights, voting and preferential rights), products, and
proceeds of or pertaining to the above including, without limit,
cash or other property which were proceeds and are recovered by a
bankruptcy trustee or otherwise as a preferential transfer by
Debtor.
2. Warranties, Covenants and Agreements. Debtor warrants, covenants and agrees
as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank may
request, any information Bank may reasonably request and allow
Bank to examine, inspect, and copy any of Debtor's books and
records. Debtor shall, at the request of Bank, mark its records
and the Collateral to clearly indicate the security interest of
Bank under this Agreement.
2.2 At the time any Collateral becomes, or is represented to be,
subject to a security interest in favor of Bank, Debtor shall be
deemed to have warranted that (a) Debtor is the lawful owner of
the Collateral and has the right and authority to subject it to a
security interest granted to Bank; (b) none of the Collateral is
subject to security interest other than that in favor of Bank and
there are no financing statements on file, other than in favor of
Bank; and (c) Debtor acquired its rights in the Collateral in the
ordinary course of its business.
2.3 Debtor will keep the Collateral free at all times from all claim,
liens, security interests and encumbrances other than those in
favor of Bank. Debtor will not, without the prior written consent
of Bank, sell, transfer or Lease, or permit to be sold,
transferred or Leased, any or all of the Collateral, except where
inventory is pledged as Collateral) for Inventory in the ordinary
course of its business and will not return any Inventory to its
supplier. Bank or its representatives may at all reasonable times
inspect the Collateral and may enter upon all premises where the
Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute or cause to be executed
all writings requested by Bank to establish, maintain and continue
a perfected and first security interest of Bank in the Collateral.
Debtor agrees that Bank has no obligation to acquire or perfect
any Lien on or security interest in any asset(s) whether realty or
personalty, to secure payment of the Indebtedness, and Debtor is
not relying upon assets in which the Bank may have a lien or
security interest for payment of the Indebtedness.
2.5 Debtor will pay within the time that they can be paid without
interest or penalty all dues, assessments and similar charges
which at any time are or may become a Lien, charge, or encumbrance
upon any Collateral, except to the extent contested in good faith
and bonded in a manner satisfactory to Bank. If Debtor fails to
pay any of these taxes, assessments, or other charges in the time
provided above, Bank has the option (but not the obligation) to do
so and Debtor agrees to repay all amounts so expended by Bank
immediately upon demand, together with interest at the highest
lawful default rate which could be charged by Bank on any
Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will protect
it from loss, damage, or deterioration from any cause. Debtor has
and will maintain at all times (a) with respect to the Collateral,
insurance under an "all risk" policy against fire and other risks
customarily insured against, and (b) public liability insurance
and other insurance as may be required by law or reasonably
required by Bank, all of which insurance shall be in amount, form
and content, and written by companies as may be satisfactory to
Bank, containing a lender's loss payable endorsement acceptable to
Bank. Debtor will deliver to Bank immediately upon demand evidence
satisfactory to Bank that the required insurance has been
procured. If Debtor fails to maintain satisfactory insurance, Bank
has the option (but not the obligation) to do so and Debtor agrees
to repay all amounts so expended by Bank immediately upon demand,
together with interest at the highest lawful default rate which
could be charged by Bank on any indebtedness.
2.7 If Accounts Receivable are pledged as Collateral under this
Agreement, then on each occasion on which Debtor evidences to Bank
the account balances on and the nature and extent of the Accounts
Receivable, Debtor shall be deemed to have warranted that except
as otherwise indicated (a) each of those Accounts Receivable is
valid and enforceable without performance by Debtor of any act;
(b) each of those account balances are in fact owing, (c) there
are no setoffs, recoupments, credits, contra accounts,
counterclaims or defenses against any of those Accounts
Receivable, (d) as to any Accounts Receivable represented by a
note, trade acceptance, draft or other instrument or by any
chattel paper or document, the same have been endorsed and/or
delivered by Debtor to Bank, (e) Debtor has not received with
respect to any Account Receivable, any notice of the death of the
related account debtor, nor of the dissolution, liquidation,
termination of existence, insolvency, business failure,
appointment of a receiver for, assignment for the benefit of
creditors by, or filing of a petition in bankruptcy by or against,
the account debtor, and (f) as to each Account Receivable, the
account debtor is not an affiliate of Debtor, the United States of
America or any department, agency or instrumentality of it, or I
citizen or resident of any jurisdiction outside of the United
States. Debtor will do all acts and will execute all writings
requested by Bank to perform, enforce performance of, and collect
all Accounts Receivable. Debtor shall neither make nor permit any
modification, compromise or substitution for any Account
Receivable without the prior written consent of Bank. Debtor
shall, at Bank's request, arrange for verification of Accounts
Receivable directly with account debtors or by other methods
acceptable to Bank.
2.8 Debtor at all times shall be in strict compliance with all
applicable laws, including without limit any laws, ordinances,
directives, orders, statutes, or regulations an object of which is
to regulate or improve health,
<PAGE>
safety, or the environment ("Environmental Laws").
2.9 If marketable securities are pledged as Collateral under this
Agreement and if at any time the outstanding principal balance of
the Indebtedness exceeds N/A of the value of the Collateral, as
such value is determined from time to time by Bank (herein called
the "Margin Requirement"), Debtor shall immediately pay, or cause
to be paid to Bank an amount sufficient to reduce the Indebtedness
such that the remaining principal outstanding thereunder is equal
to or less than the Margin Requirement. Bank shall apply payments
made under this paragraph in payment of the Indebtedness in such
order and manner of application as Bank in its sole discretion
elects. In the alternative, Debtor may provide or cause to be
provided to Bank additional collateral in the form of cash or
other property acceptable to Bank and with a value, as determined
by Bank, that when added to the Collateral will constitute
compliance with the Margin Requirement.
2.10 If Bank, acting in its sole discretion, redelivers Collateral to
Debtor or Debtors designee for the purpose of (a) the ultimate
sale or exchange thereof; or (b) presentation, collection,
renewal, or registration of transfer thereof; or (c) loading,
unloading, storing, shipping, transshipping, manufacturing,
processing or otherwise dealing with it preliminary to sale or
exchange; such redelivery shall be in trust for the benefit of
Bank and shall not constitute a release of Bank's security
interest in it or in the proceeds or products of it unless Bank
specifically so agrees in writing. If Debtor requests any such
redelivery, Debtor will deliver with such request a duly executed
financing statement in form and substance satisfactory to Bank.
Any proceeds of Collateral coming into Debtor's possession as a
result of any such redelivery shall be held in trust for Bank and
immediately delivered to Bank for application on the Indebtedness.
Bank may (in its sole discretion) deliver any or all of the
Collateral to Debtor, and such delivery by Bank shall discharge
Bank from all liability or responsibility for such Collateral.
Bank, at its option, may require delivery of any Collateral to
Bank at any time with endorsements or assignments of the
Collateral as Bank may request.
2.11 At any time and without notice, Bank may, as to Collateral other
than Equipment, Fixtures or Inventory, (a) cause any or all of
such Collateral to be transferred to its name or to the name of
its nominees; (b) receive or collect by legal proceedings or
otherwise all dividends, interest, principal payments and other
sums and all other distributions at any time Payable or receivable
on account of such Collateral, and hold the same as Collateral, or
apply the same to the Indebtedness, the runner and distribution of
the application to be in the sole discretion of Bank; (c) enter
into any extension, subordination, reorganization, deposit, merger
or consolidation agreement or any other agreement relating to or
affecting such Collateral, and deposit or surrender control of
such Collateral, and accept other property in exchange for such
Collateral and hold or apply the property or money so received
pursuant to this Agreement.
2.12 Bank may assign any of the Indebtedness and deliver any or all of
the Collateral to its assignee, who then shall have with respect
to Collateral so delivered all the rights and powers of Bank under
this Agreement, and after that Bank shall be fully discharged from
all liability and responsibility with respect to Collateral so
delivered.
2.13 Debtor delivers this Agreement based solely on Debtor's
independent investigation of (or decision not to Investigate) the
financial condition of Borrower and is not relying on any
information furnished by Bank. Debtor assumes full responsibility
for obtaining any further information concerning the Borrower's
financial condition, the status of the Indebtedness or any other
matter which the undersigned may deem necessary or appropriate now
or later. Debtor waives any duty on the part of Bank, and agrees
that Debtor is not relying upon nor expecting Bank to disclose to
Debtor any fact now or later known by Bank, whether relating to
the operations or condition of Borrower, the existence,
liabilities or financial condition of any guarantor of the
Indebtedness, the occurrence of any default with respect to the
Indebtedness, or otherwise, notwithstanding any effect such fact
may have upon Debtor's risk or Debtor's rights against Borrower.
Debtor knowingly accepts the full range of risk encompassed in
this Agreement, which risk includes without limit the possibility
that Borrower may incur Indebtedness to Bank after the financial
condition of Borrower, or Borrower's ability to pay debts as they
mature, has deteriorated.
2.14 Debtor shall defend, indemnify and hold harmless Bank, its
employees, agents, shareholders, affiliates, officers, and
directors from and against any and all claims, damages, fines,
expenses, liabilities or causes of action of whatever kind,
including without limit consultant fees, legal expenses, and
attorney fees, suffered by any of them as a direct or indirect
result of any actual or asserted violation of any law, including,
without limit, Environmental Laws, or of any remediation relating
to any property required by any law, including without limit
Environmental Laws.
3. Collection of Proceeds.
3.1 Debtor agrees to collect and enforce payment of all Collateral
until Bank shall direct Debtor to the contrary. Immediately upon
notice to Debtor by Bank and at all times after that, Debtor
agrees to fully and promptly cooperate and assist Bank in the
collection and enforcement of all Collateral and to hold in trust
for Bank all Payments received in connection with Collateral and
from the sale, lease or other disposition of any Collateral, all
rights by way of suretyship or guaranty and all rights in the
nature of a lien or security interest which Debtor now or later
has regarding Collateral. Immediately upon and after such notice,
Debtor agrees to (a) endorse to Bank and immediately deliver to
Bank all Payments received on Collateral or from the sale, lease
or other disposition of any Collateral or arising from any other
rights or interests of Debtor in the Collateral, in the form
received by Debtor without commingling with any other funds, and
(b) immediately deliver to Bank all property in Debtor's
possession or later coming into Debtor's possession through
enforcement of Debtor's rights or interests in the Collateral.
Debtor irrevocably authorizes Bank or any Bank employee or agent
to endorse the name of Debtor upon any checks or other item which
are received in payment for any Collateral, and to do any and all
things necessary in order to reduce these items to money. Bank
shall have no duty as to the collection or protection of
Collateral or the proceeds of it, nor as to the preservation of
any related rights, beyond the use of reasonable care in the
custody and preservation of Collateral in the possession of Bank.
Debtor agrees to take all steps necessary to preserve rights
against prior parties with respect to the Collateral. Nothing in
this Section 3.1 shall be deemed a consent by Bank to any sale,
lease or other disposition of any Collateral.
3.2 If Accounts Receivable are pledged as Collateral, this Section 3.2
shall be applicable and Debtor agrees that immediately upon Bank
request (whether or not any Event of Default exists) the
indebtedness shall be on a "remittance basis" as follows: Debtor
shall at its sole expense establish and maintain (and Bank, at
Bank's option, may establish and maintain at Debtor's expense):
(a) an United States Post Office lock box (the "Lock Box") to
which Bank shall have exclusive access and control. Debtor
expressly authorizes Bank, from time to time, to remove contents
from the Lock Box, for disposition in accordance with this
Agreement. Debtor agrees to notify all account debtors and other
parties obligated to Debtor that all payments made to Debtor
(other than payments by electronic funds transfer) shall be
remitted, for the credit of Debtor, to the Lock Box, and Debtor
shall include a like statement on all invoices; and (b) a
non-Interest bearing deposit account with Bank which shall be
titled at designated by Bank (the "Cash Collateral Account") to
which Bank shall have exclusive access and control. Debtor agrees
to notify all account debtors and other parties obligated to
Debtor that all payments made to Debtor by electronic funds
transfer shall be remitted to the Cash Collateral Account, and
Debtor, at Bank's request, shall include a like statement on all
invoices. Debtor shall execute all documents and authorizations as
required by Bank to establish and maintain the Lock Box and the
Cash Collateral Account.
3.3 If Accounts Receivable are pledged as Collateral, this Section 3.3
shall be applicable, and all items or amounts which are remitted
to the Lock Box, to the Cash Collateral Account, or otherwise
delivered by or for the benefit of Debtor to Bank on account of
partial or full Payment of, or with respect to, any Collateral
shall, at Bank's option, (i) be applied to the Payment of the
Indebtedness, whether then due or not, in such order or at such
time of application as Bank may determine in its sole discretion,
or, (ii) be deposited to the Cash Collateral Account. Debtor
agrees that Bank shall not be liable for any loss or damage which
Debtor may suffer as a result of Bank's processing of items or its
exercise of any other rights or remedies under this Agreement,
including without limitation indirect, special or consequential
damages, loss of revenues or profits, or any claim, demand or
action by any third party arising out of or in connection with the
processing of items or the exercise of any other rights or
remedies under this Agreement. Debtor agrees to indemnify and hold
Bank harmless from and against all such third party claims,
demands or actions, and all related expenses or liabilities,
including, without
<PAGE>
imitation, attorney fees.
4. Defaults, Enforcement and Application of Proceeds
4.1 Upon the occurrence of any of the following events (each an "Event
of Default"), Debtor shall be in default under this Agreement:
(a) Any failure to pay the indebtedness or any other
indebtedness when due, or such portion of it as may be due,
by acceleration or otherwise; or
(b) Any failure or neglect to comply with, or breach of or
default under, any tern of that Agreement, or any other
agreement or commitment between Borrower, Debtor, or any
guarantor of any of the indebtedness ("Guarantor") and Bank;
or
(c) Any warranty, representation, financial statement, or other
information made, given or furnished to Bank by or on behalf
of Borrower, Debtor, or any Guarantor shall be, or shall
prove to have been, false or materially misleading when
made, given, or furnished; or
(d) Any loss, theft, substantial damage or destruction to or of
any Collateral, or the issuance or filing of any attachment,
levy, garnishment or the commencement of any proceeding in
connection with any Collateral or of any other judicial
process of, upon or in respect of Borrower, Debtor, any
Guarantor, or any Collateral; or
(e) Sale or other disposition by Borrower, Debtor, or any
Guarantor of any substantial portion of its assets or
property or voluntary suspension of the transaction of
business by Borrower, Debtor, or any Guarantor, or death,
dissolution, termination of existence, merger,
consolidation, insolvency, business failure, or assignment
for the benefit of creditors of or by Borrower, Debtor, or
any Guarantor; or commencement of any proceedings under any
state or federal bankruptcy or insolvency laws or laws for
the relief of debtors by or against Borrower, Debtor, or any
Guarantor; or the appointment of a receiver, trustee, court
appointee, sequestrator or otherwise, for all or any part of
the property of Borrower, Debtor, or any Guarantor; or
(f) Bank deems the margin of Collateral insufficient or itself
insecure, in good faith believing that the prospect of
payment of the indebtedness or performance of this Agreement
is impaired or shall fear deterioration, removal, or waste
of Collateral.
4.2 Upon the occurrence of any Event of Default, Bank may at its
discretion and without prior notice to Debtor declare any or all
of the indebtedness to be immediately due and payable, and shall
have and may exercise any one or more of the following rights and
remedies:
(a) Exercise all the rights and remedies upon default, in
foreclosure and otherwise, available to secured parties
under the provisions of the Uniform Commercial Code and
other applicable law;
(b) Institute legal proceedings to foreclose upon the lien and
security interest granted by the Agreement, to recover
judgment for all amounts then due and owing as indebtedness,
and to collect the same out of any Collateral or the
proceeds of any sale of it;
(c) Institute legal proceedings for the sale, under the judgment
or decree of any court of competent jurisdiction, of any or
all Collateral; and/or
(d) Personally or by agents, attorneys, or appointment of a
receiver, enter upon any premises where Collateral may then
be Located, and take Possession of all or any of it and/or
render it unusable; and without being responsible for Loss
or damage to such Collateral, hold, operate, sell, lease or
dispose of all or any Collateral at one or more public or
private sales, leasings or other disposition, at places and
times and on terms and conditions as Bank may deem fit,
without any previous demand or advertisement; and except as
provided in this Agreement, all notice of sale, lease or
other disposition and advertisement, and other notice or
demand, any right or equity of redemption, and any
obligation of a prospective purchaser or Lessee to inquire
as to the power and authority of Bank to sell, lease, or
otherwise dispose of the Collateral or as to the application
by Bank of the proceeds of sale or otherwise, which would
otherwise be required by, or available to Debtor under,
applicable law are expressly waived by Debtor to the fullest
extent permitted.
At any sale pursuant to this Section 4.2, whether under the
power of sale, by virtue of judicial proceedings or
otherwise, it shall not be necessary for Bank or a public
officer under order of a court to have present physical or
constructive possession of Collateral to be sold. The
recitals contained in any conveyances and receipts made and
give by Bank or the public officer to any purchaser at any
sales made pursuant to this Agreement shall, to the extent
permitted by applicable law, conclusively establish the
truth and accuracy of the matters stated (including, without
limit, as to the amounts of the principal of and interest on
the prerequisites to the sale shall be presumed to have been
satisfied and performed. Upon any sale of any Collateral,
the receipt of the officer making the sale under judicial
proceedings or of Bank shall be sufficient discharge to the
purchaser for the purchase money, and the purchaser shall
not be obligated to see to the application of the money. Any
sale of any Collateral under this Agreement shall be a
perpetual bar against Debtor with respect to that Collateral.
4.3 Debtor shall at the request of Bank, notify the account debtors or
Obligors of Bank's security interest in the Collateral and direct
payment of it to Bank. Bank may, itself, upon the occurrence of
any Event of Default so notify and direct any account debtor or
obligor.
4.4 The proceeds of any sale or other disposition of Collateral
authorized by this Agreement shall be applied by Bank first upon
all expenses authorized by the Uniform Commercial Code and all
reasonable attorney fees and legal expenses incurred by Bank; the
balance of the proceeds of the sale or other disposition shall be
applied in the payment of the indebtedness, first to interest,
then to principal, then to remaining indebtedness and the surplus,
if any, shall be paid over to Debtor or to such other person(s) at
may be entitled to it under applicable law. Debtor shall remain
liable for any deficiency, which it shall pay to Bank immediately
upon demand.
4.5 Nothing in this Agreement is intended, nor shall it be construed,
to preclude Bank from pursuing any other remedy provided by law
for the collection of the indebtedness or for the recovery of any
other sum to which Bank may be entitled for the breach of this
Agreement by Debtor. Nothing in this Agreement shall reduce or
release in any way any rights or security interests of Bank
contained in any existing agreement between Borrower, Debtor, or
any Guarantor and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized officer of
Bank. No waiver of any default or forbearance on the part of Bank
in enforcing any of its rights under this Agreement shall operate
as a waiver of any other default or of the same default on a
future occasion or of any rights.
4.7 Debtor irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest) the true and Lawful
attorney of Debtor (with full power of substitution) in the name,
place and stead of, and at the expense of Debtor:
(a) to demand, receive, sue for, and give receipt, or
acquittances for any moneys due or to become due on any
Collateral and to endorse any item representing any payment
on or proceeds of the Collateral;
(b) to execute and file in the name of and on behalf of Debtor
all financing statements or other filings deemed necessary
or desirable by Bank to evidence, perfect, or continue the
security interests granted in this Agreement; and
<PAGE>
(c) to do and perform any act on behalf of Debtor permitted or
required under this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also agrees,
upon request of Bank, to assemble the Collateral and make it
available to Bank at any place designated by Bank which is
reasonably convenient to Bank and Debtor.
5. Miscellaneous.
5.1 Until Bank is advised in writing by Debtor to the contrary, all
notices, requests and demands required under this Agreement or by
law shall be given to, or made upon, Debtor at the first address
indicated in Section 5.15 below.
5.2 Debtor will give Bank not Less than 90 days prior written notice
of all contemplated changes in Debtor's name, chief executive
office Location, and/or location of any Collateral, but the giving
of this notice shall not cure any Event of Default caused by this
change.
5.3 Bank assumes no duty of performance or other responsibility under
any contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or grant
participations or any interest in, any or all of the indebtedness
and any related obligations, including without limit this
Agreement. In connection with the above, but without limiting its
ability to make other disclosures to the full extent allowable,
Bank may disclose all documents and information which Bank now or
later has relating to Debtor, the Indebtedness or this Agreement,
however obtained. Debtor further agrees that Bank may provide
information relating to this Agreement or relating to Debtor to
the Bank's parent, affiliates, subsidiaries, and service providers.
5.5 In addition to Bank's other rights, any indebtedness owing from
Bank to Debtor can be set off and applied by Bank on any
indebtedness at any time(s) either before or after maturity or
demand without notice to anyone.
5.6 Debtor waives any right to require the Bank to: (a) proceed
against any person or property; (b) give notice of the terms, time
and place of any public or private sale of personal property
security held from Borrower or any other person, or otherwise
comply with the provisions of Section 9-504, of the Uniform
Commercial Code; or (c) pursue any other remedy in the Bank's
power. Debtor waives notice of acceptance of this Agreement and
presentment, demand, protest, notice of protest, dishonor, notice
of dishonor, notice of default, notice of intent to accelerate or
demand payment of any Indebtedness, any and all other notices to
which the undersigned might otherwise be entitled, and diligence
in collecting any Indebtedness, and agree(s) that the Bank may,
once or any number of times, modify the terms of any Indebtedness,
compromise, extend, increase, accelerate, renew or forbear to
enforce payment of any or all Indebtedness, or permit Borrower to
incur additional Indebtedness, all without notice to Debtor and
without affecting in any manner the unconditional obligation of
Debtor under this Agreement. Debtor unconditionally and
irrevocably waives each and every defense and setoff of any nature
which, under principles of guaranty or otherwise, would operate to
impair or diminish in any way the obligation of Debtor under this
Agreement, and acknowledges that such waiver is by this reference
incorporated into each security agreement, collateral assignment,
pledge and/or other document from Debtor now or later securing the
Indebtedness, and acknowledges that as of the date of this
Agreement no such defense or setoff exists.
5.7 Debtor waives any and all rights (whether by subrogation,
indemnity, reimbursement, or otherwise) to recover from Borrower
any amounts paid or the value of any Collateral given by Debtor
pursuant to this Agreement.
5.8 In the event that applicable law shall obligate Bank to give prior
notice to Debtor of any action to be taken under this Agreement,
Debtor agrees that a written notice given to Debtor at least five
days before the date of the act shall be reasonable notice of the
act and, specifically, reasonable notification of the time and
place of any public sale or of the time after which any private
sale, lease, or other dispassion it to be made, unless a shorter
notice period is reasonable under the circumstances. A notice
shall be deemed to be given under this Agreement when delivered to
Debtor or when placed in an envelope addressed to Debtor and
deposited, with Postage prepaid, in a post office or official
depository under the exclusive care and custody of the United
States Postal Service or delivered to an overnight courier. The
mailing shall be by overnight courier, certified, or first class
mail.
5.9 Notwithstanding any prior revocation, termination, surrender, or
discharge of this Agreement in whole or in part, the effectiveness
of this Agreement shall automatically continue or be reinstated in
the event that any payment received or credit given by Bank in
respect of the Indebtedness is returned, disgorged, or rescinded
under any applicable law, including, without limitation,
bankruptcy or insolvency laws, in which case this Agreement, shall
be enforceable against Debtor as if the returned, disgorged, or
rescinded payment or credit had not been received or given by
Bank, and whether or not Bank relied upon this payment or credit
or changed its position as a consequence of it. In the event of
continuation or reinstatement of this Agreement, Debtor agrees
upon demand by Bank to execute and deliver to Bank those documents
which Bank determines are appropriate to further evidence (in the
public records or otherwise) this continuation or reinstatement,
although the failure of Debtor to do so shall not affect in any
way the reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under this
Agreement shall inure to the benefit of Bank's successors and
assigns and to any other holder who derives from Bank title to or
an interest in the Indebtedness or any portion of it, and shall
bind Debtor and the heirs, legal representatives, successors, and
assigns of Debtor. Nothing in this Section 5.10 is deemed a
consent by Bank to any assignment by Debtor.
5.11 If there is are than one Debtor, all undertakings, warranties and
covenants made by Debtor and all rights, powers and authorities
given to or conferred upon Bank are made or given jointly and
severally.
5.12 Except as otherwise provided in this Agreement, all terms in this
Agreement have the meanings assigned to them in Division 9 (or,
absent definition in Division 9, in any other Division) of the
Uniform commercial Code, as of the date of this Agreement.
"Uniform Commercial Code" means the California Uniform Commercial
Code, as amended.
5.13 No single or partial exercise, or delay in the exercise, of any
right or power under this Agreement, shall preclude other or
further exercise of the rights and powers under this Agreement.
The unenforceability of any provision of this Agreement shall not
affect the enforceability of the reminder of this Agreement. This
Agreement constitutes the entire agreement of Debtor and Bank with
respect to the subject matter of this Agreement. No amendment or
modification of this Agreement shall be effective unless the same
shall be in writing and signed by Debtor and an authorized officer
of Bank. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of CALIFORNIA,
without regard to conflict of Lets principles.
5.14 To the extent that any of the Indebtedness is payable upon demand,
nothing contained in this Agreement shall modify the terms and
conditions of that Indebtedness nor shall anything contained in
this Agreement prevent Bank from making demand, without notice and
with or without reason, for immediate payment of any or all of
that Indebtedness at any time(s), whether or not an Event of
Default has occurred.
5.15 Debtor's chief executive office is Located and shall be maintained
at 2345 Harris Way
---------------
STREET ADDRESS
San Jose Ca 95131
--------------------------------------------------------------------.
CITY STATE ZIP CODE COUNTY
If Collateral is located at other than the chief executive office,
such Collateral is located all shall be maintained at
--------------------------------------------------------------------.
STREET ADDRESS
--------------------------------------------------------------------.
CITY STATE ZIP CODE COUNTY
<PAGE>
Collateral shall be maintained only at the Locations identified in
this Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement under the Uniform
Commercial Code and may be filed by Bank in any filing office.
5.17 This Agreement shall be terminated only by the filing of a
termination statement in accordance with the applicable provisions
of the Uniform Commercial Code, but the obligations contained in
Section 2.14 of this Agreement shall survive termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT
WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
AGREEMENT OR THE INDEBTEDNESS.
7. Special Provisions Applicable to this Agreement. (*None, if Left blank)
DEBTOR: Televideo Inc.
--------------------------------
DEBTOR NAME TYPED/PRINTED
By: /s/ K. PHILIP HWANG
------------------------------------
SIGNATURE OF
Its: CEO &. CHAIRMAN
-----------------------------------
TITLE (If applicable)
By:
------------------------------------
SIGNATURE OF
Its:
-----------------------------------
TITLE (If applicable)
By:
------------------------------------
SIGNATURE OF
Its:
-----------------------------------
TITLE (If applicable)
By:
------------------------------------
SIGNATURE OF
Its:
-----------------------------------
TITLE (If applicable)
Borrower(s):
TELEVIDEO, INC.
PEDESTAL - Dynamic Security Agreement
Revision Date (5/97) GHZ
<PAGE>
EXHIBIT 21.1
TELEVIDEO, INC.
SUBSIDIARIES
DOMESTIC
* Advanced MOS Technology Associates, Inc., a California corporation (20%)
* TeleVideo Venture Corporation, a Virginia corporation (Inactive)
* Trimeter Technologies Corporation, a Pennsylvania corporation (36.6%)
(Inactive)
FOREIGN
* TeleVideo Informatique Systems, S.A.R.L., a French corporation (Inactive)
* TeleVideo Systems Deutschland GmbH, a West German corporation (Inactive)
* TeleVideo Systems International, a Virgin Islands corporation (Inactive)
* TeleVideo Systems International B.V., a Netherlands corporation (Inactive)
* TeleVideo Systems International, Ltd., a United Kingdom corporation
(Inactive)
* Koram, Inc., A Korean company (50%)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We have issued our report dated December 10, 1999 accompanying the
consolidated financial statements included in the Annual Report of TeleVideo,
Inc. and Subsidiaries on Form 10-K for the year ended October 31, 1999. We
hereby consent to the incorporation by reference of said report in the
Registration Statement of TeleVideo, Inc. on Form S-8 (File No. 33-26203,
effective November 2, 1992).
/s/ Grant Thornton, LLP
San Jose, California
January 31, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 4,487
<SECURITIES> 0
<RECEIVABLES> 2,906
<ALLOWANCES> 1,383
<INVENTORY> 1,464
<CURRENT-ASSETS> 8,528
<PP&E> 8,046
<DEPRECIATION> 2,010
<TOTAL-ASSETS> 18,317
<CURRENT-LIABILITIES> 2,932
<BONDS> 0
0
0
<COMMON> 453
<OTHER-SE> 2,051
<TOTAL-LIABILITY-AND-EQUITY> 18,317
<SALES> 8,070
<TOTAL-REVENUES> 8,070
<CGS> 8,082
<TOTAL-COSTS> 12,640
<OTHER-EXPENSES> 7
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 444
<INCOME-PRETAX> (3,707)
<INCOME-TAX> (361)
<INCOME-CONTINUING> (3,707)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,707)
<EPS-BASIC> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
