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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended June 30, 1995
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED] for the transition period from to
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Commission file No. 0-12641
[LOGO OF PERSONAL COMPUTER PRODUCT, INC.]
PERSONAL COMPUTER PRODUCTS, INC.
(Name of small business issuer in its charter)
DELAWARE 33-0021693
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
10865 Rancho Bernardo Road
San Diego, California 92127
(619) 485-8411
(Address of principal executive offices and issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.005 par value
(Title of Class)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]
Registrant's total consolidated revenues for the fiscal year ended June 30, 1995
were $14,394,000.
At September 22, 1995, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $4,533,800, based on the
average bid and asked prices in the over-the-counter market as reported by
Nasdaq.
At September 22, 1995, there were 17,428,934 shares of common stock, $0.005 par
value, of the registrant issued and outstanding.
Information required by Part III of this Form 10-KSB is incorporated therein by
reference from the Company's definitive Proxy Statement with respect to its 1995
annual meeting of stockholders to be filed pursuant to Regulation 14A within 120
days after June 30, 1995.
Transitional Small Business Disclosure Format
Yes No X
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Part I
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Item 1.
Description of Business
Personal Computer Products, Inc. was incorporated in March, 1982 under the laws
of the State of California, and reincorporated in May, 1983 under the laws of
the State of Delaware. Laser Printer Accessories Corporation, a Delaware
corporation ("LPAC"), and Prima, Inc., a California corporation doing business
as Prima International ("Prima"), are all wholly-owned subsidiaries of Personal
Computer Products, Inc. (collectively "PCPI" or the "Company").
PCPI and its subsidiaries (1) develop and license laser printer technology; (2)
manufacture, market, and distribute laser printer controllers and accessories;
and (3) market and distribute internationally a variety of personal computer
accessory products. The following diagram illustrates the organization of the
Company.
PCPI
PCPI TECHNOLOGY DISTRIBUTION
--------------- ------------
Controller Printer Products
Development PC and Mac Products
Technology Transfer Imaging Products
R&D
Engineering Direct Sales
Tiered Distribution
Adobe PostScript International Trading
Imaging Technologies
Through its technology division ("PCPI Technology"), the Company designs,
develops, and markets firmware (software embedded in memory chips), circuit
boards, application-specific integrated circuits ("ASICs") and software for use
in personal computer imaging devices. The Company's technology and products are
used primarily in laser printers and multifunction devices (combined printer,
scanner, copier, and facsimile). The Company sells these controllers separately
to sellers of laser printers, and licenses its controller board technology to
other producers of laser printer engines and/or controllers. Recent PCPI
Technology customers have included: Xerox Corporation, Matsushita Electric
Company, Ltd. (Panasonic), Hypertec, Inc., Integrated Device Technology, Inc.,
Samsung Electronics Company, Ltd., Seiko Instruments and Minolta Company Ltd.
Through its distribution division (the "Distribution Division"), which is
composed of the Company's LPAC and Prima subsidiaries, the Company provides
enhancement and accessory products to the personal computer and printer markets
both in the U.S. and overseas. The Distribution Division markets and distributes
value-added personal computer accessory products, including memory products such
as floppy and hard disk drives from SyQuest(TradeMark) and Fujitsu(TradeMark),
tape drives, and CD-ROM drives; and PCMCIA products that include miniaturized
accessories such as memory devices and fax/modems for laptop and notebook
computers.
Industry Overview
Page printers, especially laser printers, have become an established means of
printing data generated by computers. The market for laser printers has grown
significantly over the past several years. In 1993, overall industry figures
revealed page printer (laser, LED, inkjet, etc.) sales accounting for 58 percent
of total worldwide printer sales - 14 million units. The worldwide installed
base of such devices is expected to grow to over 21 million units by 1997, 76
percent of all printers sold. PostScript-compatible printers accounted for
approximately 20% of the market in 1993. This share is expected to be 22% by
1995.
According to industry analysts including International Data Corporation,
InfoCorp, and BIS Strategic Decisions, the worldwide printer market in 1992
comprised approximately 21.4 million units with a projected compound annual
growth rate (CAGR) of 7.3% from 1993 through 1996. Generally, demand is
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driven by first-time general business purchases outside the U.S. market, as well
as replacement and first-time small business purchases in the domestic U.S.
market. The worldwide printer market is dominated by the U.S., which is expected
to continue through 1997. The U.S. is expected, however, to account for less
market share over time due to market maturation.
Inkjet printers were introduced in the late 1970's. In the last two years,
inkjet has become the fastest growing technology, setting new growth records due
to its relatively low cost and good quality reproduction in both monochrome and
color. Speed is the greatest concern at this time. Most inkjet printers produce
output at 3 pages per minute. If speed is to be increased, ink drying times will
have to improve. Higher end inkjet models, particularly color models, typically
incorporate Adobe PostScript functionality.
Laser printers continue to be the dominant technology in use for page printing
and high-end imaging. PostScript functionality makes up approximately 20% of
this market. Laser technology is the only printer technology that is primarily
sourced from Japan. Many impact and inkjet printers are manufactured in France,
Singapore, Korea, and Taiwan, among others. Currently, over 75% of all laser
printer engines are derived from Japan.
At present, the leading printer manufacturer worldwide is Hewlett Packard, with
leadership positions in both laser and inkjet technologies. Hewlett Packard is
followed by Japanese manufacturers Epson, Panasonic, and Star. Other than
Hewlett Packard, Apple, and Lexmark, Japanese printer companies occupy the other
six positions in the top nine.
[GRAPH APPEARS HERE]
Features that tend to differentiate printers, particularly in the high volume/
high growth page printer technologies such as inkjet and laser, include the
presence of the PostScript page description language, high resolution
capability, network-ready connectivity, and output at rated engine speed.
Color capability is an important issue in desktop printing. Of the 750,000
inkjet units forecast to sell in the U.S. for 1993, over 650,000 were color-
capable. For color capability on other technologies such as laser, dye
sublimation, and thermal transfer, PostScript Level 2 (the latest iteration of
the PostScript page description language) capability is important for graphics
compatibility and high quality reproduction.
An additional component to the market has been recently introduced:
multifunctionality. There is new emphasis on the development of desktop printing
solutions that provide the end-user printer/copier/facsimile functionality in
the same device. As many as 40 vendors are already involved in the development
and marketing of over 150 such devices, with many more on the horizon.
Color copiers have been on the market for about 20 years. They have evolved from
stand-alone, walk-up machines in central reproduction departments to ultra-
sophisticated, multiple-function products. U.S. sales of color copiers have
concentrated on pay-for-print centers, copy outlets and professional users of
color machines. Installations in the United States totaled more than 31,360
color electrophotographic copiers, including analog and digital machines, with
Canon commanding approximately 55% of the installed base. Xerox follows with
slightly more than 11%. The U.S. color copier market reached a volume of $185
million in 1993 and is projected to be over $1.2 billion by 1998.
Color laser printers began entering the U.S. marketing during 1994. It is
anticipated that many models of desktop color laser printers will offer many of
the document-finishing features of color copiers, such as document sorting,
collating, and stapling. Multiple input trays will accommodate network users and
enhance printer versatility. It is additionally anticipated that such devices
will offer scanning and facsimile functions in addition to printing as a way to
overcome price sensitivity.
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In order to be successful in the future, copier and printer vendors will have to
adopt new product strategies to differentiate themselves and to provide more
features to offset the growth of the color laser printer market. The key element
of this strategy is multifunctionality so that high-quality, high-performance
machines can be used by computer networks in the office.
Business Strategy
PCPI Technology's strategy is focused on the continued development and
implementation of laser printer technology. The Company's development resources
are directed toward the development of Adobe PostScript controllers and Adobe
CPSI software implementations of PostScript. This technology will be directed
toward the development of controllers that support multifunction devices
(combining printer, facsimile/modem, copier, scanner) on the low-end
("LaserImage/TM/"); and development of controllers that support high-
functionality color digital copier/printers on the high-end (ColorImage/TM/).
The Company's mission has been the development of intelligent board-level
devices that would add value to personal computers and peripheral devices.
Since 1983, the Company has been an active licenser and/or OEM provider of its
LaserImage(R) printer controller technology to a number of companies throughout
the world. These include or have included: AEG Olympia (Germany), Elebra
(Brazil), Fujitsu (Japan), Goldstar (Korea), HyperTek (Korea), Matsushita
Electric Company -Panasonic (Japan), Mita (Japan), Ricoh (Japan), Samsung
Electronics Company (Korea), Tandy Corporation (United States), Tokyo Electric
Company (Japan), Xerox (United States), and others. In order to accommodate the
manufacturing requirements of its licensees, the Company also has preferred
relationships for off-shore manufacturing. Such relationships allow PCPI to
provide manufacturing capabilities without the need to invest and build an
extensive manufacturing infrastructure. The Company's facilities easily
accommodate the needs for integration and testing.
The Company had extensive technical relationships that enable it to offer the
latest technology to its customers. These have included arrangements for joint
development of ASIC semiconductor components for laser printer controllers with
Motorola and DP-Tek; authorized developer relationships with Adobe and Hewlett
Packard; and font licensing with Agfa Compugraphic and The Company (URW).
In November 1993, PCPI consummated its arrangement with Adobe Systems
Incorporated as an authorized co-developer for the implementation of the
PostScript page description language on printers. Adobe, in the past year, has
invested approximately $99 million in research and development related to its
products, such as PostScript. Adobe in order to accommodate the needs of printer
companies who wish to incorporate the PostScript language into their products,
has appointed a few third-parties to provide some of the custom engineering
resources required to integrate PostScript on printer controllers. The
PostScript integration process on printer controllers is complex, requiring
considerable expertise in hardware design and firmware development and
implementation. Adobe and PCPI have agreed that PCPI is uniquely suited to serve
the needs of printer companies who desire to include PostScript on these
products. PCPI serves a critical function in providing the latest technology and
rapid time-to-market to those companies who wish to remain competitive in the
printer market by offering features that meet the standards of the computer
industry.
PCPI Technology
The principal business of PCPI Technology has been the development, licensing,
and marketing of imaging technology and products; principally desktop printing
and publishing.
PCPI Technology's strategy has been to attempt to adjust to the evolving
personal computer market by developing and/or implementing technology that will
enable it and its licensees to compete with, or supplement, the products of the
industry's dominant manufacturers.
PCPI sells and licenses, usually on a non-exclusive basis, its printer
controller technology and its proprietary software. Its typical customers are
manufacturers of laser printers and controllers. In the majority of cases, PCPI
transfers existing technology, or modifies that technology to meet the
specifications of the customer. Typically, the licensing fees derived from these
activities are based on the number of units sold by the licensee that
incorporate the licensed technology. In addition, PCPI receives, in most cases,
initial engineering fees for adapting its technology to the requirements of the
particular purchaser or licensee, and mini-mum license fees to keep the license
in effect.
The widespread availability of laser printers spawned a new class of
applications software for desktop publishing. Using this soft-ware, a user can
create, on a personal computer, a finished, high-quality,
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printed document that incorporates a variety of type sizes, styles, and fonts
previously available only through a commercial printer.
As printers become more capable and sophisticated, it has become more difficult
for users to know exactly what combination of features is best or most
appropriate. At the most basic level, however, users want a printer that creates
great looking documents; and they want one that works with their computer
system, regardless of the software on that system. Only one kind of printer
meets all the criteria of the end-user -- a printer that comes with genuine
Adobe PostScript software. Unlike printers using other software (including
PostScript clones), printers that use genuine Adobe PostScript place no limits
on how the user's information may be displayed; nor what kind of document can be
created or printed. This means that whether users are employing DOS, Windows,
OS/2/TM/, UNIX(R), Macintosh, a mini or mainframe computer system, or any
combination of these platforms, they can output work on any printer that has
Adobe PostScript. PostScript is the most dependable way to print for business
users. And, PostScript files can also be sent over networks, including those
from Novell, 3Com, and others.
The Company's Adobe PostScript Interpreter ("APSI") project, which includes its
Millennium Series controllers) includes the implementation of Adobe PostScript
for OEM customers. These controllers are based on IDT RISC (reduced instruction
set circuit) processors or the AMD-29200 processor. Associated ASIC chips are to
be implemented as dictated by functionality. The features and functions of APSI
are defined as follows:
. Adobe platform
. Adobe PostScript Level 2
. PCL5 (LaserJet4) emulation
. Parallel and Appletalk/TM/ (Macintosh) communications
Additional features/functions to be implemented, depending on customer demand,
include GDI (Microsoft Windows) support, doubleRES (resolution increase), PCPI
PhotoImage/TM/ (resolution/grayscale enhancement), serial I/O
(communications), multifunctionality (fax, scanning, etc.) and Novell (network)
connectivity.
Customer targets are OEMs who wish to market PostScript printers to resellers
and end-users. The OEM must also be an Adobe licensee in order to be authorized
to purchase APSI technology.
To enhance its ability to market its technology, PCPI has entered into a sales
agreement with Nippo, Ltd. of Japan for the promotion of licensing of the
Company's Adobe PostScript controllers. Nippo has also made an equity investment
in PCPI in the amount of approximately $1.7 million. Japanese laser printer
developers represent the dominant customer base for the Company's technology.
Nippo is currently a supplier of copier and laser printer engine mechanical
parts to the Japanese copier and laser printer industry.
Integrated Device Technology, Inc. represents PCPI's first design partnership to
incorporate Adobe PostScript in a new generation of printer controllers. IDT
offers state-of-the-art, high-performance RISC (reduced instruction set
computing) chips that maximize the performance of controllers that incorporate
PostScript functionality. This is particularly significant in markets that
require the best possible printer performance, such as color printing,
electronic pre-press graphics applications, etc. IDT's worldwide sales force
will supplement PCPI's sales effort by representing the PCPI/IDT/PostScript
solution to its customer and prospect base. IDT, with over 2,600 employees
worldwide, has annual revenues that exceed $300 million.
In July 1994, PCPI signed a controller development agreement with Matsushita
Electric Company, Ltd. of Japan for a new Panasonic brand multifunction device
that will feature printing, scanning, facsimile, and copier functionality. The
new controller will be based upon PCPI's LaserImage technology.
PCPI's LaserImage Series of controllers are available in a variety of different
configurations. They typically provide, either as part of the controller, or
through add-on boards or plug-in cartridges, industry-standard printer
emulations, such as PCL from Hewlett Packard. The controller boards have been
designed to minimize the use of microchip and memory components, thereby
enabling production of each controller at a cost lower than would otherwise be
the case. Its relationship with Motorola, Inc., for example, resulted in the
development of a family of specialty circuits (ASICs) that are designed
specifically for laser printer controllers. Through its license of DP-Tek's
patented TrueImage/TM/ technology, PCPI is able to provide doubleRES (the unique
ability to quadruple the amount of dots per square inch that a laser printer
engine can place on paper. In this way, a 300 dpi laser printer may be
transformed into a 600 dpi printer, which would otherwise require an
alternative, more expensive
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engine.) As part of this technology, the Company provides Microsoft Windows/TM/
compatibility to laser printers.
PCPI's ColorImage series of controllers also feature the integration of
Adobe/TM/ PostScript. The support of high-performance desktop printing requires
considerable processing power. PCPI's ColorImage models employ IDT MIPS RISC
processors along with supporting ASICs. The result is a controller that fully
supports the latest features and functions of Adobe PostScript. ColorImage is a
stand-alone controller, located at the workstation, to support high-
performance/functionality color printers. The result is a product that
significantly out-performs other controllers.
The ColorImage system includes a robust color management system that has been
designed to provide complete control over the color calibration of any input or
output device including scanners, monitors, digital cameras, photo CD, printers,
film recorders, proofing devices, etc. ColorImage software is, in effect, a
color engine that makes every input device see a target profile that matches the
objectives of the user. The quality and consistence of documents created using
the ColorImage system is assured through a comprehensive, user-controlled
calibration process.
PCPI projects considerable growth in technology sales, largely on the strength
of its relationship with Adobe.
Distribution
In October 1993, PCPI acquired Prima International, a world-wide distributor of
high technology products. Prima provides manufacturers with international
distribution and marketing capabilities, as well as offering U.S. purchasing
facilities for international buyers. Prima functions in three basic areas:
product distribution and representation, buying office/commodity sales, and
international management.
PCPI organized its LPAC distribution subsidiary in 1989 to take advantage of the
growing market for laser printer accessories such as its ImageFont/TM/,
ImageScript/TM/, LaserImage/TM/ and doubleRES/TM/ lines of cartridges,
emulations, and other products that add functionality and value to the basic
laser printer. The products previously marketed through LPAC could be marketed
through Prima.
Prima has been active in the international market for over 12 years, and
understands the multi-cultural, multilingual requirements of this business. It
has developed a network of highly qualified resellers located in every country
of significance. In addition, its headquarters location, in the heart of Silicon
Valley, California, provides access to the premier suppliers of disk and tape
drives, controllers, scanners, terminals, network boards, modems, fax cards, and
graphics products, as well as relationships with manufacturers developing new
technologies.
Prima offers international market penetration for U.S. high-technology
manufacturers through use of their extensive sales channels including sub-
distributors and resellers; and also representing products to the OEM and end-
user communities. Prima tailors international sales and distribution programs
suited to specific product needs. For many international buyers, locating a
trustworthy, reliable source to purchase U.S. products on an "as needed" basis
is essential to their ability to build systems and maintain a complete product
offering to their customers. Prima offers these customers in-depth knowledge of
the high technology market, proximity to the major producers of high technology
products, and industry associations which date back to the 1960's. Through close
relationships with many manufacturers, U.S. distributors, and representatives,
Prima provides immediate access to hardware, software, firmware, media,
accessories, and components for its international clients. Prima offers its
international clients a vast network of Prima associates which results in
increased marketing opportunities and options -- and decreased "time-to-market."
Prima's domestic (U.S.) business focuses on direct sales to end-users via its
Peripherals Direct operating unit, formed in early 1994. The purpose of this
operating unit is to add incremental sales of the company's products at margins
higher than would be possible through multi-tier distribution. Prima serves as a
corporate-wide focal point for sales of products to resellers (dealers and
distributors) worldwide as well as a conduit for products to end-users at
competitive price points on high-demand computer peripheral products such as
disk drives.
Prima exports and imports a variety of high technology products with an emphasis
on peripherals and accessories compatible with IBM, Apple Macintosh, the leading
brands of small business computers, and UNIX and Novell. The focus on these
markets has afforded Prima the ability to develop the technical expertise needed
to fully support suppliers and customers.
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Principal product lines include: (1) PDQ memory devices (principally removable
SyQuest-brand disk drives) for PCs and Macintosh computers and (2) PCMCIA
products, which represent new technology in media and value-added computer
accessories for notebook and palmtop devices.
Five well-defined domestic (U.S.) markets are represented: these include among
others (1) the installed user base of PC-compatible storage; (2) the installed
user base of Macintosh-compatible storage; and (3) users of notebook and palmtop
computers that are compatible with the PCMCIA standard.
Production and Sources of Supply
PCPI presently contracts for the manufacture of its products with a number of
suppliers located in the San Diego and San Jose, California areas. The suppliers
assemble products, utilizing components purchased by the Company from other
sources. The terms of supply contracts are negotiated separately in each
instance. The Company is satisfied that its present assembly contractors have
sufficient capacity to meet projected market demand for the Company's products,
or that alternate sources are available without undue disruption. PCPI has not
experienced any significant difficulty over the past several years in engaging
contractors, or in purchasing components.
PCPI contract suppliers generally perform a multi-step quality control test
prior to shipping their products to the Company. PCPI, in turn, performs
additional tests on the products, adds appropriate software, and then packages
and ships the products to customers. In addition to buying such items as printed
circuit boards and other components from outside suppliers, the Company
purchases software programs, in the form of floppy disks, from vendors who have
licenses to sell such software to the Company from the originators of such
software, and has, from time to time, directly licensed system software used in
certain PCPI products.
Marketing
Marketing and sales activities are conducted by approximately 8 Company
employees. Each of the divisions and subsidiaries utilizes dedicated sales
personnel.
Research and Development
Despite the fact that there can be no assurance that PCPI can successfully
produce new products, nor that such products will be profitable, the Company
will be required to continue to spend substantial sums on research and
development in the foreseeable future in order to enhance existing products, and
to develop new products. New technology developed, or products introduced, by
other entities, including major computer companies, could adversely affect the
marketability of the Company's products. Consequently, the Company is compelled
to continue development of new technologies, and implementation of new
technologies, in order to remain competitive.
Competition
The markets for computer hardware and software have been characterized by rapid
and continuing technological change, and by intense competition. The Company
provides differentiation in the laser printer controller/accessories marketplace
through the capability of its controllers, the quality and extent of
accompanying printer emulation software, and the ability of these controllers to
provide added-value through image enhancement technologies such as increased
resolution and image enhancement. Printer and computer accessories are often
commodities that do not provide significant differentiation. The Company,
through its Prima subsidiary, strives to differentiate itself by providing
superior customer service, timely delivery of product to its customers, and
competitive pricing.
Proprietary Protection
PCPI's software is copyrighted; however, such protection as the copyright laws
provide does not prevent other companies from emulating the effects achieved by
such software. PCPI owns no patents, but has obtained registration of several of
its trade-names or trademarks, including: PCPI, LaserImage, ImageScript, and
ImageFont.
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Employees
The Company, including its Prima, and LPAC subsidiaries, employed a total of 41
persons (all full-time) at June 30, 1995, of whom 8 were in corporate
administration and finance, 16 in engineering and research and development, 4 in
production, and 13 in sales and marketing.
Other
The costs and effects of compliance with Federal, state, and local environmental
laws and other existing or probable governmental regulations are not, and are
not expected to be, material. In certain cases, government (Federal
Communications Commission) approval is required with respect to PCPI's
controller products.
Item 2.
Description of Property
The Company, and its LPAC subsidiary, occupy approximately 23,000 square feet of
space in a facility located at 10865 Rancho Bernardo Road, San Diego, California
92127, at a monthly rental rate of $11,500. The lease expires on August 31,
1996. The Company owns no real property.
Prima International occupies 5,000 square feet of space in a facility located at
3350 Scott Boulevard, Building No. 7, Santa Clara, California 95054, on a month-
to-month basis at a monthly rental rate of $4,745.
Item 3.
Legal Proceedings
The Company, because of the nature of its business, is from time to time
involved in legal actions. The Company, after discussion with legal counsel,
does not consider that any of these legal actions now pending will result in a
material adverse effect on the consolidated financial position or results of
operations of the Company and, further, does not consider that any such
proceedings fall outside ordinary, routine litigation incidental to the business
of the Company.
Item 4.
Submission of Matters To a Vote of Security Holders
Not applicable.
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Part II
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Item 5.
Market for Common Equity and Related Stockholder Matters
The Company's common stock is traded in the over-the-counter market, and quoted
on Nasdaq (symbol: PCPI).
The following table sets forth the high and low bid quotations of the Company's
common stock for the periods indicated as reported by Nasdaq. Prices shown in
the table represent inter-dealer quotations, without adjustment for retail
markup, markdown, or commission, and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
High Low
------------------------------------------------
<S> <C> <C>
Year ended June 30, 1994
First quarter $ 1.31 $ .72
Second quarter 1.28 .69
Third quarter 1.31 .56
Fourth quarter 1.13 .56
Year ending June 30, 1995
First quarter $ .88 $ .50
Second quarter .78 .41
Third quarter .59 .25
Fourth quarter .56 .19
------------------------------------------------
</TABLE>
The listing requirements under The Nasdaq SmallCap Market are that a company
maintain at least $1,000,000 of public market float, maintain at least
$1,000,000 of capital and surplus and maintain a bid price of $1.00 for 10
consecutive trading days within a ninety day period for the publicly traded
shares. If a company maintains at least $2,000,000 of capital and surplus, there
is no minimum bid price requirement.
The Company was notified that it was not in compliance with the above minimum
bid requirements based on its then capital and surplus. The Company presented a
plan to Nasdaq to achieve compliance with said requirements and has been granted
an exception from these listing requirements until September 30, 1995. Should
the Company be unsuccessful in satisfying the above requirements, its common
stock could become subject to delisting from The Nasdaq SmallCap Market. If the
Company's common stock is delisted, it would be quoted only on the NASD OTC
Bulletin Board and the Company could reapply for listing once the Nasdaq listing
requirements are satisfied.
The number of stockholders of record of common stock, $.005 par value, of the
Company was 313 at June 30, 1995.
PCPI has never declared, or paid, any cash dividends on the PCPI Common Stock.
PCPI currently intends to retain earnings, if any, after any payment of
dividends on its 5% Convertible Preferred Stock and 5% Series B Convertible
Preferred Stock, for use in its business, and, therefore, does not anticipate
paying any cash dividends on the PCPI Common Stock.
Holders of the 5% Convertible Preferred Stock are entitled to receive, when and
as declared by the Board of Directors, but only out of amounts legally available
for the payment thereof, cumulative cash dividends at the annual rate of $50.00
per share, payable semi-annually, and commencing on October 15, 1986. PCPI has
never declared, or paid, any cash dividends on the PCPI 5% Convertible Preferred
Stock. Dividends in arrears at June 30, 1995 were $1,673,000.
Holders of the 5% Series B Convertible Preferred Stock are entitled to receive,
when and as declared by the Board of Directors, but only out of amounts legally
available for the payment thereof, cumulative cash dividends at the annual rate
of $500 per share, payable annually.
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Item 6.
Management's Discussion and Analysis or Plan of Operations
Results of Operations
Overview
The Company had a net loss from continuing operations of $2,510,000 for fiscal
1995 compared to a net loss of $3,588,000 for fiscal 1994. Total revenues from
continuing operations were $14,394,000 for fiscal 1995 versus $10,832,000 for
fiscal 1994.
The Company's recent focus of its business efforts on the development of
Adobe/TM/ PostScript/TM/-based controllers and other controllers featuring
PCPI's ImageBase/TM/ software platform, has resulted in the recognition during
fiscal 1995, of approximately $1,097,000 in revenues associated with contracts
to adapt the Company's software products to controllers that will be integrated
with the hardware products of various OEM customers, including Integrated Device
Technology, Inc. (IDT), Matsushita Electric Company, Ltd. (Panasonic), Samsung
Electronics Company, Seiko Instruments and Minolta Company, Ltd. PCPI's strategy
has required the Company to alter its focus away from some of its traditional
revenue sources and to make expenditures in support of these efforts. As a
result, the Company's business continues to be in a significant transition and
there are important short-term operational and liquidity challenges.
Accordingly, year-to-year financial comparisons may be of limited use due to
these important changes in the Company's business and also due to the Company's
strategic acquisition of Prima in October 1993.
As described in Note 2 to the financial statements, effective March 24, 1995,
the Company sold 81% of the common stock of ImageSoft Incorporated. The
operations of ImageSoft were not significant. The Company had inadequate working
capital to invest additional funds in ImageSoft and has not provided any
significant funding to ImageSoft operations for the past few years. The disposal
of ImageSoft resulted in a gain of $227,000 as the result of ImageSoft's excess
liabilities over assets on that date.
As described in Note 5 to the financial statements, in January 1995, the Company
converted certain outstanding notes payable into 1,117,197 unregistered shares
of the Company's common stock. The Company recognized an extraordinary gain on
the issuance of these shares of approximately $209,000 representing the
difference in the aggregate conversion price and the market value of the shares.
Fiscal 1995 includes non-recurring non-cash gains of $227,000 on the sale of
ImageSoft, $234,000 on the settlement of license agreements and an extraordinary
gain on the conversion of notes payable into common stock of $209,000 and a non-
cash accounting loss of $204,000 on the conversion of the 5% Notes into common
stock.
Revenues
Sales of products from continuing operations were $13,043,000 for fiscal 1995
versus $10,526,000 for fiscal 1994. Sales of products by the Company's Prima
subsidiary were $12,487,000 for the year ended June 30, 1995. Prima sales were
$9,482,000 for the year ended June 30, 1994, which only included sales from the
date of acquisition in October 1993. Prima's business consists of product
distribution and integration, including sales of its PDQ(TM) line of memory
devices featuring SyQuest(TM) removable cartridge technology.
A shortage of working capital during fiscal 1995 imposed limitations on the
Company's operations, including Prima's business.
The Company's sales of products from continuing operations, other than Prima
sales, for the year ended June 30, 1995 were $556,000 compared to $1,044,000 for
the year ended June 30, 1994, both of which are far lower than the Company's
historic product sales.
During the year ended June 30, 1995, PCPI sold, to a single customer, $231,000
of laser printer engines.
Sales of printer products marketed through the Company's Laser Printer
Accessories Corporation ("LPAC") subsidiary, were $243,000 during fiscal 1995
and were $286,000 during fiscal 1994.
During fiscal 1995, the Company performed work on engineering projects that were
funded by OEM customers under non-recurring engineering contracts (NRE). NRE
revenue for the year ended June 30, 1995 was $1,097,000, which was recognized
during the course of development based on the percentage of completion method.
10
<PAGE>
Licensing and royalties for the year ended June 30, 1995 were $254,000 versus
$306,000 for the year ended June 30, 1994. In the past, licensing and royalty
revenue has shown significant year-to-year fluctuation. PCPI has submitted
several proposals to prospective customers in order to develop Adobe PostScript-
based controllers and other controllers based upon its ImageBase technology.
While the Company has entered into some contracts with OEM customers for
controller development, there can be no assurance that additional contracts will
be obtained for the development of such controllers, or that the existing
contracts will be completed, or that products will then be shipped by the
customer in order to generate future royalty and license revenues.
Cost of Products Sold
Cost of products sold from continuing operations for the year ended June 30,
1995 and 1994 was $11,883,000 and $10,128,000, respectively, representing a
gross margin of 8.9% and 3.8%, respectively. The increased margin is attributed
to a change in the product mix at Prima between the periods and reduced
amortization of prepaid license and royalties. In addition, the product sales
during the year ended June 30, 1995 resulted in lower royalty charges compared
to the previous year's product sales.
Selling, General and Administrative
Selling, general and administrative expenses from continuing operations for
fiscal 1995 were $3,149,000 versus $3,324,000 for fiscal 1994. The decrease is
due to (1) reductions in selling expenses due primarily to the Company's working
capital shortage, (2) the permanent reduction in the Company's rent on its San
Diego facilities (from approximately $27,000 to $11,500 per month) during the
second quarter of fiscal 1995, (3) reductions in force due to attrition and (4)
general reductions in overhead expenses. These were partially offset by (1)
increases in sales commissions as the result in increased product and technology
sales during the year (2) the absence of Prima expenses in the first quarter of
fiscal 1994 (the Company acquired Prima in the second quarter of fiscal 1994),
and 3) the effect of temporary reductions of wages and salaries for the first
quarter of fiscal 1994.
Research and Development
Research and development expenditures from continuing operations for fiscal 1995
were $1,283,000 versus $546,000 for fiscal 1994. These expenditures consist of
engineering expenses associated with the development of controller technologies
and designs for PCPI technology customers. During fiscal 1995 the Company did
not capitalize any costs pursuant to Statement of Financial Accounting Standard
No. 86 ("Accounting for Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed") as the Company did not have any qualifying expenditures.
The Company capitalized $674,000 of such costs in fiscal 1994. The Company's
current development projects have been funded by OEM customers under development
contracts.
Other Income and Loss
Interest expense from continuing operations was $114,000 for fiscal 1995 versus
$103,000 for fiscal 1994. Interest expenses were due to outstanding debt
balances.
The year ended June 30, 1995 includes non-recurring non-cash gains of $234,000
on the settlement of license agreements and $227,000 on the disposal of
ImageSoft (discontinued operations) and a non-cash accounting loss in accordance
with Statement of Financial Accounting Standards No. 84 ("Induced Conversions of
Convertible Debt") of $204,000 on the conversion of the 5% Notes into common
stock. The Company also recognized an extraordinary non-cash gain of $209,000 on
the conversion of notes payable into common stock representing the difference in
the aggregate conversion price of the shares issued and their market value at
the date of conversion.
The year ended June 30, 1994 includes non-recurring gains of $11,000 as the
result of the sale of investment securities.
Discontinued Operations
Effective March 24, 1995, the Company sold 81% of its ImageSoft subsidiary.
The Company's discontinued ImageSoft subsidiary (software distribution and
publishing) had sales for the year ended June 30, 1995 of approximately $93,000
compared to sales of $261,000 for the year ended June 30, 1994.
11
<PAGE>
Total ImageSoft operating expenses for the year ended June 30, 1995 and 1994
were $164,000 and $657,000, respectively.
Liquidity and Capital Resources
During fiscal 1995, the Company experienced operating difficulties due to its
lack of working capital. The shift in focus toward Adobe co-development projects
presents continuing liquidity problems because, in the short-term, these
activities are net users of working capital. The Company believes its current
working capital and anticipated operating cash flows may not be sufficient to
meet its financial resource requirements. Adequate working capital is necessary
to continue the Company's operations, develop its technology licensing business
and to deliver the resulting products to contract customers in an efficient and
timely manner. Shareholders should note the Company's weak cash position and
negative working capital, and the possibility of continuing operating losses. In
addition, the Company's auditors have stated, in their audit report, that
certain factors raise substantial doubt about the Company's ability to continue
as a going concern.
During the year ended June 30, 1995 PCPI's liquidity improved slightly, despite
operating losses during the year, as the result of converting approximately
$2,535,000 of liabilities into common and preferred stock of the Company.
Despite the conversion, at June 30, 1995 the Company had a negative balance of
working capital of $649,000, an improvement from the negative working capital of
$1,155,000 as of June 30, 1994.
The Company is currently seeking additional financing in order to meet its
short-term and long-term liquidity requirements. However, there can be no
assurance that such financing will be available. In addition, the Company will
continue to pursue opportunities to convert existing liabilities of the Company
into equity in order to improve its working capital position.
As of June 30, 1995, Prima's unused special purpose line of credit was $214,000.
PCPI has no material commitments for capital expenditures.
12
<PAGE>
Item 7.
Financial Statements
PAGE
----
Report of independent accountants............................................ 14
Consolidated balance sheet as of June 30, 1995............................... 15
Consolidated statement of operations for the year ended
June 30, 1995 and 1994............................................. 16
Consolidated statement of cash flows for the year ended
June 30, 1995 and 1994............................................. 17
Consolidated statement of shareholders' equity for the year ended
June 30, 1995 and 1994............................................. 18
Notes to consolidated financial statements................................... 19
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Personal Computer Products, Inc.
We have audited the consolidated balance sheet of Personal Computer Products,
Inc. and its subsidiaries as of June 30, 1995 and the related consolidated
statements of operations, cash flows, and shareholders' equity for the year then
ended. 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 audit. The consolidated statements of operations, cash
flows, and shareholders' equity for the year then ended June 30, 1994, were
audited by other auditors whose report dated October 24, 1994, expressed an
unqualified opinion on those financial statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Personal Computer Products, Inc. and its subsidiaries as of June 30, 1995, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As indicated in the accompanying
financial statements and as described in Note 1, the Company has suffered
recurring losses from continuing operations, has negative working capital of
$649,000, has a net investment in new software products of $1,719,000, and
remaining shareholders' equity of $1,216,000. These factors raise substantial
doubt about the Company's ability to continue as a going concern and recover its
investment in new software products. Management's plans to raise additional
financing and execute a growth strategy to capitalize on the Company's
investment in new software products are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
BOROS & FARRINGTON APC
San Diego, California
September 25, 1995
14
<PAGE>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1995
- -------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Current assets:
Cash $ 322,000
Accounts receivable, net 1,250,000
Inventories 521,000
Other current assets 268,000
-----------
Total current assets 2,361,000
Capitalized software, net 1,193,000
Prepaid licenses and royalties, net 526,000
Property and equipment, net 146,000
-----------
$ 4,226,000
-----------
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 1,719,000
Accrued expenses 269,000
Deferred revenues 21,000
Notes payable 1,001,000
-----------
Total current liabilities 3,010,000
-----------
Commitments - Note 12
Shareholders' equity:
5% convertible preferred stock
$1,000 par value, 7,500 shares authorized,
2,318 issued and outstanding 2,318,000
5% Series B convertible preferred stock
$1,000 par value, 117 shares authorized,
116.2 issued and outstanding 1,162,000
Preferred stock
$1,000 par value, 2,383 authorized,
no shares issued and outstanding
Common stock
$.005 par value, 50,000,000 shares
authorized, 17,428,934 shares issued
and outstanding 87,000
Paid-in capital 18,019,000
Accumulated deficit (20,370,000)
-----------
Total shareholders' equity 1,216,000
-----------
$ 4,226,000
-----------
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
For the year ended June 30,
1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Sales of products $ 13,043,000 $ 10,526,000
Engineering fees 1,097,000
License fees and royalties 254,000 306,000
------------- --------------
14,394,000 10,832,000
------------- --------------
Costs and expenses:
Cost of products sold 11,883,000 10,128,000
Selling, general and administrative 3,149,000 3,324,000
Amortization of capitalized software
development costs 499,000 322,000
Research and development 1,283,000 546,000
------------- --------------
16,814,000 14,320,000
------------- --------------
Loss from operations (2,420,000) (3,488,000)
------------- --------------
Other income (expense):
Interest, net (109,000) (96,000)
Settlement of license agreements 234,000
Loss on conversion of convertible debt (204,000)
Other (3,000) 14,000
------------- --------------
(82,000) (82,000)
------------- --------------
Net loss from continuing operations before
provision for income taxes (2,502,000) (3,570,000)
Provision for taxes 8,000 18,000
------------- --------------
Net loss from continuing operations (2,510,000) (3,588,000)
Discontinued operations:
Loss from operations of
discontinued subsidiary (71,000) (396,000)
Gain on disposal of subsidiary 227,000
------------- --------------
Net loss before extraordinary item (2,354,000) (3,984,000)
Extraordinary gain on the conversion of
notes payable into common stock 209,000
------------- --------------
Net loss $ (2,145,000) $ (3,984,000)
------------- --------------
Primary loss per common share from
continuing operations $ (0.18) $ (0.31)
------------- --------------
Primary loss per common share
before extraordinary item $ (0.17) $ (0.34)
------------- --------------
Primary loss per common share $ (0.15) $ (0.34)
------------- --------------
Weighted average common shares outstanding $ 14,799,800 $ 12,027,000
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
For the year ended June 30,
1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,145,000) $ (3,984,000)
------------ ------------
Adjustments to reconcile net loss to cash
used by operating activities:
Depreciation and amortization of equipment 121,000 140,000
Amortization of software development costs 499,000 322,000
Amortization of prepaid licenses and royalties 219,000 274,000
Gain on disposal of subsidiary (227,000)
Loss on conversion of convertible debt 204,000
Extraordinary gain on conversion of notes
payable into common stock (209,000)
Changes in assets and liabilities:
Accounts receivable 133,000 1,035,000
Inventories 691,000 266,000
Other current assets (1,000) 235,000
Accounts payable and accrued expenses 211,000 722,000
Deferred revenues (154,000) 175,000
------------ ------------
Net cash used by operating activities (658,000) (815,000)
------------ ------------
Cash flows from investing activities:
Capitalized software development costs (674,000)
Prepaid licenses and royalties (68,000) (420,000)
Capital expenditures (67,000) (19,000)
------------ ------------
Net cash used by investing activities (135,000) (1,113,000)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 761,000 700,000
Repayment of notes payable (407,000) (760,000)
Proceeds from line of credit 329,000
Repayment of line of credit (43,000)
Principal payments under capital
lease obligations (50,000) (39,000)
Net proceeds from exercise of employee
options and warrants 275,000 72,000
Net proceeds from sale of common stock 88,000 1,846,000
Proceeds from shareholder loans 9,000 170,000
Net proceeds from sale of warrants 50,000
------------ ------------
Net cash provided by financing activities 962,000 2,039,000
------------ ------------
Net increase in cash 169,000 111,000
Cash at the beginning of the period 153,000 42,000
------------ ------------
Cash at the end of the period $ 322,000 $ 153,000
============ ============
Non-cash financing activities:
Conversion of notes payable to
common stock $ 1,186,000
------------
Conversion of accounts payable to
preferred stock $ 1,162,000
------------
Common stock options exercised with
accounts payable $ 479,000
------------
Conversion of preferred to common stock $ 93,000 $ 200,000
------------ ------------
Conversion of accrued interest to
common stock $ 38,000
------------
Conversion of accrued interest to
principal on notes payable $ 54,000
------------
Fixed assets acquired under capital leases $ 7,000 $ 25,000
------------ ------------
Prima International assets acquired
through debt assumption $ 1,279,000
------------
Conversion of accounts payable to
common stock $ 487,000
------------
Conversion of accounts payable
to notes payable $ 180,000
------------
Common stock exercised with loans $ 9,000
Supplemental disclosure of cash ------------
flow information:
Cash paid during the period for
interest $ 19,000 $ 95,000
------------ ------------
Cash paid during the period for
income taxes $ 11,000 $ 17,000
============ ============
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION> 5% Series B
Common Stock 5% Convertible Convertible
------------ Preferred Stock Preferred Stock
Paid-in --------------- --------------- Shareholder Accumulated
Shares Amount Capital Shares Amount Shares Amount Loans Deficit Total
------ ------ ------- ------ ------ ------ ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 10,444,413 $54,000 $13,232,000 2,611 $2,611,000 $(170,000) $(14,241,000) $1,486,000
Exercise of stock options 146,925 1,000 80,000 (9,000) 72,000
Conversion of preferred
stock 57,143 200,000 (200) (200,000)
Common stock issued as
settlement of accounts
payable 577,772 3,000 484,000 487,000
Private sales of common
stock 2,225,000 11,000 1,835,000 1,846,000
Warrants issued 50,000 50,000
Repayment of shareholder
loans 170,000 170,000
Net loss (3,984,000) (3,984,000)
---------- ------- ----------- ----- ---------- ----- ---------- --------- ------------ -----------
Balance at June 30, 1994 13,451,253 69,000 15,881,000 2,411 2,411,000 (9,000) (18,225,000) 127,000
Exercise of employee stock
options 166,500 1,000 84,000 85,000
Exercise of employee
warrants 1,125,366 6,000 664,000 670,000
Conversion of preferred
stock 26,427 93,000 (93) (93,000)
Common stock issued on
conversion of notes
payable 1,959,388 8,000 1,192,000 1,200,000
Preferred stock issued on
conversion of accounts
payable 116.2 $1,162,000 1,162,000
Private sales of common
stock 700,000 3,000 105,000 108,000
Repayment of shareholder
loans 9,000 9,000
Net loss (2,145,000) (2,145,000)
---------- ------- ----------- ----- ---------- ----- ---------- --------- ------------ -----------
Balance at June 30, 1995 17,428,934 $87,000 $18,019,000 2,318 $2,318,000 116.2 $1,162,000 $ 0 $(20,370,000) $ 1,216,000
========== ======= =========== ===== ========== ===== ========== ========= ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
PERSONAL COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
The Company and Its Capital Resources
Personal Computer Products, Inc., a Delaware corporation, and its subsidiaries
("PCPI" or the "Company"), (1) develop and license laser printer technology;
(2) manufacture, market, and distribute laser printer controllers and
accessories; and (3) market and distribute internationally a variety of
personal computer accessory products.
The Company has incurred net losses from continuing operations of $2,510,000
and $3,588,000 in 1995 and 1994, respectively; and, as of June 30, 1995 had
remaining shareholders' equity of $1,216,000 and negative working capital of
$649,000. The Company's negative working capital position has resulted from
both its net losses and an aggregate investment in new software products of
$1,581,000 in 1994 and 1993. Management plans to continue to pursue a growth
strategy in fiscal 1996 that will capitalize on the Company's investment in new
software products. The Company is dependent on additional financing in order to
continue as a going concern and to realize this investment in new software
products through the execution of management's strategy. Management is actively
seeking additional funding to support and grow the Company's operations,
however, there can be no assurance that this financing will be obtained.
Summary of Significant Accounting Policies
.Principles of Consolidation
The consolidated financial statements include the accounts of PCPI and its
subsidiaries. All significant inter-company accounts and transactions have been
eliminated.
.Inventories
Inventories are valued at the lower of cost or market; cost being determined by
the first-in, first-out method.
.Capitalized Software Costs
The Company has developed software technology and capitalized qualifying direct
labor and related fringe, facilities, and other overhead costs pursuant to the
provisions of Statement of Financial Accounting Standards No. 86 "Accounting
for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed". The
capitalized software development costs primarily related to software contained
in laser printer controllers and add-on products for laser printer controllers.
Capitalized software includes emulations of existing software printer control
languages currently in the marketplace, as well as software included in laser
printer controllers for existing laser printers. The Company's software
emulation products are generally offered in different combinations that are
designed to provide more value than its competitors' products. Its printer
controller products are generally designed to allow existing laser printers to
operate at higher performance levels than originally configured. While the
Company believes its new products will be accepted in the marketplace and that
it will recover its investment in capitalized software, the ultimate
realization of this investment is dependent on such acceptance and the
Company's ability to market these new products.
Costs incurred prior to the establishment of technological feasibility, or
subsequent to the release to customers, are expensed as research and
development costs as incurred. Capitalized software costs are amortized on a
product-by-product basis. The annual amortization is the greater of the amount
computed using (a) the ratio that current gross revenues for a product bear to
the total of current and anticipated future gross revenues for that product, or
(b) the straight-line method over the estimated economic life of the product,
generally three years. Amortization begins when the product is available for
general release to customers.
.Prepaid Licenses and Royalties
Up-front payments for licenses of software and royalties are recorded as
prepaid licenses and royalties. Amortization is recorded on a straight-line
basis over estimated useful lives generally ranging from three to five years,
commencing from the date the underlying technology is available for use by the
Company.
19
<PAGE>
.Property and Equipment
Property and equipment are recorded at cost. Depreciation, including
amortization of assets recorded under capitalized leases, is generally computed
on a straight-line basis over the estimated useful lives of assets ranging from
three to five years. Amortization of leasehold improvements is provided over
the initial term of the lease, on a straight-line basis.
.Revenues
Revenue from the sale of products is recognized as of the date shipments are
made to customers. Revenue from long-term software and technology license fees
is recognized once the collection is made, or is "probable" as prescribed in
AICPA Statement of Position 91-1 "Software Revenue Recognition," and there are
no further contractual obligations under the license agreement. Royalties are
recognized upon the sale of such products by the licensee.
The Company currently has development contracts with original equipment
manufacturers ("OEMs") to adapt the Company's software products to the OEMs'
hardware products. Revenues under these contracts are recognized based on the
percentage-of-completion method. Deferred revenue comprises payments received
in advance of revenue to be recognized on such contracts.
.Research and Development
Research and development costs are charged to expense as incurred. The cost of
engineering fee revenue is included as a component of research and development.
.Income Taxes
The Company's provision for income taxes is accounted for in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (FAS 109). FAS 109 mandates the liability method for computing deferred
income taxes. The Company adopted FAS 109 in fiscal 1994 and adoption of the
new statement did not have a significant effect on the Company's financial
position or results of operations. Prior to fiscal 1994, the Company accounted
for income taxes in accordance with FAS 96.
.Earnings (Loss) Per Common Share
Earnings (loss) per common share is based on the weighted average number of
shares of common stock and dilutive common stock equivalents, if any,
outstanding during the period, and is computed after giving effect to the
dividend requirements of the 5% Convertible Preferred Stock ($118,000 and
$126,000 during fiscal 1995 and fiscal 1994, respectively) and the 5% Series B
Convertible Preferred Stock. The effect of the conversion privileges of
convertible preferred stock and convertible notes payable is antidilutive for
the periods presented. Accordingly, such effect is not reflected in the
calculation of primary loss per common share.
.Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" requires the disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. The carrying
value of the financial instruments on the consolidated balance sheet are
considered reasonable estimates of the fair value.
.Reclassifications
Certain amounts in the 1994 consolidated financial statements have been
reclassified to conform to the presentation in the 1995 consolidated financial
statements.
Note 2.
Discontinued Operations
Effective March 24, 1995, the Company sold 81% of the common stock of its then
wholly-owned subsidiary ImageSoft Incorporated ("ImageSoft"), to ImageSoft's
president in consideration of a $100,000 Promissory Note ("Note"). The Note is
secured by the assets and technologies of ImageSoft and matures on March 24,
2000. The Note bears interest at the annual rate of 7%, payable annually, and
calls for the principal to be
20
<PAGE>
paid at maturity. The Note has not been reflected in the financial statements
and a gain will be recognized as the cash payments are received. As a result of
the sale, the Company will account for its investment in ImageSoft under the
cost method; accordingly, the results of ImageSoft's operations have been
excluded from the consolidated operations from the date of sale. The balance
sheet as of June 30, 1995 and statement of operations for the years ended June
30, 1995 and 1994 reflect the sale of ImageSoft. As of June 30, 1995, no assets
or liabilities of ImageSoft have been reflected in the Company's financial
statements and the Company's remaining 19% investment is recorded at zero.
Note 3.
Acquisition of Prima International
Effective October 1, 1993, the Company acquired all of the outstanding stock of
Prima, Inc. ("Prima") doing business as Prima International, a distributor of
computer peripherals and add-on products. The purchase price was $10 plus the
assumption of Prima's liabilities. The transaction was accounted for as a
purchase; accordingly, the results of Prima's operations have been included in
consolidated operations from the date of acquisition. The following are the
unaudited pro forma results of operations of the Company as though Prima was
acquired on July 1, 1993.
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------
1995 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues $14,394,000 $13,092,000
Net loss from continuing operations (2,510,000) (3,639,000)
Net loss before extraordinary item (2,354,000) (4,029,000)
Net loss (2,145,000) (4,029,000)
Primary loss per common share
from continuing operations (0.18) (0.31)
Primary loss per common share before
extraordinary item (0.17) (0.35)
Primary loss per common share (0.15) (0.35)
</TABLE>
In conjunction with the acquisition, assets acquired and liabilities assumed
were each $1,279,000; no goodwill was recorded in connection with this
transaction.
Note 4.
Composition of Certain Financial Statement Captions
<TABLE>
<CAPTION>
June 30, 1995
-------------
<S> <C>
Accounts receivable:
Trade $1,292,000
Less allowance for doubtful accounts (205,000)
----------
1,087,000
Current license fees and royalties 163,000
----------
$1,250,000
==========
Inventories:
Materials and supplies $ 213,000
Work in progress 26,000
Finished goods 282,000
----------
$ 521,000
==========
Capitalized software, at cost:
Released products $1,730,000
Products under development 198,000
----------
1,928,000
Less accumulated amortization (735,000)
----------
$1,193,000
==========
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
June 30, 1995
-------------
<S> <C>
Prepaid licenses and royalties $ 699,000
Less accumulated amortization (173,000)
----------
$ 526,000
==========
Property and equipment, at cost:
Computers and other equipment $ 664,000
Office furniture and fixtures 186,000
Leasehold improvements 134,000
----------
984,000
Less accumulated depreciation and amortization (838,000)
----------
$ 146,000
==========
Accrued liabilities:
Compensation and vacation $ 177,000
Accrued interest 29,000
Other 63,000
----------
$ 269,000
==========
</TABLE>
Note 5.
Debt
5% Convertible Notes Payable
In January 1993, the Company issued 5% Convertible Notes to foreign lending
institutions, at par, due December 31, 1995, for an original principal amount
of $500,000. The notes bore interest at 5% simple interest per year, payable on
December 31st of each year and were convertible, at the option of the holder,
into shares of the Company's common stock at $1.50 per share. In January 1995,
the conversion rate under the 5% Convertible Notes was reduced from $1.50 to
$0.625. As a result of this reduction, the Company recognized a non-cash
accounting loss in the amount of $204,000 pursuant to FAS 84 (Statement of
Financial Accounting Standards No. 84 - "Induced Conversions of Convertible
Debt"). Subsequent to this, holders of the 5% Convertible Notes converted
outstanding debt and accrued interest of approximately $526,000 into 842,191
shares of the Company's common stock.
Notes Payable
Notes payable assumed in the Prima acquisition (Note 3) are unsecured and
amounted to $440,000 at the time of acquisition and matured in January 1995. As
of June 30, 1995, the outstanding balance of this Prima debt, owed to a private
investor, was $20,000. Interest on the note is 8% per annum.
In September 1993, the Company issued a Promissory Note in the principal amount
of $700,000 to a private investment group. The note bears interest at 10% per
annum, is payable semi-annually, and is secured by certain of the Company's
contracts receivable. The Note is due on September 17, 1995 and as of that date
the Company was in default under the original terms of the agreement. The
Company is negotiating an extension on the Note, however, there can be no
assurance that an extension can be obtained under acceptable terms and
conditions. The private investor group also purchased warrants in September 1993
(Note 8). As of June 30, 1995, the outstanding balance was approximately
$431,000.
In December 1993, the Company converted approximately $180,000 of trade
accounts payable into an unsecured two-year note payable bearing interest at
9.5% per annum. The note calls for minimum monthly principal and interest
payments of $5,000, with the balance of $86,000 due on December 15, 1995. At
June 30, 1995, the outstanding balance was approximately $170,000. In July,
1995 the Note was declared in default under the terms of the note.
In July and October 1994, the Company received an aggregate amount of $686,000
from one of its investors, Nippo, Ltd. and an affiliate (Note 7), under Notes
payable due in one year bearing interest ranging from 3% to 7%. In January
1995, the outstanding debt and accrued interest totaling $698,000 was converted
into 1,117,197 shares of the Company's common stock. The Company recognized an
extraordinary gain on the issuance of these shares of approximately $209,000
representing the difference in the aggregate conversion price and the market
value of the shares on the conversion date.
In March 1995, one of the Company's directors agreed to loan the Company a
gross aggregate amount of up to $100,000 with interest at the rate of 7% per
year. Advances under this Note are convertible into unregistered shares of the
Company's common stock at the market rate on that date. As of June 30, 1995,
borrowing under this Note
22
<PAGE>
aggregated $75,000 which is included as a component of Notes Payable. In
September 1995, an additional $25,000 was advanced to the Company under this
Note.
4-3/4% Convertible Subordinated Notes
In November 1993, the Company repaid the outstanding balance of $98,000 under
its 4-3/4% convertible subordinated notes issued during fiscal 1989.
Bank Loan Payable
In April 1995, the Company's Prima subsidiary obtained a $500,000 line of
credit from a bank expiring on August 31, 1995. Under the terms of the line of
credit, borrowings are restricted to finance the inventory purchases for sales
to certain pre-qualified foreign customers of Prima. The line of credit is
payable on demand and bears interest at the banks prime rate of interest plus
1.5%, effectively 10.5% as of June 30 1995. The Note is guaranteed under an
agreement with the California Export Finance Office ("CEFO") and PCPI and is
secured by substantially all of the assets of Prima. As of June 30, 1995, total
borrowings outstanding were approximately $286,000. In August, 1995, the line
of credit was extended until August 1996.
Note 6.
Preferred Stock
5% Convertible Preferred Stock
During fiscal 1986 and 1987, the Company completed private offerings of an
aggregate of 6,050 shares of 5% convertible preferred stock at $1,000 per share
which, in the aggregate, generated net proceeds to the Company of $5,233,000.
Holders of the 5% convertible preferred stock are entitled to receive, when and
as declared by the Board of Directors, but only out of amounts legally
available for the payment thereof, cumulative cash dividends at the annual rate
of $50.00 per share, payable semi-annually, and commencing on October 15, 1986.
Dividends in arrears at June 30, 1995 were $1,673,000.
The 5% convertible preferred stock is convertible, at any time, into shares of
the Company's common stock, at a price of $3.50 per common share. This
conversion price is subject to certain antidilution adjustments, in the event
of certain future issuances of common stock, or payment of common stock
dividends. During fiscal years 1995 and 1994, a total of 93 and 200 shares,
respectively, were converted into 26,147 and 57,143 shares of common stock,
respectively.
The Company shall reserve, and keep reserved, out of its authorized but
unissued shares of common stock, sufficient shares to effect the conversion of
all shares of the 5% convertible preferred stock. At June 30, 1995, 662,286
shares of the Company's unissued common stock had been reserved for conversion.
In the event of any involuntary or voluntary liquidation, dissolution, or
winding up of the affairs of the Company, the 5% convertible preferred stock-
holders shall be entitled to receive $1,000 per share, together with accrued
dividends, to the date of distribution or payment, whether or not earned or
declared.
The 5% convertible preferred stock is callable, at the Company's option, at any
time beginning in April 1992, at call prices ranging from $1,050 to $1,100 per
share. No call on the 5% convertible preferred stock was made during fiscal
1995 or 1994.
5% Series B Convertible Preferred Stock
In January, 1995, the Company designated 117 shares of previously undesignated
Preferred Stock as 5% Series B Convertible Preferred Stock, par value $1,000
per share ("Series B"). Each share may be converted into 9,523 shares of the
Company's common stock at the conversion rate of $1.05. The holders of the
Series B have a liquidation preference of $10,000 per Series B share over the
common shareholders but are junior to the liquidation preference of the
existing 5% Convertible Preferred Stock shareholders. Holders of the Series B
are entitled to receive, when and as declared by the Board of Directors, but
only out of amounts legally available for the payment thereof, cumulative cash
dividends at the annual rate of $500 per share, payable annually.
23
<PAGE>
In January 1995, the Company issued 116.2 shares of the 5% Series B Convertible
Preferred Stock as settlement of accounts payable totaling $1,162,000. As of
June 30 1995 there were no dividends in arrears under the Series B.
The Company shall reserve, and keep reserved, out of its authorized but
unissued shares of common stock, sufficient shares to effect the conversion of
all shares of the Series B. At June 30, 1995, 1,114,286 shares of the Company's
unissued common stock had been reserved for conversion.
Note 7.
Common Stock
The Company issued shares of its unregistered common stock during fiscal 1995
as follows: 1,117,197 shares to Nippo, Ltd. for the conversion of $698,000 of a
Note Payable and accrued interest; approximately 842,200 shares to three
holders of the Company's 5% Convertible Notes for the conversion of the notes
payable and accrued interest aggregating $526,000; and 700,000 shares issued to
a foreign investor for approximately $108,000.
The Company issued shares of its unregistered common stock during fiscal 1994
as follows: 1,000,000 shares to Nippo, Ltd. for $1,000,000; approximately
578,000 shares to three vendors for the conversion of accounts payable in the
aggregate amount of $487,000; and, 1,225,000 shares to various other private
investors for an aggregate of $846,000, net of issuance costs.
Note 8.
Common Stock Warrants
In March 1991, the Company issued to each of its then four directors five-year
warrants, fully exercisable immediately, to purchase an aggregate of 400,000
unregistered shares of common stock at $0.50 per share, the fair market value
of the Company's stock on the date the warrants were granted. All of these
warrants were exercised during fiscal 1995.
In August 1991, the Company issued to each of its then four directors five-year
warrants, fully exercisable immediately, to purchase an aggregate of 500,000
unregistered shares of common stock at $0.60 per share, the fair market value
of the Company's stock on the date the warrants were granted. During fiscal
1995, 497,000 of these warrants were exercised.
In October 1991, the Company issued to each of its then four directors
five-year warrants to purchase an aggregate of 1,650,000 unregistered shares of
common stock at $0.75 per share, the fair market value of the Company's stock
on the date the warrants were granted. Warrants to purchase 825,000 shares of
common stock were exercisable 6 months after the date of grant with the
remaining 825,000 shares vesting 18 months after the date of grant. During
fiscal 1995, 229,000 of these warrants were exercised, and approximately
1,421,000 were exercisable as of June 30, 1995.
In September 1993, the Company issued to an investor group that provided the
Company loan financing (Note 5), five-year warrants to purchase 250,000 shares
of the Company's unregistered common stock at $1.50 per share. Warrants to
purchase 62,500 shares were immediately exercisable; the remaining warrants
vest equally on a semi-annual basis over the next eighteen months. A second
five-year warrant was issued to this group in September 1993 to purchase
250,000 shares of the Company's unregistered common stock at $1.00 per share.
Warrants to purchase 137,500 shares were immediately exercisable; the remaining
warrants vest at the rate of 37,500 shares on a semi-annual basis. All of these
warrants were issued in exchange for cash consideration of $50,000, which
management believes approximates their fair market value.
In March 1994, the Company issued to three of its then four directors ten-year
warrants to purchase an aggregate of 425,000 unregistered shares of the
Company's common stock at $0.75 per share, the fair market value of the
Company's stock on the date the warrants were granted. In addition, the Company
also issued to four employees (two of whom were then officers) ten-year
warrants to purchase an aggregate of 151,000 unregistered shares of the
Company's common stock at $0.75 per share, the fair market value of the
Company's stock on the date the warrants were granted. Fifty percent of the
warrants were exercisable immediately and the remaining fifty percent became
exercisable in September 1994. None of these warrants have been exercised.
24
<PAGE>
In September 1994, the Company granted 5-year warrants to an employee for the
purchase of 100,000 shares of common stock with an exercise price of $0.75 per
share, the fair market value of the Company's common stock on the date of
granted. Warrants to purchase 20,000 shares were immediately exercisable with
the remaining warrants vesting equally on an annual basis over the first four
years of the warrant term.
In September 1994, the Company also issued 3-year warrants to a consultant for
services rendered for the purchase of 150,000 shares of common stock with an
exercise price of $0.70 per share. Warrants to purchase 50,000 shares were
immediately exercisable; the remaining warrants vest equally on an annual basis
over the next two years.
Note 9.
Common Stock Options
In July 1984, and in November 1987, the Company adopted stock option plans,
under which incentive stock options and non-qualified stock options may be
granted to employees, directors, and other key persons, to purchase shares of
the Company's common stock, at an exercise price equal to no less than the fair
market value of such stock on the date of grant, with such options exercisable
in installments at dates typically ranging from one to not more than ten years
after the date of grant. A total of 1,060,000 shares of common stock are
authorized for issuance under the 1988 Stock Option Plan.
At June 30, 1995, options to acquire 276,208 shares were exercisable under the
1984 and 1988 Stock Option Plans. No shares are available for future issuance
under the 1984 Stock Option Plan due to the expiration of the plan during 1994.
Options to acquire 21,936 shares remained available for grant under the 1988
Plan.
The following is a summary of the stock option activity under the Plans:
<TABLE>
<CAPTION>
Shares of
Common Stock
Option Prices Underlying
Per Share Options
-------------- -------------
<S> <C> <C>
June 30, 1993 $0.50 to $1.37 675,190
Options granted $0.75 to $1.02 133,000
Options exercised $0.50 to $0.82 (146,925)
Options canceled $0.50 to $1.37 (108,940)
--------
June 30, 1994 $0.50 to $1.02 552,325
Options granted $0.33 to $0.53 36,000
Options exercised $0.50 to $0.82 (166,500)
Options canceled $0.50 to $1.02 (61,950)
--------
June 30, 1995 $0.33 to $1.02 359,875
========
</TABLE>
Under the terms of the 1988 Stock Option Plan, loans may be made to option
holders which permit the option holders to pay the option price, upon exercise,
in installments.
In October 1993, outside of existing stock option plans, the Company issued to
one of its directors options to purchase 150,000 unregistered shares of common
stock at $0.72 per share, the fair market value of the Company's stock on the
date the options were granted. 25,000 of the options were immediately
exercisable; the remaining options become exercisable on October 14, 1994, 1995
and 1996 in the amounts of 25,000, 50,000 and 50,000, respectively. The options
expire on December 31, 1999. None of these options have been exercised as of
June 30, 1995.
Also in October 1993, outside of existing stock option plans, the Company
issued to two officers of its newly acquired Prima International subsidiary and
one employee of PCPI, options to purchase an aggregate of 650,000 unregistered
shares of the Company's common stock at $0.72 per share, the fair market value
of the Company's stock on the date the options were granted. 25,000 of the
options were immediately exercisable; the remaining options became exercisable
on October 14, 1994 and annually thereafter over a five-year period in the
amounts of 125,000, 150,000, 150,000, 100,000, and 100,000 options,
respectively. All unexercised options immediately terminate if the individual
officer or employee ceases to be an employee
25
<PAGE>
of the Company or any of its subsidiaries. The options expire on December 31,
1999. None of these options have been exercised as of June 30, 1995.
In March 1995, outside of the existing stock option plans, the Company issued
to two officers of its Prima subsidiary, five-year options to purchase an
aggregate of 100,000 unregistered shares of PCPI common stock at an exercise
price of $0.33 per share, the fair market value of the Company's common stock
on the date of grant. These options become exercisable one year after the date
of grant.
In April 1995, outside of the existing stock option plans, the Company issued
to four employees (two of whom were then officers), ten-year options to
purchase an aggregate of 450,000 unregistered shares of PCPI common stock at an
exercise price of $0.52 per share, the fair market value of the Company's
common stock on the date of grant. The options become exercisable over a three
year period beginning April 24, 1996 in installments of 170,000, 140,000 and
140,000, respectively.
Note 10.
Significant Customers, Revenue Data, and Concentration of
Credit Risk
As of and during the year ended June 30, 1995, Computer 2000 accounted for 27%
of consolidated accounts receivable and 24% of total consolidated revenues;
Modo SRL accounted for 14% of consolidated accounts receivable and 7% of total
consolidated revenues; and Xerox Corporation accounted for 10% of consolidated
accounts receivable and less than 1% of total consolidated revenues.
As of and during the year ended June 30, 1994, Computer 2000 accounted for 14%
of consolidated accounts receivable and 20% of total consolidated revenues;
Modo SRL accounted for 12% of consolidated accounts receivable and 3% of total
consolidated revenues; and Xerox Corporation accounted for 39% of consolidated
accounts receivable and 2% of total consolidated revenues.
The majority of the Company's sales in fiscal 1995 and 1994 were to European
distributors (denominated in U.S. dollars) in the computer peripherals and
accessories market through its wholly-owned subsidiary, Prima.
During the years ended June 30, 1995 and 1994, 77% and 68% of total
consolidated revenues, respectively, were from foreign customers, as reflected
in the following table:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Europe $ 8,622,000 $6,772,000
Far East 1,742,000 338,000
Others 733,000 238,000
----------- ----------
$11,097,000 $7,348,000
=========== ==========
</TABLE>
The Company typically has not required collateral for its sales. However, it
has required letters of credit or prepayment from time-to-time as deemed
necessary.
Note 11.
Income Taxes
The Company elected to adopt Statement of Financial Accounting Standard No. 109
- - "Accounting for Income Taxes" on a prospective basis, effective July 1, 1993.
FAS 109 requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under the FAS 109 asset and liability
method, deferred tax assets and liabilities are determined based upon the
difference between the financial statement and tax bases of assets and
liabilities using the enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is then provided
for deferred tax assets which are more likely than not to not be realized.
There was no effect on the Company's financial statements upon adoption of FAS
109.
26
<PAGE>
The provision for income taxes for the years ended June 30, 1995 and 1994
comprises:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1995 1994
---- ----
<S> <C> <C>
Current:
State $4,000 $ 1,000
Federal
Foreign 4,000 17,000
------ -------
$8,000 $18,000
====== =======
</TABLE>
The components of deferred income taxes at June 30, 1995 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Federal net operating loss carryforward $ 4,783,000
State net operating loss carryforward 230,000
Book reserves and accrued liabilities 558,000
Federal general business and other tax credits 517,000
State R&D and other credits 102,000
-----------
6,190,000
===========
Deferred tax liabilities:
Capitalized software (140,000)
-----------
6,050,000
Valuation allowance (6,050,000)
-----------
Deferred taxes $ 0
===========
</TABLE>
The Company's Federal and state net operating loss carryforwards expire in 1999
through 2010. Additionally, the Company's Federal and state research and
development credits expire in 1998 through 2009. During 1991 the Company
sustained a change in ownership as defined in Section 382 of the Internal
Revenue Code; as a result, there is an annual limitation of approximately
$350,000 on the utilization of the net operating loss carryforwards generated
prior to the date of change. Subsequent to the date of the ownership change in
1991, there have been numerous additional equity issuances; as a result, the
Company may have experienced, or could experience in the future, similar
ownership changes, which could result in additional limitations on the annual
utilization of the Company's net operating loss carryforwards generated prior
to the new change in ownership.
The provision for income taxes results in an effective rate which differs from
the Federal statutory rate. A reconciliation between the actual tax provision
and taxes computed at the statutory rate follows:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1995 1994
---- ----
<S> <C> <C>
Benefit at Federal statutory income tax rate $(729,000) $(1,394,000)
Losses for which no current benefit is available 729,000 1,394,000
Foreign income taxes 4,000 17,000
State income taxes 4,000 1,000
--------- ----------
$ 8,000 $ 18,000
========= ==========
</TABLE>
Note 12.
Lease Commitments
The Company leases certain equipment under non-cancelable capital leases, which
are included in property and equipment. As of June 30, 1995, the cost and
accumulated amortization of such equipment was $142,000 and $102,000,
respectively.
The Company entered into a non-cancelable agreement to lease its operating
facilities in San Diego, California, for 6 years, commencing September 1, 1990.
In January 1995, the Company renegotiated the terms of the lease reducing the
monthly base to $11,500 over the remaining term of the lease.
27
<PAGE>
Future minimum rental commitments under non-cancelable leases are reflected in
the following table:
<TABLE>
<CAPTION>
Capital Operating
Year ended June 30, Leases Leases
------------------- ------- ---------
<S> <C> <C>
1996 $ 13,000 $138,000
1997 8,000 15,000
1998 6,000
1999 4,000
--------
Total minimum lease payments 31,000 $153,000
========
Amount representing interest (11,000)
--------
Net present value of minimum lease pmts. $ 20,000
========
</TABLE>
Total rental expense was approximately $202,000 in fiscal 1995 and $356,000 in
fiscal 1994.
Note 13.
Supplementary Income Statement Information
<TABLE>
<CAPTION>
Year ended June 30,
------------------
1995 1994
---- ----
<S> <C> <C>
Royalty expense $ 78,000 $124,000
-------- --------
Advertising expense $107,000 $157,000
-------- --------
</TABLE>
Note 14.
Related Party Transactions
A director receives compensation as a consultant to the Company on corporate
matters and investment banking issues. These consulting fees amounted to
$108,000 and $69,000 during fiscal 1995 and 1994, respectively. On April 1,
1994, the Company and the director entered into a five-year consulting
agreement for the director to continue to provide these services payable in
monthly installments of $9,000. During fiscal 1995, approximately $63,000 owed
to the Director was converted into common stock through the exercise of
outstanding options.
As discussed in Notes 5 and 7, one of the Company's shareholders, Nippo, Ltd.
and its affiliate, loaned the Company an aggregate of $686,000. In January,
1995, the outstanding principal balance and accrued interest totaling $698,000
was converted into the Company's common stock.
As discussed in Note 5, in March 1995, one of the Company's directors agreed to
loan the Company a gross aggregate amount of up to $100,000 with interest at
the rate of 7% per year. As of June 30, 1995, borrowing under this Note
aggregated $75,000. In September 1995, an additional $25,000 was advanced to
the Company under this Note.
28
<PAGE>
Item 8.
Changes In and Disagreements With Accountants On Accounting
and Financial Disclosure
(a) Previous independent accountants
(i) On August 25, 1995, Personal Computer Products, Inc. ("PCPI")
dismissed Price Waterhouse LLP as its independent accountants.
(ii) The reports of Price Waterhouse LLP on the financial statements
for the past two fiscal years contained no adverse opinion
or disclaimer of opinion and were not qualified or modified
as to audit scope or accounting principle, except that the
report for the fiscal year ended June 30, 1994 did contain
an explanatory paragraph with regard to PCPI's ability to
continue as a going concern.
(iii) The Registrant's Board of Directors participated in an approved
the decision to change independent accountants.
(iv) In connection with its audits for the two most recent fiscal
years and through August 25, 1995, there have been no
disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements
if not resolved to the satisfaction of Price Waterhouse LLP
would have caused them to make reference thereto in their report
on the financial statements for such years.
(v) In connection with its audit of the 1993 financial statements,
Price Waterhouse LLP issued a letter to the Company identifying
material weaknesses in the Company's internal controls. This
matter was discussed with the Company's Board of Directors.
(vi) The Registrant has requested that Price Waterhouse LLP furnish
it with a letter addressed to the SEC stating whether or not
it agrees with the above statements. A copy of such letter,
dated August 19, 1995, was filed as Exhibit 16 to the Form
8-K filed on August 29, 1995.
(b) New independent accountants
(i) The Registrant engaged Boros & Farrington, CPAs, APC as its
new independent accountants as of August 25, 1995. During the
two most recent fiscal years and through August 25, 1995, the
Registrant has not consulted with Boros & Farrington on items
which (1) were or should have been subject to SAS 50 or (2)
concerned the subject matter of a disagreement or reportable
event with the former auditor, (as described in Regulation
S-B Item 304(a)(2)).
29
<PAGE>
Part III
- -------------------------------------------------------------------------------
Pursuant to General Instruction E(3) to Form 10-KSB, the information required
by Items 9, 10, 11, and 12 of Part III is incorporated by reference from the
Company's definitive Proxy Statement with respect to its 1995 annual meeting of
stockholders, to be filed pursuant to Regulation 14A within 120 days after June
30, 1995.
Item 13.
Exhibits, List, and Reports on Form 8-K
(a) The following exhibit list states, in the case of certain exhibits, a prior
SEC filing which contains the exhibit and from which it is incorporated by
reference.
3(a) Certificate of Incorporation of the Company, as amended, and
currently in effect. See also Item 4(a). (Incorporated by reference
to Exhibit 3(a) to 1988 Form 10-K.)
3(b) Certificate of Amendment of Certificate of Incorporation of the
Company, filed February 8, 1995, as amended, and currently in effect.
See also Item 4(b).
3(c) By-Laws of the Company, as amended, and currently in effect.
(Incorporated by reference to Exhibit 3(b) to 1987 Form 10-K)
4(a) Amended Certificate of Designation of Personal Computer Products,
Inc. with respect to the 5% Convertible Preferred Stock. (Incorporated
by reference to Exhibit 4(d) to 1987 Form 10-K.)
4(b) Amended Certificate of Designation of Personal Computer Products,
Inc. with respect to the 5% Series B Convertible Preferred Stock.
10(a.1) 1984 Stock Option Plan for the Company. (Incorporated by
reference to Form S-8 Filed October 26, 1984, File No. 2-93993.)
10(a.2) Forms of standard Non-Qualified and Incentive Stock Option
Agreement for 1984 Stock Option Plan. (Incorporated by reference to
Form S-8 filed October 26, 1984, File No. 2-93993.)
10(b.1) 1988 Stock Option Plan for the Company. (Incorporated by
reference to Exhibit 10(g) in 1989 Form 10-K.)
10(b.2) Amendment and Restatement of 1988 Stock Option Plan.
(Incorporated by reference to Exhibit 10(d) to 1991 Form 10-K.)
10(b.3) Forms of standard Non-Qualified and Incentive Stock Option
Agreement for 1988 Stock Option Plan. (Incorporated by reference to
Exhibit 10(e) to 1991 Form 10-K)
10(c.1) Standard Industrial Lease Multi-Tenant dated February 2, 1990
between the Company and Bernardo Vista Business Park, Ltd.; First
Amendment to Standard Industrial Lease dated February 2, 1990; and
Memorandum of Purchase Option Agreement dated August 29, 1990.
(Incorporated by reference to Form S-4 dated September 24, 1990, File
No. 33-36871.)
10(c.2) Addendum to Lease dated January 12, 1995 for Standard
Industrial Lease Multi-Tenant dated February 2, 1990.
30
<PAGE>
10(d) Reference is made to the various stock options and warrants
granted in 1991 to directors and executive officers as described in
Note 8 to the 1995 financial statements. (Incorporated by reference
to Exhibit 10(1) to 1991 Form 10-K.)
10(e.1) Executive Employment Agreement, as amended, between the
Company and Edward W. Savarese, dated July 1, 1990 and amended as of
February 25, 1994. (Incorporated by reference to Exhibit 10(k) to 1994
Form 10-KSB).
10(e.2) Compensation Agreement between the Company and Edward W.
Savarese, dated November 16, 1992. (Incorporated by reference to
Exhibit 10(af) to 1993 Form 10-KSB.)
10(f) Compensation Agreement between the Company and Harry J. Saal,
dated November 16, 1992. (Incorporated by reference to Exhibit 10(ad)
to 1993 Form 10-KSB.)
10(g.1) Compensation Agreement between the Company and Irwin Roth,
dated November 16, 1992. (Incorporated by reference to Exhibit 10(ag)
to 1993 Form 10-KSB.)
10(g.2) Consulting Agreement, dated April 1, 1994, between the Company
and Irwin Roth. (Incorporated by reference to Exhibit 10(az) to 1994
Form 10-KSB.)
10(h) Acquisition Agreement for acquisition of Prima International
subsidiary on October 1, 1993. (Incorporated by reference to Exhibit
2.1 to Amendment No. 1 to Form 8K/A dated October 14, 1993.)
10(i.1) Third Party Development Partner License Agreement, effective
October 22, 1993, between the Company and Adobe Systems Incorporated.
(Incorporated by reference to Exhibit 10(ai) to 1994 Form 10-KSB)
10(i.2) Reference Port Appendix No. 1, dated October 22, 1993, to the
Postscript Support Source and Object Code Distribution License
Agreement between Adobe Systems Incorporated and the Company.
(Incorporated by reference to Exhibit 10(aj) to 1994 Form 10-KSB)
10(j) PCPI/APS License Agreement, dated March 28, 1994, between the
Company and Integrated Device Technology, Inc. (Incorporated by
reference to Exhibit 10(ak) to 1994 Form 10-KSB)
10(k) International Sales Representative Agreement, dated October 15,
1993, between the Company and Nippo Ltd. (Incorporated by reference
to Exhibit 10(ao) to 1994 Form 10-KSB).
10(l) Consulting Agreement dated September 17, 1993 between the
Company and Marius A. Robinson. (Incorporated by reference to Exhibit
10(aq) to 1994 Form 10-KSB)
10(m.1) Warrant Purchase Agreement, dated September 17, 1993, between
the Company and Robinson International, Ltd. (Incorporated by
reference to Exhibit 10(ar) to 1994 Form 10-KSB).
10(m.2) Warrant Certificate for 250,000 Warrants to Purchase Shares
of Common Stock of the Company at $1.50 per share, dated September 17,
1993, between the Company and Robinson International, Ltd.
(Incorporated by reference to Exhibit 10(as) to 1994 Form 10-KSB)
31
<PAGE>
10(m.3) Warrant Certificate for 250,000 Warrants to Purchase Shares
of Common Stock of the Company at $1.00 per share, dated September 17,
1993, between the Company and Robinson International, Ltd.
(Incorporated by reference to Exhibit 10(at) to 1994 Form 10-KSB)
10(m.4) Security Agreement between the Company and Fundamental
Investors, Ltd., dated September 17, 1993. (Incorporated by reference
to Exhibit 10(au) to 1994 Form 10-KSB)
10(m.5) Term Loan Agreement, dated September 17, 1993, between the
Company and Fundamental Investors, Ltd. (Incorporated by reference to
Exhibit 10(av) to 1994 Form 10-KSB)
10(m.6) Letter Agreement ("Amendment No. 1") to Term Loan Agreement
between the Company and Fundamental Investors, Ltd., dated August 18,
1994. (Incorporated by reference to Exhibit 10(aw) to 1994 Form 10-KSB)
10(m.7) Amendment No. 2 to Term Loan Agreement between the Company and
Fundamental Investors, Ltd., dated October 19, 1994. (Incorporated by
reference to Exhibit 10(ax) to 1994 Form 10-KSB)
10(m.8) Amendment No. 3 to Term Loan Agreement between the Company and
Fundamental Investors, Ltd., dated April 7, 1995.
10(m.9) Promissory Note of PCPI for $700,000, dated September 17, 1993
to Fundamental Investors, Ltd.
10(p.7) Amendment No. 2 to Term Loan Agreement between the Company and
Fundamental Investors, Ltd., dated October 19, 1994. (Incorporated by
reference to Exhibit 10(ay) to 1994 Form 10-KSB)
10(n) Promissory Note of the Company for $180,075, dated December 16,
1993, by the Company payable to Xerox Corporation. (Incorporated by
reference to Exhibit 10(aaa) to 1994 Form 10-KSB)
10(o) PCPI/MEI License Agreement, dated September 30, 1994 between the
Company and Matsushita Electric Industrial Co., Ltd. (Incorporated by
reference to Exhibit 10(aac) to 1994 Form 10-KSB)
10(p) Form of standard Warrant Agreement of March 29, 1994 as
described in Note 8 to the 1994 financial statements. (Incorporated by
reference to Exhibit 10(aag) to 1994 Form 10-KSB)
10(q) Form of standard Stock Option Agreement of October 14, 1993 as
described in Note 9 to the 1994 financial statements. (Incorporated by
reference to Exhibit 10(aah) to 1994 Form 10-KSB)
10(r) Compensation Agreement between the Company and Brian Bonar, dated
September 1, 1994.
10(s.1) Term loan agreement with Copolymer, Ltd. dated October 7, 1994.
10(s.2) Conversion agreement with regard to Term loan agreement with
Copolymer, Ltd. dated January 24, 1995.
10(t) Conversion agreement between Nippo, Ltd. and the Company
regarding $400,000 Note dated January 24, 1995.
10(u) Prima International Note and Security Agreement dated April 11,
1995.
16 Price Waterhouse letter to the SEC regarding August 25, 1995
dismissal. (Incorporated by reference to Form 8-K dated August 29,
1995.
32
<PAGE>
21 List of Subsidiaries of the Company
23 Consent of Independent Accountants
Exhibits 10(a.1), (a.2), (b.1), (b.2), (b.3), (d), (e.1), (e.2), (f), (g.1),
(g.2), and (r) are management contracts or compensatory plans or arrangements.
The Company will furnish a copy of any exhibit to a requesting stockholder upon
payment of the Company's reasonable expenses in furnishing such exhibit.
(b) No reports on Form 8-K were filed during the last quarter of fiscal 1995.
33
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
PERSONAL COMPUTER PRODUCTS, INC.
By: EDWARD W. SAVARESE
------------------
Edward W. Savarese
Chairman, President, and
Chief Executive Officer
September 29, 1995
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
EDWARD W. SAVARESE Chairman of the Board of Directors,
- ------------------ President, and Chief Executive Officer September 29, 1955
Edward W. Savarese
RALPH R. BARRY Secretary and Chief Financial Officer
- -------------- (Principal Financial Officer and
Ralph R. Barry Principal Accounting Officer) September 29, 1995
BRIAN BONAR Executive Vice President and Director
- -----------
Brian Bonar September 29, 1995
HARRY J. SAAL Director
- -------------
Harry J. Saal September 29, 1995
IRWIN ROTH Director
- ----------
Irwin Roth September 29, 1995
</TABLE>
34
<PAGE>
Index to Exhibits
- -------------------------------------------------------------------------------
Number Description of Exhibit Page
3(a) Certificate of Incorporation of the Company, as amended, and
currently in effect. See also Item 4(a). (Incorporated by
reference to Exhibit 3(a) to 1988 Form 10- K.)................... *
3(b) Certificate of Amendment of Certificate of Incorporation of
the Company, filed February 8, 199............................... 39
3(c) By-Laws of the Company, as amended, and currently in effect.
(Incorporated by reference to Exhibit 3(b) to 1987 Form 10-K).... *
4(a) Amended Certificate of Designation of Personal Computer
Products, Inc. with respect to the 5% Convertible Preferred
Stock. (Incorporated by reference to Exhibit 4(d) to 1987
Form 10-K.)...................................................... *
4(b) Amended Certificate of Designation of Personal Computer Products,
Inc. with respect to the 5% Series B Convertible Preferred
Stock ........................................................... 40
10(a.1) 1984 Stock Option Plan for the Company. (Incorporated by
reference to Form S-8 Filed October 26, 1984, File No.
2-93993.) ....................................................... *
10(a.2) Forms of standard Non-Qualified and Incentive Stock Option
Agreement for 1984 Stock Option Plan. (Incorporated by reference
to Form S-8 filed October 26, 1984, File No. 2-93993.) ......... *
10(b.1) 1988 Stock Option Plan for the Company. (Incorporated by
reference to Exhibit 10(g) in 1989 Form 10-K.) .................. *
10(b.2) Amendment and Restatement of 1988 Stock Option Plan.
(Incorporated by reference to Exhibit 10(d) to 1991 Form 10-K ... *
10(b.3) Forms of standard Non-Qualified and Incentive Stock Option
Agreement for 1988 Stock Option Plan. (Incorporated by
reference to Exhibit 10(e) to 1991 Form 10-K) ................... *
10(c.1) Standard Industrial Lease Multi-Tenant dated February 2, 1990
between the Company and Bernardo Vista Business Park, Ltd.;
First Amendment to Standard Industrial Lease dated February 2,
1990; and Memorandum of Purchase Option Agreement dated August
29, 1990. (Incorporated by reference to Form S-4 dated
September 24, 1990, File No. 33-36871.) ......................... *
10(c.2) Addendum to Lease dated January 12, 1995 for Standard
Industrial Lease Multi-Tenant dated February 2, 1990............. 45
10(d) Reference is made to the various stock options and warrants
granted in 1991 to directors and executive officers as described
in Note 8 to the 1994 financial statements. (Incorporated by
reference to Exhibit 10(1) to 1991 Form 10-K.) .................. *
* Exhibit is incorporated by reference only and a copy is not included in this
filing.
35
<PAGE>
Number Description of Exhibit Page
10(e.1) Executive Employment Agreement, as amended, between the
Company and Edward W. Savarese, dated July 1, 1990 and amended
as of February 25, 1994. (Incorporated by reference to
Exhibit 10(k) to 1994 Form 10-KSB.) ............................. *
10(e.2) Compensation Agreement between the Company and Edward W.
Savarese, dated November 16, 1992. (Incorporated by reference
to Exhibit 10(af) to 1993 Form 10-KSB.) ......................... *
10(f) Compensation Agreement between the Company and Harry J. Saal,
dated November 16, 1992. (Incorporated by reference to Exhibit
10(ad) to 1993 Form 10-KSB.) .................................... *
10(g.1) Compensation Agreement between the Company and Irwin Roth,
dated November 16, 1992. (Incorporated by reference to
Exhibit 10(ag) to 1993 Form 10-KSB) ............................. *
10(g.2) Consulting Agreement, dated April 1, 1994, between the Company
and Irwin Roth. (Incorporated by reference to Exhibit 10(az)
to 1994 Form 10-KSB.)............................................ *
10(h) Acquisition Agreement for acquisition of Prima International
subsidiary on October 1, 1993. (Incorporated by reference to
Exhibit 2.1 to Amendment No. 1 to Form 8K/A dated October 14,
1993.) .......................................................... *
10(i.1) Third Party Development Partner License Agreement, effective
October 22, 1993, between the Company and Adobe Systems
Incorporated. (Incorporated by reference to Exhibit 10(ai) to
1994 Form 10-KSB.) .............................................. *
10(i.2) Reference Port Appendix No. 1, dated October 22, 1993, to the
Postscript Support Source and Object Code Distribution License
Agreement between Adobe Systems Incorporated and the Company.
(Incorporated by reference to Exhibit 10(aj) to 1994 Form
10-KSB.) ........................................................ *
10(j) PCPI/APS License Agreement, dated March 28, 1994, between the
Company and Integrated Device Technology, Inc. (Incorporated by
reference to Exhibit 10(ak) to 1994 Form 10-KSB.)................ *
10(k) International Sales Representative Agreement, dated October 15,
1993, between the Company and Nippo Ltd. (Incorporated by
reference to Exhibit 10(ao) to 1994 Form 10-KSB.) ............... *
10(l) Consulting Agreement dated September 17, 1993 between the Company
and Marius A. Robinson. (Incorporated by reference to Exhibit
10(aq) to 1994 Form 10-KSB.) .................................... *
10(m.1) Warrant Purchase Agreement, dated September 17, 1993, between the
Company and Robinson International, Ltd. (Incorporated by
reference to Exhibit 10(ar) to 1994 Form 10-KSB.) ............... *
10(m.2) Warrant Certificate for 250,000 Warrants to Purchase Shares of
Common Stock of the Company at $1.50 per share, dated September
17, 1993, between the Company and Robinson International, Ltd.
(Incorporated by reference to Exhibit 10(as) to 1994 Form
10-KSB.)......................................................... *
* Exhibit is incorporated by reference only and a copy is not included in this
filing.
36
<PAGE>
Number Description of Exhibit Page
10(m.3) Warrant Certificate for 250,000 Warrants to Purchase Shares of
Common Stock of the Company at $1.00 per share, dated September
17, 1993, between the Company and Robinson International, Ltd.
(Incorporated by reference to Exhibit 10(at) to 1994 Form
10-KSB.)......................................................... *
10(m.4) Security Agreement between the Company and Fundamental Investors,
Ltd., dated September 17, 1993. (Incorporated by reference to
Exhibit 10(au) to 1994 Form 10-KSB.)............................. *
10(m.5) Term Loan Agreement, dated September 17, 1993, between the
Company and Fundamental Investors, Ltd. (Incorporated by
reference to Exhibit 10(av) to 1994 Form 10-KSB.)................ *
10(m.6) Letter Agreement ("Amendment No. 1") to Term Loan Agreement
between the Company and Fundamental Investors, Ltd., dated
August 18, 1994. (Incorporated by reference to Exhibit 10(aw)
to 1994 Form 10-KSB.)............................................ *
10(m.7) Amendment No. 2 to Term Loan Agreement between the Company
and Fundamental Investors, Ltd., dated October 19, 1994.
(Incorporated by reference to Exhibit 10(ax) to 1994 Form
10-KSB.) ........................................................ *
10(m.8) Amendment No. 3 to Term Loan Agreement between the Company
and Fundamental Investors, Ltd., dated April 7, 1995. ........... 46
10(m.9) Promissory Note of PCPI for $700,000, dated September 17, 1993
to Fundamental Investors, Ltd. (Incorporated by reference to
Exhibit 10(ay) to 1994 Form 10-KSB.)............................. *
10(n) Promissory Note of the Company for $180,075, dated December 16,
1993, by the Company payable to Xerox Corporation. (Incorporated
by reference to Exhibit 10(aaa) to 1994 Form 10-KSB.) ........... *
10(o) PCPI/MEI License Agreement, dated September 30, 1994 between the
Company and Matsushita Electric Industrial Co., Ltd.
(Incorporated by reference to Exhibit 10(aac) to 1994 Form
10-KSB.) ........................................................ *
10(p) Form of standard Warrant Agreement of March 29, 1994 as
described in Note 8 to the 1994 financial statements.
(Incorporated by reference to Exhibit 10(aag) to 1994 Form
10-KSB.) ........................................................ *
10(q) Form of standard Stock Option Agreement of October 14, 1993 as
described in Note 9 to the 1994 financial statements.
(Incorporated by reference to Exhibit 10(aah) to 1994 Form
10-KSB.) ........................................................ *
10(r) Compensation Agreement between the Company and Brian Bonar dated
September 1 , 1994............................................... 48
10(s.1) Term loan agreement with Copolymer, Ltd. dated October 7, 1994... 55
10(s.2) Conversion agreement with regard to Term loan agreement with
Copolymer, Ltd. dated January 24, 1995 .......................... 56
10(t) Conversion agreement between Nippo, Ltd. and the Company
regarding $400,000 Note dated January 24, 1995 .................. 57
* Exhibit is incorporated by reference only and a copy is not included in this
filing.
37
<PAGE>
Number Description of Exhibit Page
10(u) Prima International Note and Security Agreement dated April 11,
1995............................................................. 58
16 Price Waterhouse letter to SEC regarding August 25, 1995
dismissal (Incorporated by reference to Form 8-K dated August
29, 1995 ........................................................ *
21 List of Subsidiaries of the Company ............................. 71
23 Consent of Independent Accountants .............................. 72
* Exhibit is incorporated by reference only and a copy is not included in this
filing.
38
<PAGE>
Exhibit 3(b)
State of Delaware
Office of the Secretary of State
_____________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "PERSONAL COMPUTER PRODUCTS, INC.", FILED IN THIS OFFICE ON THE
EIGHTH DAY OF FEBRUARY, A.D. 1995, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
[SEAL] _____________________________________
Edward J. Freel, Secretary of State
2008678 8100 AUTHENTICATION: 7402072
950029325 DATE: 02-09-95
39
<PAGE>
Exhibit 4(b)
CERTIFICATE OF DESIGNATIONS
OF
PERSONAL COMPUTER PRODUCTS, INC.
Certificate of the Designation, Preferences
and Relative and Special Rights of the
5% Series B Convertible Preferred Stock, and the
Qualifications, Limitations, or Restrictions thereof
Not set forth in the Certificate of Incorporation as Amended.
______________________________________________
Pursuant to Section 151 of Title 8 of the Delaware Code
______________________________________________
We, the undersigned, Edward W. Savarese, Chairman of the Board, President
and Chief Executive Officer, and Gerry B. Berg, Executive Vice President, Chief
Financial Officer and Secretary, of Personal Computer Products, Inc. (the
"Corporation"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, DO HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors of the Corporation by
unanimous written consent:
RESOLVED, that, pursuant to authority expressly granted to and vested in
the Board of Directors by the provisions of the Certificate of Incorporation, as
amended, the Board of Directors hereby creates a series of 117 shares of 5%
Series B Convertible Preferred Stock of the Corporation (such series being
hereinafter called the "Convertible Preferred Stock"), and hereby fixes the
powers, designation, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications,
limitations, or restrictions thereof (in addition to those provisions set forth
in the Certificate of Incorporation, as amended, which are applicable to the
Convertible Preferred Stock), as follows:
(1) The distinctive designation of the Convertible Preferred Stock series
shall be "5% Series B Convertible Preferred Stock". The number of shares which
shall constitute such Convertible Preferred Stock shall be 117 shares, and such
number shall not be increased.
(2) All shares of Convertible Preferred Stock shall have a par value of
$1,000 per share and shall be of equal rank with each other.
(3) The amount payable on shares of the Convertible Preferred Stock in the
event of any involuntary or voluntary liquidation, dissolution, or winding up
of the affairs of the Corporation shall be $10,000 per share, together with
accrued dividends to the date of distribution or payment, whether or not earned
or declared, and such amount shall be paid before any distribution is made to
holders of any junior stock, including Common Stock of the Corporation. The
Convertible Preferred Stock shall be junior, as to payment in the event of any
involuntary or voluntary liquidation, dissolution or winding up of the affairs
of the Corporation, to the rights and preferences of any 5% Convertible
Preferred Stock of the Corporation.
(4) The holders of Convertible Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors of the Corporation, but
only out of surplus or net profits legally available for the payment thereof,
cumulative cash dividends at the annual rate of $500 per share, payable annually
on the 15th day of January in each year, to stockholders of record on the
respective dates fixed for the purpose by the Board of Directors in advance of
payment of each particular dividend.
(5) Dividends on the Convertible Preferred Stock shall be payable before
any dividends on any junior stock (including Common Stock of the Corporation)
shall be paid or set aside for payment, and shall be cumulative from the date of
issuance of shares of Convertible Preferred Stock. The Convertible Preferred
Stock shall be junior, as to dividends, to the rights of any 5% Convertible
Preferred Stock of the Corporation.
40
<PAGE>
Exhibit 4(b)
(6) Convertible Preferred Stock shall be convertible at any time at the
option of the holder thereof into full-paid and non-assessable shares of Common
Stock (the "Common Shares") of the Corporation at a conversion price of $1.05
per Common Share, or a conversion rate ("Conversion Rate") of 9,523.81 Common
Shares for each share of Convertible Preferred Stock. The Conversion Rate shall
be subject to adjustment as provided below. Upon such conversion, no allowance
or adjustment shall be made for dividends on either class of stock, but all
accrued and unpaid dividends on any shares of Convertible Preferred Stock as of
the time of conversion shall be forgiven and eliminated.
(7) In order to convert shares of the Convertible Preferred Stock into
Common Shares, the holder thereof shall deliver to the principal office of the
Corporation the certificate or certificates therefor, duly endorsed to the
Corporation or endorsed in blank and accompanied by appropriate instruments of
transfer to the Corporation and shall give written notice to the Corporation at
said office that he elects to convert such shares. Shares of the Convertible
Preferred Stock shall be deemed to have been converted immediately prior to the
close of business on the date of surrender of such shares for conversion in
accordance with the foregoing provision (the "Conversion Date"), and the person
or persons entitled to receive the Common Shares issuable upon such conversion
shall be treated for all purposes as the record holder of holders of such Common
Shares at such time. As promptly as practicable after the Conversion Date, the
Corporation shall issue and deliver at the said office a certificate or
certificates for the number of full Common Shares issuable upon such conversion,
together with a cash payment in lieu of any fraction of a Common Share as
hereinafter provided, to the person or persons entitled to receive the same or
to the nominee or nominees of such person or persons.
(8) The Conversion Rate shall be adjusted from time to time as follows:
(a) In case the Corporation shall (i) pay a dividend on its Common
Shares in other Common Shares, (ii) subdivide its outstanding Common
Shares, (iii) combine its outstanding Common Shares into a smaller number
of Common Shares, or (iv) issue by reclassification of its Common Shares
any other shares of the Corporation (including in connection with
a merger in which the Corporation is a surviving corporation), the
Conversion Rate in effect at the time of the record date for such dividend
or the effective date of such subdivision, combination or reclassification
shall be proportionately adjusted so that the holder of each share of the
Convertible Preferred Stock converted after such time shall be entitled to
receive the aggregate number and kind of shares which, if such share of
the Convertible Preferred Stock had been converted immediately prior to
such time, the holder would have owned upon such conversion and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever
any of the events listed above shall occur.
(b) In case the Corporation shall issue rights or warrants to the
holders of its Common Shares entitling them (for a period expiring within
45 days after the record date for determination of the stockholders
entitled to receive such rights or warrants) to subscribe for or purchase
Common Shares at a price per share less than the Current Market Price
per share (as defined below) on such record date, then in each such case
the Conversion Rate shall be adjusted by multiplying the Conversion Rate
in effect immediately prior to such record date by a fraction, of which
the numerator shall be the number of Common Shares outstanding on the date
of issuance of such rights or warrants plus the number of additional
Common Shares offered for subscription or purchase, and of which the
denominator shall be the number of Common Shares outstanding on the date
of issuance of such rights or warrants plus the number of Common Shares
which the aggregate offering price of the total number of shares so offered
would purchase at such Current Market Price. Such adjustment shall be
made whenever any such rights or warrants are issued, and shall apply to
conversions made subsequent to the record date for the determination of
stockholders entitled to receive such rights or warrants.
(c) In case the Corporation shall distribute to holders of its Common
Shares (including any such distribution made pursuant to a merger or
consolidation in which the Corporation is the surviving corporation, but
excluding cash dividends paid or cash or property distributions made out
of current or retained earnings available for such purpose as determined
in accordance with generally accepted accounting principles) any assets,
evidences of its indebtedness or other securities of the Corporation, then
in each such case the Conversion Rate shall be adjusted by multiplying the
Conversion Rate in effect immediately prior to the record date for
determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the Current Market Price per
Common Share (as defined below) on such record date, and of which the
denominator shall be such Current Market Price per Common
41
<PAGE>
Share less the fair value (as determined by a resolution of the Board of
Directors of the Corporation, after consultation with its investment
bankers, which determination shall be conclusive), of the portion of the
assets, evidences of its indebtedness or other securities so to be
distributed applicable to one Common Share. Such adjustment shall be made
whenever any such distribution is made, and shall become effective
retroactively with respect to conversions made subsequent to the record
date for the determination of stockholders entitled to receive such
distribution.
(d) For the purpose of any computation hereunder, the Current
Market Price per Common Share on any date shall be deemed to be the average
of the daily Closing Prices for 30 consecutive Trading Days selected by the
Corporation commencing not more than 45 Trading Days before the date in
question. The term "Closing Price" on any day shall mean the reported last
sale price per Common Share on such day or in case no such sale takes place
on such day, the average of the reported closing bid and asking prices in
each case on the principal national securities exchange or National Market
System on which the Common Shares are listed or admitted to trading, or, if
the Common Shares are not so listed or admitted to trading, the average of
the closing bid and asked prices in the over-the-counter market as reported
by the National Association of Securities Dealers' Automated Quotation
System, or, if not so reported, by the National Quotation Bureau,
Incorporated, or any successor thereof, of, if not so reported, the average
of the closing bid and asked prices as furnished by any member of the
National Association of Securities Dealers, Inc. selected from time to time
by the Corporation for that purpose; and the term "Trading Day" shall mean
a day on which the principal national securities exchange on which the
Common Shares are listed or admitted to trading is open for the transaction
of business or, if the Common Shares are not so listed or admitted to
trading, a day on which banking institutions in the Borough of Manhattan,
City of New York, State of New York, are not authorized or obligated to
close.
(e) No adjustment in the Conversion Rate shall be required unless
such adjustment (plus any adjustments not previously made by reason of this
clause) would require an increase or decrease of at least 1% in the number
of Common Shares into which each share of the Convertible Preferred Stock
is then convertible; provided, however, that any adjustments which by
reason of this clause are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under
this clause shall be made to the nearest one-hundredth of a share.
(f) The Board of Directors may make such adjustments in the
Conversion Rate, in addition to those required hereunder, as shall be
necessary to resolve any ambiguity or correct any error under this
Subdivision, and its action in so doing, as evidenced by a Board
resolution, shall be final and conclusive.
(g) In any case of reclassification of Common Shares (other than a
reclassification of the Common Shares referred to in the proceeding clauses
of this Subdivision), any consolidation or merger of the Corporation with
or into another corporation or any sale or conveyance to another
corporation (other than a wholly-owned subsidiary of the Corporation) of
all or substantially all of the property of the Corporation, the holder of
a share of the Convertible Preferred Stock shall have the right thereafter
to convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such consolidation, merger, sale or
conveyance by a holder of the number of Common Shares into which such share
of the Convertible Preferred Stock might have been converted immediately
prior to such consolidation, merger, sale or conveyance and shall have no
other conversion rights with regard to such share of Convertible Preferred
Stock. In the event of such a reclassification, consolidation, merger, sale
or conveyance, effective provision shall be made in the certificate of
incorporation of the resulting or surviving corporation or otherwise so
that the Conversion Rate applicable to any stock or other securities or
property into which the shares of the Convertible Preferred Stock shall
then be convertible shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provision
with respect to the Common Shares contained in the foregoing clauses of
this Subdivision, and the other provisions of this Subdivision with respect
to the Common Shares shall apply on terms as nearly equivalent as
practicable to any such other shares of stock and other securities and
property deliverable upon conversion of shares of the Convertible Preferred
Stock.
42
<PAGE>
Exhibit 4(b)
(h) Whenever any adjustment is required in the Conversion Rate or
otherwise under this Subdivision, the Corporation shall forthwith mail a
statement describing in reasonable detail the adjustment and the method of
calculation used to the holders of record of Convertible Preferred Stock,
indicating the effective date of such adjustment.
(9) In case:
(a) The Corporation shall declare a dividend (or any other
distribution) on its Common Shares other than a cash dividend or a
distribution paid out of available current or retained earnings determined
in accordance with generally accepted accounting principles; or
(b) The Corporation shall authorize the granting to the holders of
its Common Shares of rights to subscribe for or purchase any shares of
capital stock of any class or of any other rights; or
(c) Of any reclassification of the capital stock of the Corporation
(other than a subdivision or combination of its outstanding shares or
Common Shares), or of any consolidation or merger to which the Corporation
is a party and for which approval of any stockholders of the Corporation is
required, or of the sale or transfer of all or substantially all of the
assets of the Corporation, or of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, or
(d) The Corporation proposes to take any other action that would
require an adjustment of the Conversion Rate; then the Corporation shall
cause to be mailed to each record holder of Convertible Preferred Stock at
least 20 days (or 10 days in any case specified in Clause (a) or (b)) prior
to the applicable record date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution of rights, or, if a record is not to be taken, the date as of
which the holder of Common Shares of record to be entitled to such
dividend, distribution or rights are to be determined, or (y) the date on
which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation winding up or other action is expected to become
effective and the date as of which it is expected that holders of Common
Shares of record shall be entitled to exchange their Common Shares for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation, winding up
or other action.
(10) The Corporation shall at all timed reserve and keep available out of
its authorized but unissued Common Shares, for the purpose of issuance upon
conversion of the Convertible Preferred Stock, the full number of Common Shares
then issuable upon the conversion of all shares of the Convertible Preferred
Stock then outstanding.
(11) The Corporation will pay any and all taxes that may be payable in
respect of the issuance or delivery of Common Shares on conversion of shares of
the Convertible Preferred Stock pursuant hereto. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involving issue and delivery of Common Shares in the name other than
that in which the shares of the Convertible Preferred Stock so converted were
registered, and no such issue and delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of any such
tax, or has established, to the satisfaction of the Corporation, that such tax
has been paid.
(12) For the purposes hereof, the term "Common Shares" shall include any
shares of the Corporation of any class or series which has no preference or
priority in the payment of dividends or in the distribution of assets upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation and which is not subject to redemption by the Corporation.
(13) No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of the Convertible Preferred Stock. If any such
conversion would otherwise require the issuance of a fractional share, an amount
equal to such fraction multiplied by the Closing Price (determined as provided
in clause (d) of Subdivision (8) above) of the Common Shares on the day of
conversion shall be paid to the holder in cash by the Corporation. If on such
date there is no Closing Price, the fair value of a Common Share on such date,
as determined by the Board of Directors, shall be used. All shares of
Convertible Preferred Stock purchased or otherwise acquired by the Corporation
(including shares surrendered for conversion) shall be canceled.
43
<PAGE>
Exhibit 4(b)
(14) Each holder of Convertible Preferred Stock shall be entitled to
receive the same annual, periodic and other reports or communications sent by
the Corporation to holders of Common Shares, including, but no limited to,
notices of meeting of stockholders and proxy or information statement materials
required to be sent to stockholders under the Securities Exchange Act of 1934.
The Corporation will mail such reports, communications, notices and proxy or
other materials to holders of record of Convertible Preferred Stock in the same
manner as mailings are made to holders of record of Common Shares.
(15) The holders of Convertible Preferred Stock shall have no voting rights
except as may be expressly conferred by statute.
(16) While any shares of Convertible Preferred Stock remains outstanding,
the Corporation will not issue any shares of Preferred Stock (regardless of
series) having dividend or liquidation rights or preferences senior to the
Convertible Preferred Stock without the consent of the holders of two-thirds
of the outstanding shares of Convertible Preferred Stock.
IN WITNESS WHEREOF, this Certificate is made under the seal of PERSONAL
COMPUTER PRODUCTS, INC. and signed by Edward W. Savarese, as Chairman of the
Board, President and Chief Executive Officer, and Gerry B. Berg as Secretary,
this 3rd day of February, 1995.
PERSONAL COMPUTER PRODUCTS, INC.
BY: Edward W. Savarese
--------------------------------
Chairman of the Board, President
and Chief Executive Officer
ATTEST:
BY: Gerry B. Berg
--------------------------------
Secretary
44
<PAGE>
Exhibit 10(c.2)
ADDENDUM TO LEASE
This Addendum to the Lease of February 2, 1990, is by and between Bernardo
Gateway Partners, a California general partnership (Lessor), and Personal
Computer Products, Incorporated, a Delaware corporation, herein known as PCPI
(Lessee) and is made this twentieth day of January, 1995.
The parties hereby agree to amend the terms of this lease for the premises
located at 10865 Rancho Bernardo Road, San Diego, California, 92127, a part
of the Bernardo Gateway Project, as follows:
1. Back Rent. By signature below, receipt of a check made payable to Bernardo
---------
Gateway Partners in the amount of Seventeen Thousand, Five Hundred Dollars and
No Cents ($17,500.00 received January 10, 1995) and the issuance of preferred
stock of PCPI in the amount of Two Hundred Sixty-Eight Thousand Dollars
($268,000.00) the parties agree to payment in full of all past due monetary
obligations with respect to the back rent owed by PCPI.
2. Agreement to Pay Rent. Commencing January 1, 1995, Lessor agrees to monthly
---------------------
base rental payments from PCPI for the leased premises in the amount of Eleven
Thousand, Five Hundred Dollars ($11,500.000) per month for the balance of the
term of the existing lease.
3. Agreement to Vacate. PCPI agrees to vacate the premises upon sixty (60) days
-------------------
notice from Lessor.
4. Terms and Conditions. All other terms and conditions of the lease dated
--------------------
February 2, 1990, shall remain in full force an effect. Substantial performance
has not been bargained for; full and complete performance is required. TIME IS
OF THE ESSENCE.
5. Entire Agreement. This agreement supersedes all agreements previously made by
----------------
the parties relative to the subject matter. There are no understandings or
agreements between them other than as set forth herein.
6. California Law. This agreement shall be construed in accordance with the laws
--------------
of the State of California.
Agreed to and by:
Personal Computer Products, Inc. Bernardo Gateway Partners
By: s/Edward W. Savarese By: s/William J. Brehm
-------------------- ------------------
Edward. W. Savarese William J. Brehm
Chairman, President and General Partner
Chief Executive Officer
Date: January 31, 1995 Date: January 31, 1995
45
<PAGE>
Exhibit 10(m.8)
AMENDMENT NO. 3 TO TERM LOAN AGREEMENT
THIS AMENDMENT is dated as of April 7, 1995, and relates to the Term Loan
Agreement dated September 17, 1993, between Personal Computer Products, Inc., a
Delaware corporation ("Borrower"), and Fundamental Investors, Ltd., a Florida
limited partnership ("Lender"), as amended pursuant to the parties' letter
agreement dated as of August 18, 1994 ("Amendment No. 1"), and the parties'
Amendment No. 2 to Term Loan Agreement dated as of October 19, 1995 ("Amendment
No. 2") (the "Loan Agreement").
WHEREAS, Events of Default under the Loan Agreement have occurred and
remain in effect in that Borrower has failed to make the interest payment due
March 17, 1995, and Borrower has failed to pay Lender certain proceeds of Xerox
and Panasonic Collateral; and
WHEREAS, the parties wish to amend the Loan Agreement in order to cure said
Events of Default by providing for additional Collateral, a revised payment
schedule and certain other modifications to the Loan Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree that the foregoing recitals are true and correct
and further agree as follows:
1. Terms defined in the Loan Agreement are used herein as defined therein.
2. The $20,824 interest amount due March 17, 1995, shall be added to the
principal balance as of March 17, 1995. Consequently, the principal balance of
the Loan as of the date hereof is $468,787.
3. Attached hereto as Exhibit "A" is Borrower's Collateral summary dated
April 7, 1995 (the "Summary"). Borrower represents and warrants to Lender that
the Summary accurately sets forth as of the date hereof (i) the existing
Collateral, (ii) all proceeds of Collateral received by Borrower, and (iii) the
Collateral to be pledged pursuant hereto as set forth in paragraph 4 below.
4. Borrower hereby pledges as additional Collateral a first priority
security interest in all of Borrower's present and future right, title and
interest in and to (i) the $75,000 payment due to Borrower pursuant to Section
3.2 (iii) of the PCPI/APS License Agreement dated as of March 28, 1994, between
Borrower and Integrated Device Technology, Inc., a Delaware corporation, and
(ii) the two payments of $100,000 each due to Borrower upon "Beta delivery" and
"Final Acceptance" pursuant to Article 5, Exhibit "D" of the Development
Agreement dated as of February 27, 1995, between Borrower and Samsung
Electronics Co., Ltd., a Korean corporation. In connection with the foregoing
amendment to Lender's security interest, Borrower will promptly execute and
deliver an appropriate amendment to the existing UCC-1 Financing Statement and
such other documents as Lender may reasonably require.
5. Sections 5 and 6 of Amendment No. 2 are hereby deleted. Borrower
shall remit to Lender immediately upon receipt all proceeds of the Collateral.
6. Borrower shall cause all payments on the Collateral from Xerox
Corporation to be made to Lender through checks sent to Borrower's counsel
Brobeck, Phleger & Harrison ("Brobeck") pursuant to the agreements copies of
which are attached hereto as composite Exhibit "B." Immediately upon Borrower's
receipt of each notice from Brobeck that a Xerox Collateral payment has been
received, a duly authorized officer of Borrower shall visit Brobeck's office and
endorse the check to Lender.
7. In the event that Borrower raises net proceeds of at least $1,250,000 in
equity or debt capital while the Loan is still outstanding, Borrower shall
immediately pay Lender from such proceeds the lesser of (i) the balance due on
the Loan or (ii) the sum of $173,072 [$88,248 from Xerox, plus $64,000 from
Panasonic, plus 3/17/95 interest], which shall be applied to the balance due on
the Loan.
8. Immediately upon execution of this Agreement, Borrower shall pay to
Lender's attorneys Olle, Macaulay & Zorrilla, P.A., Miami, Florida, the sum of
$3,000 in full satisfaction of Lender's legal fees and expenses through the date
hereof payable by Borrower pursuant to Section 9.4 of the Loan Agreement.
46
<PAGE>
Exhibit 10(m.8)
9. This Amendment No. 3 shall constitute an Amendment to the Loan Agreement
and to all other Loan Documents to the extent affected by the terms hereof.
10. Except as amended herein, all terms and provisions of the Loan
Agreement and the Loan Documents shall remain in full force and effect,
including, but not limited to, Borrower's obligation to make the final
principal and interest payment due on September 17, 1995.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 3 as
of the date first above written.
PERSONAL COMPUTER PRODUCTS, INC.
Edward W. Savarese, President
FUNDAMENTAL INVESTORS, LTD.
Marius A. Robinson, General Partner
47
<PAGE>
Exhibit 10(r)
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into and effective as of September 1, 1994 (the
"Effective Date"), by and between Personal Computer Products, Inc., a Delaware
corporation with its principal executive offices at 10865 Rancho Bernardo Road,
San Diego, California 92127 (the "Company"), and Brian Bonar, an individual
residing at 327 Carlton Ave., Los Gatos, CA 95030 ("Executive"), with reference
to the following facts:
RECITALS
A. The Company desires to obtain the association and services of Executive
and is willing to engage his services on the terms and conditions set forth
below.
B. Executive desires to enter into the employ of the Company for a specific
period of time and is willing to do so on those terms and conditions.
AGREEMENT
---------
In consideration of the forgoing recitals and of the mutual promises and
conditions set forth herein, the parties hereto agree as follows:
1. Employment. The Company hereby agrees to employ Executive as its Vice
----------
President, Sales and Marketing, and Executive agrees to accept employment,
upon the terms and conditions set forth herein. Executive shall have such duties
and responsibilities as may be delegated or assigned from time to time by
the Company's Board of Directors.
1.1 Executive agrees to devote substantially all of his productive time,
energy and abilities to the proper and efficient discharge of his duties set
forth above.
1.2 Executive will not, without the prior written consent of the Company,
directly or indirectly:
(i) during the term of this Agreement, render services to a business,
professional or commercial nature to any other person or entity, whether for
compensation or otherwise; or
(ii) during the term of this Agreement, engage in any business activity
competitive with or adverse to the Company's or its subsidiaries; business in
the field of laser printer or computer products, whether alone, as a partner or
a member, or as an officer, director, employee or shareholder of another
business entity; provided, however, that this provision shall not prohibit
Executive from being a not more than one percent shareholder in any publicly
traded company and provided, further, that in the event that Executive engages
in any such business activity that is competitive with or adverse to the
Company's business activity in the field of laser printer or computer products,
Company shall have no obligation to pay Executive any amounts under Section 3,
but shall, notwithstanding such engaging, have a. continued obligation to pay
Executive amounts under Sections 5.6, 5.7 and 5.8 in respect of a prior
termination pursuant to Sections 5.2, 5.5 or 5.6.
2. Term. Subject to the termination provisions in Section 5 hereof, the
----
term of Executive's employment shall be for a continuous four (4) year and ten
(10) month period, commencing as of the Effective Date (the "Term").
3. Compensation.
------------
3.1 Salary. For all services Executive may render to the Company during the
------
Term of this Agreement, including services as an officer, director, consultant
or member of any committee of the Company, Executive will be compensated as
follows:
9-1-94/6-30-95 Year 1 - $10,000 per month
7-1-95/6-30-96 Year 2 - $10,000 per month
7-1-96/6-30-97 Year 3 - $10,000 per month
7-1-97/6-30-98 Year 4 - $10,000 per month
7-1-98/6-30-99 Year 5 - $10,000 per month
Such monthly salary shall be payable in equal bi-monthly installments,
subject to income tax withholding and other payroll tax deductions required by
applicable state and federal law.
3.1A Salary will be adjusted by a cost of living adjustment at 3.5% per
year.
3.1B Commission plan - Commission plan will be agreed to by both parties at
the start of each Fiscal Year and will start for Fiscal Year '95 with
attachment (a).
48
<PAGE>
Exhibit 10(r)
3.1C Stock option and stock grants are attached as attachment (b) and
future options are to be granted by the Board of Directors.
3.2 Expenses. During the Term of this Agreement, the Company shall
--------
reimburse Executive for reasonable and authenticated out-of-pocket expenses
incurred in connection with performance of Executive's duties hereunder,
including (without limitation) travel expenses, food and lodging while away
from home, and entertainment, subject to such policies as the Company may from
time to time reasonably establish for its employees.
3.3 Other Benefits. Subject to the terms hereof, Executive shall receive
--------------
the same standard employment benefits as the other executive employees of the
Company generally shall from time to time receive, including, for example,
health and life insurance programs, vacation, sick leave, bonus plans and
medical expense reimbursement plans as may be approved by the Board of
Directors. In addition, the Company may, in its sole discretion, grant such
additional compensation or benefits to Executive from time to time as it deems
proper and desirable.
4. Proprietary Information. Executive acknowledges that Executive currently
-----------------------
has knowledge, and during the term of this Agreement will gain further
knowledge, of information not generally known about the Company and its present
and future subsidiaries (collectively, the "Consolidated Company") and which
gives the Consolidated Company an advantage over its competitors, including
(without limitation) information of a technical nature, such as "know how,"
formulae, secret processes or machines, data processes, computer programs,
inventions and research projects, and information of a business nature, such as
information about costs, profits, markets, sales, Consolidated Company finances,
employees, lists of customers and other information of a similar nature to the
extent not available to the public, and plans for future developments
(collectively, Confidential Information"). Executive agrees to keep secret all
such Confidential Information of the Consolidated Company, including information
received in confidence by the Consolidated Company from others, and agrees not
to disclose any such Confidential Information to anyone outside the Consolidated
Company except as required in the course of his duties, either during or after
his employment. Executive acknowledges and agrees that all memoranda, notes,
records, manuals, drawings, blueprints, equipment and the like relating to any
such Confidential Information, shall be and remain the Consolidated Company's
sole property, shall not he removed from the Consolidated Company's premises
without the Company's express prior written consent and shall be promptly
delivered to the Company upon termination of Executive's employment or at any
time that Company may so request, including all copies of such materials which
Executive may then possess or have under his control. 5. Termination of
Employment. This Agreement is terminable prior to the expiration of the Term in
the manner and to the extent set forth in this Section 5, and not otherwise.
5.1 Death. This Agreement shall terminate upon the death of the Executive.
-----
5.2 Disability. This Agreement shall terminate upon the permanent
----------
disability of Executive. For purposes of this section "permanent disability"
shall mean Executive's inability to perform his duties hereunder for any 145
days in any six (6) consecutive months.
5.3 Termination for Cause. The Company may terminate this Agreement at any
---------------------
time without further delay for Executive's willful misconduct including, but not
limited to, fraud, dishonesty, willful breach or habitual neglect of duties,
disclosure of Confidential Information, and engagement in any activity
competitive with or materially adverse to the Consolidated Company during the
Term of this Agreement, if such misconduct is material and is not remedied by
Executive within ten (10) days after written notice by the Company of same.
5.3A Executive will be subject to sales quotas and performance reviews.
Objectives will be agreed to prior to each Fiscal Year and performance will be
judged according to the successful completion of sales and corporate objectives.
Termination for unsatisfactory performance shall also be Termination for Cause.
5.3B Should the Company not be profitable and not have sufficient cash flow
or other resources to pay Executive, moneys then owed shall be accrued and paid
for when and if the Company has sufficient cash.
5.4 Voluntary Termination. At any time during the Term, and for any reason,
---------------------
Executive may voluntarily terminate this Agreement and resign from the
employment of the Company. Such termination and resignation shall he effected by
sixty (60) days' prior written notice to the Company.
5.5 Termination for Good Reason. At any time during the Term, the Executive
---------------------------
may voluntarily terminate this Agreement and resign from the employment
of the Company for Good Reason, as defined below. Such termination and
resignation shall be effected by sixty (60) days' prior written notice to the
Company. "Good Reason" shall mean termination based upon:
49
<PAGE>
Exhibit 10(r)
(i) The assignment to the Executive of any duties materially inconsistent
with his positions, duties, responsibilities and status with the Company as in
effect immediately prior to such assignment, or a significant change in such
Executive's reporting responsibilities or offices as in effect immediately prior
to such change, except in connection with the termination of the Executive's
employment pursuant to Sections 5.1, 5.2, 5.3, 5.4 or 5.6;
(ii) A reduction by the Company in the Executive's compensation as set
forth in Section 3.1 hereof which is not consented to by the Executive; the
Executive may withdraw any prior consent upon 30 days' prior written notice to
the Company;
(iii) The requirement by the Company that the Executive be based anywhere
other than the Company's offices in Santa Clara County, California, except for
required travel on the Company's business to an extent substantially consistent
with the Executive's present business travel obligations, or in the event the
Executive consents to any such relocation, the failure by the Company to pay (or
to reimburse the Executive) for all reasonable moving expenses in
connection with any such relocation.
In the event of Termination for Good Reason, the Company shall nonetheless
pay to Executive his salary as provided in Section 3.1, together with any
other compensation or benefits due hereunder, for the remainder of the five-year
'term, all in a lump sum within seventy-two (72) hours after such termination,
and continue all his fringe benefits for the remainder of the five-year Term.
5.6 Termination Without Cause. At any time during the Term, and for any
-------------------------
reason or no reason (except as provided in Sections 5.1, 5.2, 5.3 or 5.4), the
Company may terminate Executive's employment, provided only that the Company
shall nonetheless pay to Executive his salary as provided in Section 3.1,
together with any other compensation or benefits due hereunder, for the
remainder of the five-year Term, all in a lump sum within 72 hours after such
termination, and continue all his fringe benefits for the remainder of the five-
year Term.
5.6A Change in corporate control - should the management or ownership of
the Company change substantially, Executive may be terminated with the same
conditions as paragraph 5.6.
5.7 Effect of Termination.
---------------------
(i) In the event Executive's employment is terminated by the Company for
cause pursuant to Section 5.3 above, all compensation and other benefits due
under this Agreement shall (except as otherwise provided in this Agreement)
cease as of the date of such termination of employment ("Employment
Termination Date").
(ii) In the event Executive's employment is terminated upon Executive's
death and/or permanent disability pursuant to Section 5.1 or 5.2, respectively,
the Company shall pay to Executive, his estate or representative Executive's
salary as provided in Section 3.1, together with any other compensation or
benefits due hereunder, for the remainder of the five-year Term. Additionally,
in such event, any stock options Executive exercisable by Executive, his estate
or his personal representative until two (2) years after such Employment
Termination Date.
(iii) In the event Executive's employment is terminated for any reason and
the Company has previously purchased an insurance policy on Executive's life,
payable to Executive or his family, the Company shall not terminate such policy
before its scheduled expiration, seek any refund of any portion of premiums
already paid, or change the beneficiaries under such policy.
(iv) In the event Executive's employment is terminated for any reason, (a)
Executive and his family members shall, in addition to their COBRA rights, have
the same rights with respect to disability and life insurance as they would have
had if disability and life insurance were covered by COBRA to the same extent
medical coverage is, (b) Executive and his family members shall have the same
rights with respect to medical, disability and life insurance as they would have
had if (i) disability and life insurance were covered by COBRA to the same
extent medical coverage is and (ii) June 30, 1995 were the Employment
Termination Date, and (c) should Executive die within 18 months after the
Employment Termination Date at a time when his medical and/or disability
insurance is continuing in force pursuant to COBRA, Section 5.6, Section 5.7
(iv)(a) or Section 5.7 (iv)(b), his family members shall have a new and further
right to continue such medical and/or disability insurance for 36 months as if
Executive's date of death were an Employment Termination Date to which Section
5.7 (iv)(a) were applicable.
50
<PAGE>
Exhibit 10(r)
5.8 Severance Pay. In the event Executive's employment terminates upon the
-------------
scheduled expiration of the term and the Company determines not to offer
continuing employment to Executive, or in the event Executive's employment
terminates under Section 5.6 within six months before the scheduled expiration
of the Term, then Executive shall be entitled to be paid, in addition to all
other amounts due him, one-half of his "Year 5" annual salary, all in a lump sum
within 72 hours after the Employment Termination Date.
6. Specific Enforcement. Executive is obligated under the Agreement to
--------------------
render service of a special, unique, unusual, extraordinary, and intellectual
character, thereby giving this Agreement peculiar value, so that the loss
thereof cannot be reasonably or adequately compensated in damages in an action
at law. Therefore, in addition to other remedies provided by law, the Company
shall have the right during the Term to compel specific performance hereof by
Executive and/or obtain injunctive relief against the performance of services
elsewhere by Executive, without the posting of any bond or other security.
7. Controversies. Any controversy or claim arising out of or relating to
-------------
Executive's employment and this Agreement, the breach hereof, or the coverage of
this arbitration provision, shall he settled by arbitration in San Diego,
California, which arbitration shall be in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, as such rules shall
be in effect on the date of delivery of demand for arbitration. The arbitration
of such issues, including the determination of the amount of any damages
suffered by any party, shall be to the exclusion of any court of law. The
decision of the arbitrators or a majority of them shall be final and binding
upon the parties and the personal representatives, executors, heirs, or devisees
of Executive, if applicable. There shall be three arbitrators, one to be chosen
directly by Executive, the second by the company and the third by the two
arbitrators so chosen. The Company and Executive shall each pay the fees of the
arbitrators selected by it or him and of its or his own attorneys, the expenses
of witnesses and all other expenses connected with the presentation of such
party's case. The costs of the arbitration including the cost of the record of
transcripts thereof, if any, administrative fees, and all other fees and costs,
including those of the third arbitrator, shall be borne one-half by Executive
and one-half by the Company.
8. Tax Consequences. The Company shall have no obligation to Executive with
----------------
respect to any tax obligations incurred as the result of or attributable to this
Agreement or arising from any payments made or to be made hereunder. Any
distributions made pursuant to this Agreement shall be subject to such
withholding and reports as may be required by any then-applicable laws or
regulations of any state or federal taxing authority.
9. General Provisions.
------------------
9.1 The failure to enforce any provision of this Agreement shall not be
construed as a waiver of any such provision, nor prevent a party thereafter from
enforcing the provision or any other provision of this Agreement. The rights
granted the parties are cumulative, and the election of one shall not constitute
a waiver of such party's right to assert all other legal and equitable remedies
available under the circumstances.
9.2 Any notice to be given to the Company under the terms of this Agreement
shall be addressed to the Company, to the attention of the Board of Directors,
at the address of its executive office set forth above, and any notice to be
given to Executive shall be addressed to him at the residence address set forth
above, or such other address as Company and/or Executive may hereafter designate
in writing to the other. Any notice shall be deemed duly given when personally
delivered or five (5) days after deposit in U.S. mail by registered or certified
mail, postage prepaid, as provided herein. 9.3 The provisions of this Agreement
are severable, and if any provision of this Agreement shall be held to be
invalid or otherwise unenforceable, in whole or in part, the remainder of the
provisions, or enforceable parts thereof, shall not be affected thereby.
9.4 Neither Executive nor the Company may assign this Agreement without the
prior written consent of the other; provided that this Agreement may be assigned
to any successor to the Company's business without Executive's consent. The
rights and obligations of the Company under this Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
Company, and Executive's rights under this Agreement shall inure to the benefit
of and be binding upon his heirs and executors.
9.5 This Agreement supersedes all prior and contemporaneous negotiations,
agreements and understandings between the parties, oral or written. No
modification, termination or attempted waiver shall he valid unless in writing,
signed by the party against whom such modification, termination or waiver is
sought to be enforced.
51
<PAGE>
Exhibit 10(r)
9.6 This Agreement shall be governed by and construed in accordance with
the laws of the State of California applicable to contracts entered into and
wholly to be performed within the State of California by California residents.
EXECUTIVE: PERSONAL COMPUTER PRODUCTS, INC.
_______________________ -------------------------
Brian Bonar Edward W. Savarese
Title: Chairman, President, and CEO
By: ______________________
Gerry B. Berg
Title: Executive Vice President and Secretary
52
<PAGE>
Exhibit 10(r)
PCPI MEMORANDUM
ATTACHMENT "A"
FROM: EDWARD W. SAVARESE
TO: BRIAN BONAR
SUBJ: COMMISSION PLAN
DATE: OCTOBER 24, 1994
COMMISSION PLAN FOR BRIAN BONAR BEGINNING NOVEMBER 1, 1994.
FOR FISCAL YEAR 1995
MR. BONAR SHALL RECEIVE A ONE AND ONE HALF PERCENT (1-1/2%) COMMISSION ON
MONTHLY CASH RECEIPTS BY PCPI FOR PCPI PRODUCT SALES WITH A GROSS MARGIN OP OVER
FIFTEEN PERCENT (15%) AND A ONE AND ONE HALF PERCENT (1-1/2%) COMMISSION ON
MONTHLY CASH RECEIPTS FROM CONTRACT REVENUES UP TO $3,500 PER MONTH.
IN ANY MONTH THAT THE COMMISSION CALCULATION EXCEEDS $3,500 THIS AMOUNT SHALL
ACCRUE TO THE NEXT MONTH, UNTIL EACH DECEMBER 31. AT EACH DECEMBER 31 IF THERE
IS AN ACCRUAL BALANCE IN THIS ACCOUNT, MR. BONAR WILL RECEIVE THE BALANCE.
IN THIS ACCOUNT UP TO A CALENDAR YEAR COMMISSION MAXIMUM AMOUNT OF $55,000. IF
THERE IS ANY ADDITIONAL ACCRUALS IN THIS ACCOUNT IT GOES TO ZERO AND THE PLAN
RESTARTS ON JANUARY 1 OF EACH YEAR. COMMISSIONS PAID IN ANY ONE CALENDAR YEAR
(12 MONTHS FROM JANUARY THROUGH DECEMBER) CAN NOT EXCEED $55,000.
53
<PAGE>
Exhibit 10(r)
PCPI MEMORANDUM
ATTACHMENT "B"
FROM: EDWARD W. SAVARESE
TO: BRIAN BONAR
SUBJ: STOCK OPTIONS
DATE: OCTOBER 24, 1994
THE FOLLOWING IS A LISTING OF STOCK OPTIONS GRANTED TO BRIAN BONAR AS OF
NOVEMBER 4, 1994:
PRIMA ACQUISITION COMPENSATION PLAN:
ISSUE DATE: OCTOBER 14, 1993
NUMBER: 150,000 OPTIONS
EXPIRATION DATE: DECEMBER 31, 1999
ISSUE PRICE: $ .72
FIRST EXERCISABLE: 25,000 ON OCTOBER 14, 1993
25,000 ON OCTOBER 14, 1994
50,000 ON OCTOBER 14, 1995
50,000 ON OCTOBER 14, 1996
PCPI STOCK WARRANT:
ISSUE DATE: SEPTEMBER 22, 1994
NUMBER: 100,000 WARRANTS
EXPIRATION DATE: SEPTEMBER 21, 1999
ISSUE PRICE: $ .75
FIRST EXERCISABLE: 20,000 ON SEPTEMBER 22, 1994
20,000 ON SEPTEMBER 22, 1995
20,000 ON SEPTEMBER 22, 1996
20,000 ON SEPTEMBER 22, 1997
20,000 ON SEPTEMBER 22, 1998
54
<PAGE>
Exhibit 10(s.1)
PROMISSORY NOTE
U.S. $286.000 Dated as of October 7, 1994
FOR VALUE RECEIVED, the undersigned Personal Computer Products, Inc.,
("PCPI") 10865 Rancho Bernardo Road, San Diego, CA 92127, promises to pay
Copolymer Kako Co., Ltd. Japan, 243 Kamihama-cho, Minami-ku, Nagoya 457 Japan,
the principal sum of Two Hundred Eighty-Six Thousand United States Dollars (U.S.
$286,000), together with interest from the date hereof at seven percent (7%)
simple interest per annum, whether prior to or after maturity.
This loan will be furnished to PCPI as follows:
$150,000 on the 12th of October 1994 and,
$136,000 on the 31st of October 1994.
Principal and all accrued interest thereon shall be due as follows:
Within 30 days after PCPI receives equity funding of Three Million
Dollars ($3,000,000); or
Six months after the loan amounts are received by PCPI.
All wire transfer fees between the two companies will be paid by PCPI.
Principal and all accrued interest may be prepaid on the balance due under
this Note at any time in whole or in part without penalty or premium.
Upon payment in full of all principal and interest payable, this Note shall
be surrendered to PCPI for cancellation.
This Note shall be governed by and enforced in accordance with the laws of
the State of California.
This Note may not be changed, modified, waived, amended or terminated
except in writing signed by PCPI and Copolymer Kako Co., Ltd.
PERSONAL COMPUTER PRODUCTS, INC.
By:
-------------------------------------
Edward W. Savarese
President and Chief Executive Officer
55
<PAGE>
Exhibit 10(s.2)
PERSONAL COMPUTER PRODUCTS, INC.
SUBSCRIPTION AGREEMENT
To: Personal Computer Products, Inc.
I hereby acknowledge receipt of a full and complete Copy of, and I hereby
accept, Personal Computer Products, Inc., Offer as of January 6, 1995,
subject to all the terms and conditions of that Offer, and hereby submit
$290,271 principal amount and accrued interest of the Company's Note due
Copolymer Kako, Co., Ltd. for surrender. I hereby certify that I have the full
power and authorization to act for and on behalf of Copolymer Kako, Co.,
Ltd. Please issue the Common Stock in the names indicated below.
NAME ON CERTIFICATES SEND CERTIFICATES TO:
Copolymer Kako, Co., Ltd. 243 Kamihama-cho
Minami-ku, Nagoya 457,
Japan
Please print or type name and address
I acknowledge that I have had the opportunity to review the financial condition
of and current information on the Company including the Company's annual report
for its fiscal year ended June 30, 1994 and its Form 10-QSB for the quarter
ended September 30, l994, and have been invited to discuss the information with
the Company's officers and directors. I acknowledge that the information I have
received is all the information I deem necessary to enable me to make a decision
whether to accept the Offer, and I, agree to hold the Company harmless from and
against any action arising under any Securities law out of my acceptance of the
Offer.
Dated: January 24, 1995 Nippo, Ltd.
----------------
By: Yuzo Okaya
----------
(Print name)
President
---------------------------
(Title)
56
<PAGE>
Exhibit 10(t)
PERSONAL COMPUTER PRODUCTS, INC.
SUBSCRIPTION AGREEMENT
To: Personal Computer Products, Inc.
I hereby acknowledge receipt of a full and complete Copy of, and I hereby
accept, Personal Computer Products, Inc., Offer as of January 6, 1995, subject
to all the terms and conditions of that Offer, and hereby submit $407,978
principal amount and accrued interest of the Company's Note due Nippo, Ltd. for
surrender. I hereby certify that I have the full power and authorization to act
for and on behalf of Nippo, Ltd. Please issue the Common Stock in the names
indicated below.
NAME ON CERTIFICATES SEND CERTIFICATES TO:
Nippo, Ltd. 5-27-12, Sakae,
Naka-ku, Nagoya 460,
Japan
Please print or type name and address
I acknowledge that I have had the opportunity to review the financial condition
of and current information on the Company including the Company's annual report
for its fiscal year ended June 30, 1994 and its Form 10-QSB for the quarter
ended September 30, l994, and have been invited to discuss the information with
the Company's officers and directors. I acknowledge that the information I have
received is all the information I deem necessary to enable me to make a decision
whether to accept the Offer, and I, agree to hold the Company harmless from and
against any action arising under any Securities law out of my acceptance of the
Offer.
Dated: January 24, 1995 Nippo, Ltd.
----------------
By: Yuzo Okaya
----------
(Print name)
President
------------------------------
(Title)
57
<PAGE>
Exhibit 10(u)
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Loan Loan
Principal Date Maturity No Call Collateral Account Officer Initials
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$500,000.00 04-11-1995 959-26 190 7098950933 52035
</TABLE>
- ------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- ------------------------------------------------------------------------------
Borrower: PRIMA INTERNATIONAL Lender: U.S. BANK OF CALIFORNIA
3350 SCOTT BLVD., # 7 International Banking
SANTA CLARA, CA 98054 980 9th Street, Suite 1100
Sacramento, CA 95814
- ------------------------------------------------------------------------------
THIS BUSINESS LOAN AGREEMENT between PRIMA INTERNATIONAL ("Borrower") and U.S.
BANK OF CALIFORNIA ("Lender") Is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement Individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) In
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warrantees, end agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of April 11, 1995, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement In writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
Borrower. The word "Borrower means PRIMA INTERNATIONAL. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates
of Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended. Collateral. The word
"Collateral" means and includes without limitation all property and assets
granted as collateral security for a Loan, whether real or personal
property, whether granted directly or indirectly, whether granted now or
In the future, and whether granted in the form of a security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust receipt,
lien, charge, lien or title retention contract, lease or consignment
intended as a security device, or any other security or lien Interest
whatsoever, whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended. Event of Default. The words "Event of Default" mean
and include without limitation any of the Events of Default set forth
below in the section titled "EVENTS OF DEFAULT."
Grantor. The word "Grantor" means and Includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all
Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
58
<PAGE>
Exhibit 10(u)
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or Involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may
be liable individually or Jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon such
Indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.
Lender. The word "Lender" means U.S. BANK OF CALIFORNIA, its successors
and assigns.
Loan. The word Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, It any, evidencing Borrower's Loan obligations
in favor of Lender, as well as any substitute, replacement or refinancing
note or notes thereto.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Indebtedness.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended
as a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender as of
the date of this Agreement and as of the date of each disbursement of Loan
proceeds:
Organization. Borrower is a corporation which is duly organized, validly
existing, and In good standing under the laws of the State of California.
Borrower has the full power and authority to own its properties and to
transact the businesses in which it is presently engaged or presently
proposes to engage. Borrower also is duly qualified as a foreign
corporation and is in good standing In all states In which the failure to
so qualify would have a material adverse effect on its businesses or
financial condition.
Authorization. The execution, delivery, and performance of this Agreement and
all Related Documents by Borrower, to the extent to be executed, delivered or
performed by Borrower, have been duly authorized by all necessary action by
Borrower; do not require the consent or approval of any other person, regulatory
authority or governmental body; and do not conflict with, result in a violation
of, or constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other instrument
binding upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to Lender
truly and completely disclosed Borrower's financial condition as of the date of
the statement, and there has been no material adverse change in Borrower's
financial condition subsequent to the date of the most recent financial
statement supplied to Lender. Borrower has no material contingent obligations
except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms.
59
<PAGE>
Exhibit 10(u)
Properties. Except as contemplated by this Agreement or as previously disclosed
in Borrower's financial statements or in writing to Lender and as accepted by
Lender, and except for property tax liens for taxes not presently due and
payable, Borrower owns and has good title to all of Borrower's properties free
and clear of all Security Interests, and has not executed any security documents
or financing statements relating to such properties. All of Borrower's
properties are titled in Borrower's legal name, and Borrower has not used, or
filed a financing statement under, any other name for at least the last five (5)
years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resources
Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., Chapters 6.6
through 7,7 of Division 20 of the California Health and Safety Code, Section
25100, et seq., or other applicable state or Federal laps, rules, or regulations
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that: (a)
During the period of Borrower's ownership of the properties, there has been no
use, generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person on, under,
or about any of the properties. (b) Borrower has no knowledge of, or reason to
believe that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous waste or
substance by any prior owners or occupants of any of the properties, or (ii) any
actual or threatened litigation or claims of any kind by any person relating to
such matters. (c) Neither Borrower nor any tenant, contractor, agent or other
authorized user of any of the properties shall use, generate, manufacture,
store, treat, dispose of, or release any hazardous waste or substance on, under,
or about any of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws, regulations, and
ordinances, including without limitation those has, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter upon the
properties to make such inspections and tests as Lender may deem appropriate to
determine compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any responsibility
or liability on the part of Lender to Borrower or to any other person. The
representations and warranties contained herein are based on Borrower's due
diligence in investigating the properties for hazardous waste. Borrower hereby
(a) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other costs
under any such laws, and (b) agrees to indemnify and hold harmless Lender
against any and all claims, losses, liabilities, damages, penalties, and
expenses which Lender may directly or indirectly sustain or suffer resulting
from a breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, releases or threatened release
occurring prior to Borrower's ownership or interest in the properties, whether
or not the same was or should have been known to Borrow. The provisions of this
section of the Agreement, including the obligation to indemnify, shall survive
the payment of the Indebtedness and the termination or expiration of this
Agreement and shall not be affected by Lender's acquisition of any interest in
any of the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against Borrower
is pending or threatened, and no other event has occurred which may materially
adversely affect Borrower's financial condition or properties, other than
litigation, claims, or other events, if any, that have been disclosed to and
acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all taxes,
assessments and other governmental charges have been paid in full, except those
presently being or to be contested by Borrower in good faith in the ordinary
course of business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or permitted
the filing or attachment of any Security Interests on or affecting any of the
Collateral directly or indirectly securing repayment of Borrower's Loan and
Note, that would be prior or that may in any way be superior to Lender's
Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note and all Security Agreements directly or
indirectly securing repayment of Borrower's Loan and Note are binding upon
Borrower as well as upon Borrower's successors, representatives and assigns, and
are legally enforceable in accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
60
<PAGE>
Exhibit 10(u)
Employee Benefit Plans. Each employee benefit plan as to which Borrower may have
any liability complies in ail material respects with all applicable requirements
of law and regulations, and (i) no Reportable Event nor Prohibited Transaction
(as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower
has not withdrawn from any such plan or initiated steps to do so, and (iii) no
steps have been taken to terminate any such plan.
Location of Borrower's Offices and Records. The chief place of business of
Borrower and the office or offices where Borrower keeps its records concerning
the Collateral is located at 3350 SCOTT BLVD., 7, SANTA CLARA, CA 98054.
Information. All information heretofore or contemporaneously herewith furnished
by Borrower to Lender for the purposes of or in connection with this Agreement
or any transaction contemplated hereby is, and all information hereafter
furnished by or on behalf of Borrower to Lender will be, true and accurate in
every material respect on the date as of which such information is dated or
certified; and none of such information is or will be incomplete by omitting to
state any material fact necessary to make such information not misleading.
Survival of Representation and Warranties. Borrower understands and agrees that
Lender is relying upon the above representations and warranties in extending
Loan Advances to Borrower. Borrower further agrees that the foregoing
representations and warranties shall be continuing in nature and shall remain in
full force and effect until such time as Borrower's Loan and Note shall be paid
in full, or until this Agreement shall be terminated in the manner provided
above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all litigation and
claims and all threatened litigation and claims affecting Borrower or any
Guarantor which could materially affect the financial condition of
Borrower or the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, prepared
by Borrower, and, as soon as available, but in no event later than thirty
(30) days after the end of each month, Borrower's balance sheet and profit
and loss statement for the period ended, prepared and certified as correct
to the best knowledge and belief by Borrower's chief financial officer or
other officer or person acceptable to Lender. All financial reports
required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedule, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
Insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies
or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be canceled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage In favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require,
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks Insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than
61
<PAGE>
Exhibit 10(u)
annually), Borrower will have an independent appraiser satisfactory to
Lender determine, as applicable, the actual cash value or replacement cost
of any Collateral.
Guaranties. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, on Lender's forms, and in the
amounts and by the guarantors named below:
Guarantors Amounts
---------- -------
CALIFORNIA EXPORT FINANCE OFFICE $450,000.00
PERSONAL COMPUTER PRODUCTS, INC. $500,000.00
Other Agreements. Comply with all terms and conditions of all other agreements,
whether now or hereafter existing, between Borrower and any other party and
notify Lender immediately in writing of any default in connection with any other
such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations,
unless specifically consented to the contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and
obligations, including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (a) the legality of the same shall be
contested in good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies, liens and
claims and will authorize the appropriate governmental official to deliver to
Lender at any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions set
forth In this Agreement and in all other instruments and agreements between
Borrower and Lender in a timely manner, and promptly notify Lender it Borrower
learns of the occurrence of any event which constitutes an Event of Default
under this Agreement.
Operations. Substantially maintain its present executive and management
personnel; conduct its business affairs In a reasonable and prudent manner and
in compliance with all applicable federal, state and municipal laws, ordinances,
rules and regulations respecting its properties, charters, businesses and
operations, including without limitation, compliance with the Americans With
Disabilities Act and with all minimum funding standards and other requirements
of ERISA and other laws applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender-free access to such
records at all reasonable times and to provide Lender with copies of any records
it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender at
least annually and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other officer or
person acceptable to Lender, certifying that the representations and warranties
set forth in this Agreement are true and correct as of the date of the
certificate and further certifying that, as of the date of the certificate, no
Event of Default exists under this Agreement.
Environmental compliance and Reports. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part
or on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and In
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and In any event
62
<PAGE>
Exhibit 10(u)
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action m' omission on
Borrower's part in connection with any environmental activity whether or
not there is damage to the environment and other natural resources.
Additional Assurance Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE. COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of borrowers assets,
or (c) sell with recourse any of Borrower's accounts, except to Lender .
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any dividends
on Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event
of Default has occurred and is continuing or would result from the payment
of dividends, if Borrower is a "Subchapter S Corporation" (as defined in
the Internal Revenue Code of 1986, as amended), Borrower may pay cash
dividends on its stock to its shareholders from time to time in amounts
necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares
or alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan 1o
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower becomes insolvent, files a petition in
bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a
material adverse change in Borrower's financial condition, in the financial
condition of any Guarantor, or in the value of any Collateral securing any Loan;
(d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such Guarantor's guaranty of the Loan or any other loan with Lender; or (e)
Lender in good faith deems itself insecure, even though no Event of Default
shall have occurred.
ACCESS LAWS; Without limiting the generality of any provision of this agreement
requiring Borrower to comply with applicable laws, rules, and regulations,
Borrower agrees that it will at all times comply with applicable laws relating
to disabled access including, but not limited to, all applicable titles of the
Americans with Disabilities Act of 1990.
ADDITIONAL PROVISIONS.
1. This Agreement is subject to the terms and conditions of the CEFO Transaction
Attachment Case P1130/930, enclosed herewith as Exhibit I, representing an
integral part of this said Agreement Borrower acknowledges having received and
read said Attachment and agrees to abide by and be bound by said terms and
conditions. All fees associated with the CEFO Guarantee and Transaction
Attachment are for the account of Borrower.
2. This facility is limited strictly to the Borrower to assist the Borrower in
the export activities referred to in items 2,3,4 and 9 of CEFO'S Transaction
Attachment.
3. Guarantor, Personal Computer Products, Inc. (PCPI) will provide the Bank
annual, consolidated financial statements and 10-Ks within 90 days of each
fiscal year-end.
63
<PAGE>
Exhibit 10(u)
4. Guarantor, PCPI, will provide the Bank interim, consolidated financial
statements and 10-Qs within 45 days of each quarter-end.
5. Borrower to achieve a positive tangible net worth (as defined according to
GAAP) by June 30, 1995.
6. Borrower not to incur losses for more than two consecutive quarters.
7. Advances to be limited to 80 % of approved receivable as reflected in the
CEFO Transaction Attachment and defined in Exhibit II. Borrower to provide
monthly Borrowing Base Certificates within 30 days of each month-end, together
with detailed accounts receivable and accounts payable aging reports.
8. Borrower shall be allowed no additional borrowings during the course of this
Agreement.
9. Borrower will establish a cash collateral account with the Bank into which
all receipts from the CEFO approved buyers will be deposited and applied toward
any outstanding.
10. Any material adverse change in the financial or operating condition of the
Borrower or Guarantor during the term of this facility shall constitute an
Event of Default hereunder.
11. Borrower agrees that the Bank may conduct field audits as deemed necessary,
but in no event less than annually. Costs associated with the field audits
are for the account of Borrower.
12. All fees, legal or otherwise, incurred in the preparation, execution and
enforcement of this Agreement are for the account of the Borrower.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
Interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's' accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held Jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement: Default on. indebtedness. Failure of Borrower to make any
payment when due on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to perform
when due any other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents, or failure of Borrower to comply
with or to perform any other term, obligation, covenant or condition contained
in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor default under
any loan, extension of credit, security agreement, purchase or sales agreement,
or any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower's property or Borrower's or any Grantor's
ability to repay the Loans or perform their respective obligations under this
Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to
Lender by or on behalf of Borrower or any Grantor under this Agreement or the
Related Documents is false or misleading in any material respect, either now or
at the time made or furnished.
Defective Collateraization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time and for
any reason.
Insolvency. The dissolution or termination of Borrower's existence a going
business, the insolvency of Borrower, the appointment of a receiver for any part
of Borrower's property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower, any creditor of any Grantor against
any collateral securing the Indebtedness, or by any governmental agency. This
includes a garnishment, attachment, or lien on or of any of Borrower's deposit
accounts with Lender. However, this Event of Default shall not apply if there is
a good faith dispute by Borrower or Grantor, as the case may be, as to the
validity or reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding, and if Borrower or Grantor gives lender written
64
<PAGE>
Exhibit 10(u)
notice of the creditor or forfeiture proceeding and furnishes reserves or a
surety bond for the creditor or forfeiture proceeding satisfactory to Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or such Guarantor dies or becomes
incompetent or any Guarantor revokes any guaranty of the Indebtedness. Lender,
at its option, may, but shall not be required to, permit the Guarantor's estate
to assume unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
Change In Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower, Insecurity. Lender, In good faith, deems
itself insecure.
Right to Cure. If any default, other than a Default on Indebtedness, is curable
and if Borrower or Grantor, as the case may be, has not been given a notice of a
similar default within the preceding twelve (12) months, it may be cured (and no
Event of Default will have occurred) if Borrower or Grantor, as the case may be,
after receiving written notice from Lender demanding cure of such default: (a)
cures the default within fifteen (15) days; or (b) if the cure requires more
than fifteen (15) days, immediately initiates steps which Lender deems in
Lender's sole discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Loans immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts
of Sacramento County, the State of California. Subject to the provisions
on arbitration, this Agreement shall be governed by and construed In
accordance with the laws of the State of California.
Arbitration. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, Joint, or class in nature,
arising from this Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of
the American Arbitration Association, upon request of either party. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of the receiver; by
exercising any rights relating to personal property, including taking or
disposing of such property with or without Judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any collateral, Including any claim to
rescind; reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party, Lender and Borrower agree that in the event of an action for
judicial foreclosure pursuant to California Code of Civil Procedure
Section 726, or any similar provision in any other state, the commencement
of such an action will not constitute a waiver of the right to arbitrate
and the court shall refer to arbitration as much of such action, including
counterclaims, as lawfully may be referred to arbitration. Judgment upon
any award rendered by any arbitrator may be entered in any court having
Jurisdiction. Nothing in this Agreement shall preclude any party from
seeking equitable relief from a court of competent Jurisdiction. The
statute of limitations, estoppel, waiver, laches, and similar doctrines
which would otherwise be applicable in an action brought by a party shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for
these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration
provision.
65
<PAGE>
Exhibit 10(u)
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower under
this Agreement shall be Joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or. later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
Information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any rights to
privacy it may have with respect to such matters. Borrower additionally
waives any and all notices of sale of participation interests, as well as
all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will
be. considered as the absolute owners of such interests in the Loans and
will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower
further waives all rights of offset or counterclaim that it may have now
or later against Lender or against any purchaser of such a participation
Interest and unconditionally agrees that either Lender or such purchaser
may enforce Borrower's obligation under the Loans irrespective of the
failure or insolvency of any holder of any interest in the Loans. Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
out-of-pocket expenses, including without limitation attorneys' fees,
incurred in connection with the preparation, execution, enforcement and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
tees and Lender's legal expenses, whether or not there is s lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall be
given in writing and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier or deposited in
the United States mail, first class, postage prepaid, addressed to the
party, to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent permitted by
applicable law, if there is more than one Borrower, notice to any Borrower
will constitute notice to all Borrowers. For notice purposes, Borrower
agrees to keep Lender informed at all times of Borrower's current
address(es).
Severalty. If a court of competent Jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and dl other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower, To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower"
as used herein shall include all subsidiaries and affiliates of Borrower
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure
to the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement o any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made
by Lender or on Lender's behalf.
66
<PAGE>
Exhibit 10(u)
Time Is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with this
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, o between
Lender and any Grantor, shall constitute a waiver of any of Lender's
rights or of any obligations of Borrower or of any Grantor as to an'
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall
not constitute continuing consent in subsequent instances where such
consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF APRIL
11, 1995.
BORROWER:
PRIMA INTERNATIONAL
By: _________________________
LENDER:
U.S. BANK OF CALIFORNIA
By:__________________________
Authorized Officer
67
<PAGE>
Exhibit 10(u)
PROMISSORY NOTE
<TABLE>
<CAPTION>
Loan Loan
Principal Date Maturity No Call Collateral Account Officer Initials
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$500,000.00 04-11-1995 959-26 190 7098950933 52035
</TABLE>
- -------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- -------------------------------------------------------------------------------
Borrower: PRIMA INTERNATIONAL Lender: U.S. BANK OF CALIFORNIA
3350 SCOTT BLVD., # 7 International Banking
SANTA CLARA, CA 98054 980 9th Street, Suite 1100
Sacramento, CA 95814
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Principal Amount: $500,000.00 Initial Rate: 10.500% Date of Note: April 11, 1995
</TABLE>
PROMISE TO PAY. PRIMA INTERNATIONAL (Borrower") promises to pay to U.S. BANK OF
CALIFORNIA ("Lender"), or order, in lawful money of the United States of
America, on demand, the principal amount of Five Hundred Thousand & 00/100
Dollars ($500,000.00) or so much as may be outstanding, together with interest
on the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan Immediately upon Lender's demand. In
addition, Borrower will pay regular monthly payments of all accrued unpaid
interest due as of each payment date, beginning May 1, 1995, with all subsequent
Interest payments to be due on the same day of each month after that. interest
on this Note is computed on a 365/360 simple interest basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
lenders address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to any unpaid collection costs and any late charges, then to any
unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the LENDER'S PRIME RATE. THIS
IS THE RATE OF INTEREST WHICH LENDER FROM TIME TO TIME ESTABLISHES AS ITS PRIME
RATE AND IS NOT, FOR EXAMPLE, THE LOWEST RATE OF INTEREST WHICH LENDER COLLECTS
FROM ANY BORROWER OR CLASS OF BORROWERS (the "index". THE INTEREST RATE SHALL BE
ADJUSTED WITHOUT NOTICE EFFECTIVE ON THE DAY BANK'S PRIME RATE CHANGES. Lender
will tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may' make loans based on other rates as well. The
interest rate change will not occur more often than each day. The Index
currently is 9.000% per annum. The Interest rate to be applied to the unpaid
principal balance of this Note will be at a rate of 1.500) percentage points
over the Index, resulting In an initial rate of 10.500% per annum. Notice: Under
no circumstances will the interest rate on this Note be more than the maximum
rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender is entitled to a
minimum Interest charge of $50.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to continue
to make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
DEFAULT Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related
to this Note, or in any other agreement or loan Borrower has with Lender. (c)
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, of any other agreement, in favor of any other
creditor or. person that may materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform borrowers obligations under
this Note or any of the Related Documents. (d) Any representation or
statement made or furnished to Lender by Borrower or on Borrower's
68
<PAGE>
Exhibit 10(u)
behalf is false or misleading in any material respect. (e) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(f) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (g) Any of the events described in this default
section occurs with respect to any guarantor of this Note. (h) Lender in good
faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all occurred unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, If permitted under applicable
law, increase the variable interest rate on this Note to 3.500 percentage points
over the Index. Lender may hire or pay someone else to help collect this Note if
Borrower does not pay. Borrower also will pay Lender that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (including efforts to modify
or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender In the State of California. If there Is a lawsuit,
Borrower agrees upon Lender's request to submit to the Jurisdiction of the
courts of Sacramento County, the State of California. subject to the provisions
on arbitration, this Note shall be governed by and construed In accordance with
the laws of the State of California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address
shown above written notice of revocation of their authority: EUGENE E. HELLAR,
C.E.O.; RICHARD A. WALKER, PRESIDENT; and KAREN M. KEITH, CONTROLLER. Borrower
agrees to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs, Lender will have no obligation
to advance funds under this Note if: (a) Borrower or any guarantor is in
default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or
is Insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke,. such guarantor's guarantee of this Note or any other loan
with Lender; (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender; or (e) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender
and Borrower.
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether Individual, joint, or class In nature,
arising from this Note or otherwise, including without limitation contract and
tort disputes, shall be arbitrated pursuant to the Rules of the American
Arbitration Association, upon request of either party. No act to take or
dispose of any collateral securing this Note shall constitute a waiver of this
arbitration
69
<PAGE>
Exhibit 10(u)
agreement or be prohibited by this arbitration agreement. This includes,
without limitation, obtaining injunctive relief or a temporary restraining
order, invoking a power of sale under any deed of trust or mortgage; obtaining
a writ of attachment or imposition of a receiver; or exercising any rights
relating to personal property, including taking or disposing of such property
with or without Judicial process pursuant to Article 9 of the Uniform
Commercial Code. Any disputes, claims, or controversies concerning the
lawfulness or reasonableness of any act, or exercise of any right, concerning
any collateral securing this Note, including any claim to rescind, reform, or
otherwise modify any agreement relating to the collateral securing this Note,
shall also be arbitrated, provided however that no arbitrator shall have the
right or the power to enjoin or restrain any act of any party. Lender and
Borrower agree that in the event of an action for judicial foreclosure
pursuant to California Code of Civil Procedure Section 726, or any similar
provision in any other state, the commencement of such an action will not
constitute a waiver of the right to arbitrate and the court shall refer to
arbitration as much of such action, including counterclaims, as lawfully may
be referred to arbitration, Judgment upon any award rendered by any arbitrator
may be entered in any court having Jurisdiction, Nothing in this Note shall
preclude any party from seeking equitable relief from a court of competent
jurisdiction, The statute of limitations, estoppel, waiver, laches, and
similar doctrines which would otherwise be applicable in an action brought by
a party shall be applicable In any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement of
an action for these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration provision.
LATE CHARGE. If a payment is 15 days or more past due, borrower will be
charged a late charge of 5% of the delinquent payment.
PERIODIC REVIEW.
Lender will review the loan periodically, but no less often than annually. At
the time of the review, Borrower will furnish lender with any additional
information regarding Borrower's financial condition and business operations
that Lender requests. This information may include, but is not limited to,
financial statements, tax returns, lists of assets and liabilities, agings of
receivables and payables, inventory schedules, budgets and forecasts. If, upon
review, Lender, in its sole discretion, determines that there has been a
material adverse change in Borrower's financial condition, Borrower will be in
default. Upon default, Lender shall have all rights specified herein.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo
enforcing any of its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive any applicable statute of limitations,
presentment, demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER:
PRIMA INTERNATIONAL
By: ______________________________
70
<PAGE>
Exhibit 21 - List of Subsidiaries of the Company
1. Laser Printer Accessories Corporation, a Delaware corporation and a wholly-
owned subsidiary of PCPI
2. Prima Inc., a California corporation and a wholly-owned subsidiary of PCPI
3. Personal Computer Products, Inc., a California corporation and a wholly-
owned subsidiary of PCPI (Inactive)
4. Co-Processors, Inc., a California corporation and a wholly-owned subsidiary
of PCPI (Inactive)
5. PCPI Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of PCPI
(Inactive)
71
<PAGE>
Exhibit 23 - Consent of Independent Accountants
We hereby consent to the incorporation by reference in each of the Registration
Statements on Form S-8 (No.'s 2-93993, 33-25980, 33-41396, 33-57372, 33-86262
and 33-86376) of Personal Computer Products, Inc. of our report dated September
25, 1995 appearing on page 14 of this Form 10-KSB.
BOROS & FARRINGTON APC
San Diego, California
September 25, 1995
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<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1995 JUN-30-1995
<PERIOD-START> JUL-01-1995 JUL-01-1994
<PERIOD-END> MAR-31-1995 JUN-30-1995
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3,480 3,480
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<NET-INCOME> (1,540) (2,145)
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