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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 1, 1995 Commission file number 000-18404
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RASTEROPS
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0161747
(State of Incorporation) (I.R.S. Employer Identification No.)
2500 WALSH AVENUE, SANTA CLARA, 95051
CALIFORNIA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (408) 562-4200
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
Aggregate market value of the Common Stock held by non-affiliates of the
Registrant based on the closing price of such stock on September 6, 1995:
$100,798,867
Number of shares of Common Stock outstanding as of September 6, 1995:
12,430,407
------------------------
DOCUMENT INCORPORATED BY REFERENCE
The following document is incorporated by reference in those Parts of this
Annual Report on Form 10-K, as are set forth below, but only to the extent
specifically stated in such Parts hereof:
(1) Portions of the Proxy Statement for Annual Meeting of Shareholders scheduled
to be held on October 24, 1995, referred to herein as the "Proxy Statement",
are incorporated as provided above in Part III.
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PART 1
ITEM 1. BUSINESS
RasterOps designs, develops, manufactures and markets professional quality
digital video production and imaging subsystems and true-color, photo realistic
graphics and imaging products for Apple and IBM-compatible personal computers.
The Company has two primary lines of business: its Truevision line of digital
video production subsystems and its RasterOps line of graphics and imaging
products.
BACKGROUND
The digital video industry is a large and diverse business encompassing such
broad applications as the production of commercials for broadcast on television,
general post production video, animation, corporate videos, film and medical
imaging. Developments over the past few years have allowed the personal computer
users in the video, animation, film and medical industries the ability to
create, develop, view, or use applications employing a combination of data
formats, including full motion video, digital audio, still photographs,
animation, graphics, and text. In the past, these types of applications were
primarily confined to very expensive analog equipment.
The video graphics industry is also a large and diverse business
encompassing the production of magazines, newspapers, print advertising,
packaging, labeling, product brochures, annual reports and a wide variety of
printed material. Developments over the past few years have allowed personal
computer users in the graphic arts and other industries the ability to create,
develop, view or use applications employing a combination of data formats,
including full motion video, digital audio, telecommunications, still
photographs, animation, graphics and text. These applications once were confined
to expensive, high-performance workstations.
STRATEGY
RasterOps' primary goal is to be the leading supplier of desktop computer
video solutions for business and broadcast applications. Until recently, digital
video production systems, although significantly cheaper than analog video
systems, have been significantly slower than such analog systems, and the
picture quality has been inadequate for many high-end applications. As a result
of this and other factors, digital video systems currently account for a
relatively small percentage of the total professional video authoring market.
The Company believes that recent improvements in digital video technology are
permitting the introduction of products with increased speed and higher picture
quality. As the speed and quality of digital video continue to improve, the
Company believes that there is an emerging market opportunity to transition
users of analog video systems to digital. RasterOps' strategy is to take
advantage of this emerging opportunity through the Company's array of Truevision
digital video products.
RasterOps anticipates that personal computer users will continue to demand
ever-increasing performance and features from their computer peripherals at
ever-decreasing costs. RasterOps also expects that the trend to make computers
smaller in size will continue, which will require peripherals to become smaller.
Therefore, through its in-house circuit design capabilities, RasterOps continues
to emphasize the development of proprietary high-performance VLSI chips which
reduce on-board space and power requirements while lowering manufacturing costs.
RasterOps products are driven primarily by its proprietary software,
portions of which reside as firmware on RasterOps' circuit boards and portions
of which are provided on floppy disks. RasterOps' strategy is to continue
extensive software development to provide greater functionality, to facilitate
development of application software and to expand the number of computer
platforms with which its products can be integrated.
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RasterOps will continue to work closely with other industry leaders to
improve their product offerings to end-user customers. Original Equipment
Manufacturers (OEMs) such as Acuson Corporation, a medical imaging products
manufacturer, AVID Technology, Compression Labs, Inc., Datacard Corporation, Dai
Nippon Manufacturing Company, and Sony Corp. continue to incorporate the
Company's multimedia and video technology into some of their products.
PRODUCTS
RasterOps' products are primarily add-in boards for Apple and IBM-compatible
personal computers that convert analog video input into digital format and
capture it for subsequent processing by the Company's products. The products
then permit users to edit and manipulate the digital video, combine it with
graphics, animation and other information and ultimately display the resulting
output. The products are used principally by video professionals to replace or
supplement traditional analog video editing systems.
The major Truevision and RasterOps products and product lines consist of the
following (1):
<TABLE>
<CAPTION>
PRODUCT FAMILY PRODUCT DESCRIPTION MARKET SEGMENT SERVED
---------------- ---------------------------------------------------------------- ------------------------------
<S> <C> <C>
TARGA 2000 An integrated digital production engine designed to meet the On air broadcast
E (EISA) needs of the digital video production industry by providing Post-production video
N (NuBus) professional quality capture, playback and non-linear editing Desktop post-production
P (PC) capabilities with JPEG compression and CD quality stereo audio. Desktop video production
OEM The TARGA 2000 captures and plays back full-motion, full
resolution digital video (including composite, S-VHS and
component formats) on various computer bus standards (including
NuBus, EISA and PCI).
TARGA+ An industry standard video capture and playback board that On air broadcast
provides professional quality video capabilities for PCs. The Industrial imaging
TARGA+ offers the ability to combine live video input, graphics Video/graphics overlay
and text and to output the result with broadcast quality. Video image capture
VISTA A programmable, 32-bit/pixel video graphics board for On air broadcast
ATVista Macintoshes and PCs that can integrate video with computer Post-production video
NuVista graphics or the output of graphics with videotape. Animation
Presentation CAD
Industrial imaging
Paintboard Accelerated 24-bit graphics cards for Macintosh computers with Desktop publishing
Prism NuBus bus architecture. Supports large screen display Business productivity
Prism GT resolutions of up to 1152 x 870. Business presentation
Graphics design
<FN>
------------------------
(1) In addition to these products, Truevision manufactures and sells a number
of specially designed OEM products for individual applications.
</TABLE>
The most recent additions to the Truevision product line (i.e., the TARGA 2000
family) are based on the Company's proprietary DVR architecture. The DVR
architecture consists of a chipset that provides for analog video input in
various video formats, an analog to digital converter to render the video in
digitized form, digital video compression chips, on-board memory to speed
processing of the video and a central hub to control the entire process. The
architecture is modular, to permit the Company more easily to incorporate
advances in technologies as they occur, and to permit end users to upgrade
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their systems more cheaply and easily. In this respect, the Company has recently
developed and continues to develop versions of its Targa 2000 board for the PCI
bus, which is expected to and currently offers significantly increased
processing speed and quality of video output.
MARKETING AND SALES
RasterOps' products are sold to end-users through OEMs, value added
resellers (VARs), authorized resellers and national and international
distributors. Selling prices to such customers include competitive discounts
from RasterOps' suggested retail prices. RasterOps grants limited rights of
return based on negotiations with individual customers and generally such rights
are based on volume purchases. In addition, in the normal course of business,
RasterOps also will have warranty returns for product failure. RasterOps
provides warranties for its products for periods of one to three years. Warranty
returns are reserved for at the time of sale based on historical warranty
returns, which have not been significant since RasterOps' inception.
Substantially all of RasterOps' domestic sales are made directly through
OEMs, national distributors and chains, independent resellers, and VARs. The
field sales force, consisting of Company sales office personnel and
manufacturers' representative firms, is responsible for selling RasterOps'
products to resellers, national distributors and chains, and provides marketing
training and technical support.
RasterOps generates substantially all of its international sales through a
network of distributors located in Europe, the Pacific Rim and South America, as
well as in other areas of the world. Total international net sales represented
approximately 29.6%, 30.7%, and 42.9% of total net sales for the fiscal years
ended 1995, 1994, and 1993, respectively.
RasterOps operates on an international basis with virtually all transactions
denominated in U.S. dollars. International operations are subject to risks
common to export activities, including governmental regulations and trade
barriers. For a more complete discussion, see "Certain Factors That May Affect
the Company's Future Results of Operations -- International Operations."
Substantially all of RasterOps' international sales must be licensed by the
Office of Export Administration of the U.S. Department of Commerce. RasterOps
has not experienced any material difficulties to date in obtaining export
licenses.
During the fiscal year ended 1995 only one individual customer accounted for
greater than 10% of RasterOps total revenue.
MANUFACTURING
RasterOps' manufacturing operations consist primarily of component sourcing
and testing, kitting, quality assurance, final testing and packaging. RasterOps
currently procures substantially all of its parts from outside suppliers. For
the assembly of its products, RasterOps relies primarily on two subcontractors
who use components purchased, tested and kitted by RasterOps. RasterOps has
developed a comprehensive quality assurance program with its subcontractors, and
each product undergoes thorough quality inspection and testing at the final
assembly stage.
During the later part of fiscal 1994 and during the early part of fiscal
1995, substantial efforts were devoted to integrating the manufacturing
operations of Truevision with those of RasterOps. All component purchasing and
final product testing and packaging functions are now performed at its Santa
Clara, California location. The Company implemented this integration in an
effort to achieve greater buying power with its vendors, add more cohesiveness
in terms of its planned production strategy, and lower manufacturing costs. In
addition, RasterOps sold its entire color printing business, thus enabling the
Company to concentrate all of its manufacturing efforts on graphics and video
products. For a more complete discussion, see "Certain Factors That May Affect
the Company's Future Results of Operations -- Risks Associated with
Manufacturing Operations."
Nearly all components used in RasterOps' products are available from
multiple sources. However, as is common with others in the electronics industry,
RasterOps has in the past paid premium prices to
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obtain certain components that were in short supply and there can be no
assurance that shortages will not occur in the future. Such shortages may
significantly increase the cost or delay the shipment of RasterOps' products.
Some components used in RasterOps' products are available only from sole
suppliers, such as certain ASIC's that are available only from LSI Logic Corp.,
American Microsystems, Inc., NEC Electronics Inc., and Toshiba America
Electronic Components, Inc. RasterOps expects these vendors to continue to
supply its requirements for these items. At the present time world demand for
these types of components and various memory chips continues to grow at an
unprecedented pace, creating supplier capacity shortages. This is causing lead
times to be lengthened, making it more difficult to meet changes in customer
demand or engineering specifications in a timely manner. RasterOps purchases
these components pursuant to purchase orders placed from time to time in the
ordinary course of business and has no guaranteed supply arrangements with its
suppliers. There can be no assurance that shortfalls will not occur. An extended
supply interruption for any of the components currently obtained from a single
source could have an adverse impact on RasterOps' results of operations. For a
more complete discussion, see "Certain Factors That May Affect the Company's
Future Results of Operations -- Dependence on Sole and Limited Source Suppliers
and Subcontractors."
RasterOps' retail and distributor customers generally place orders on an
as-needed basis, and, as a result, backlog at the beginning of a quarter
generally represents only a small percentage of product sales anticipated in
that quarter. Quarterly revenues and operating results therefore depend on the
volume and timing of bookings received during the quarter, which are difficult
to forecast. RasterOps' results of operations may fluctuate from quarter to
quarter due to changes in backlog and to other factors such as announcements by
RasterOps, its competitors or the manufacturers of platforms with which
RasterOps' products are used.
TECHNOLOGY AND PRODUCT DEVELOPMENT
RasterOps expects the demand for high-performance video systems to continue
in the coming years. In order to maintain its competitive position in existing
and emerging markets, RasterOps believes that it must continue to introduce
products that offer high price-performance solutions to its customers. RasterOps
has traditionally supported both the Macintosh and the PC based marketplaces
with various video and graphics products. This will continue to be the case in
the coming year and is made easier with the almost universal adoption of the PCI
expansion bus by both Macintosh and PC vendors. Although many of the hardware
differences between the two platforms are disappearing, their are still
important software differences and RasterOps will continue to maintain qualified
software engineering staffs for both Macintosh and PC systems.
RasterOps continues its focus on the development of hardware and software
solutions for users who wish to integrate real-time video, stereo sound and
photo realistic color with their applications. Products like the TARGA 2000 line
of professional-quality multimedia/desktop video editing products have been
instrumental in the continual transformation of personal computers into
high-performance multimedia and video production workstations.
In-house proprietary ASICs continue to be the cornerstone of RasterOps
efforts at developing state-of-the-art imaging solutions. Many of these ASICs
serve as building blocks for multiple products, thereby reducing design time and
enhancing RasterOps ability to develop products faster.
As part of its technology development efforts, RasterOps has formed several
OEM partnerships with industry leaders in the video production marketplace. Avid
Technologies, a world leader in non-linear editing systems for the television
and film industries, has had RasterOps products at the heart of their systems
since Avid's inception in the late 1980s.
RasterOps believes that the competitive nature of the computer industry,
along with the rapid pace of technological change, requires that it continue to
introduce innovative products on a timely
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basis. RasterOps' product development efforts focus on expanding its digital
video expertise, maximizing product cost efficiencies, and broadening its
product mix to address the needs of emerging markets.
Expenditures for research and development in fiscal 1995, 1994 and 1993 were
approximately $6,831,000, $7,844,000 and $8,816,000, respectively. RasterOps did
not capitalize any software development costs as no significant costs were
incurred after technology feasibility was established.
At July 1, 1995 RasterOps employed 34 engineers, 17 of whom were engaged in
software development or related activities and 17 in hardware development or
related activities.
COMPETITION
The markets for RasterOps products are extremely competitive and RasterOps
expects the competition to continue to increase. Radius, VideoLogic Inc., Data
Translation Inc., Matrox Inc., and Fast Electronics GmbH are its principal
competitors.
Many of RasterOps current and prospective competitors have significantly
greater financial, technical, manufacturing and marketing resources than
RasterOps, and may produce additional products competitive with those of
RasterOps. There can be no assurance that RasterOps could compete effectively
with such products. RasterOps believes that its ability to compete depends on
elements both within and outside its control, including the success and timing
of new product development by RasterOps and its competitors, product performance
and price, distribution and customer support. There can be no assurance that
RasterOps will be able to compete successfully with respect to these factors.
Moreover, to the extent that competitive pressures require price reductions more
rapidly than RasterOps is able to cut its costs, profitability may be adversely
affected. RasterOps expects gross margins to continue to be affected by price
pressures in fiscal 1996. For a more complete discussion, see "Certain Factors
That May Affect the Company's Future Results of Operations -- Competition."
PATENTS AND TRADEMARKS
On July 20, 1993, RasterOps was granted U.S. patent No. 5,229,852 for "Real
time Video Converter Providing Special Effects." This technology is used in
RasterOps video-in-a-window products and incorporates such special affects as
scaling and clipping. On February 22, 1994, RasterOps was granted U.S. patent
No. 5,289,565 for "Method and Apparatus for CYMK-RGB RAMDAC" and on June 28,
1994, Truevision was granted U.S. patent No. 5,325,195 for "Video Normalizer for
a Display Monitor." On July 5, 1994, RasterOps was granted U.S. patent No.
5,327,243 for "Real time Video Converter." RasterOps also has two patent
applications pending in the United States for live video technology, color
calibration and color management. This technology is currently used in various
RasterOps products.
RasterOps attempts to protect its trade secrets and other intellectual
property through agreements with customers and suppliers, proprietary
information agreements with employees and consultants and other security
measures. While RasterOps ability to compete may be affected by its ability to
protect its intellectual property, RasterOps believes that, because of the rapid
pace of technological change in the industry, its technical expertise and
ability to innovate on a timely basis will be important in maintaining its
competitive position in addition to rigorously protecting its intellectual
property. Although RasterOps continues to implement protective measures and
intends to defend its intellectual property rights, there can be no assurance
that these measures will be successful. For a more complete discussion, see
"Certain Factors That May Affect the Company's Future Results of Operations --
Uncertainty Regarding Proprietary Rights."
EMPLOYEES
As of July 1, 1995, RasterOps had 176 employees, of whom 42 were engaged in
research and development, 47 in manufacturing and 87 in sales, general and
administration. RasterOps' future success will depend, in part, on its ability
to continue to attract, retain and motivate highly qualified technical,
marketing and management personnel, who are in great demand. RasterOps'
employees
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are not represented by any collective bargaining organization, and RasterOps has
never experienced a work stoppage. RasterOps believes that its employee
relations are good. For a more complete discussion, see "Certain Factors That
May Affect the Company's Future Results of Operations -- Dependence on Key
Personnel; Recent Management Changes."
ITEM 2. PROPERTY
RasterOps' principal facilities are located in Santa Clara, California and
Indianapolis, Indiana, and consist of approximately 60,000 and 30,000 square
feet, respectively, of office space leased pursuant to agreements that expire in
1996 and 1998, respectively. This space is used for product development,
manufacturing, sales, marketing and administration. RasterOps leases sales
offices outside the United States in France, United Kingdom, Germany and an
office in the Netherlands. RasterOps believes its existing facilities are
adequate to meet current and foreseeable requirements and that suitable
additional or alternative space will be available as needed on commercially
reasonably terms.
ITEM 3. LEGAL PROCEEDINGS
(a) In June 1992, two virtually identical class action lawsuits were filed
against the Company and certain of its current and former officers and directors
alleging violations of the federal securities laws, which on August 26, 1992
were consolidated into one complaint. In February 1993, plaintiffs filed a
derivative complaint purporting to assert claims on behalf of the Company
against the individual defendants for breach of fiduciary duty and violation of
California Corporations Code 25502.5. The original complaints alleged, among
other things, that the Company and the individual defendants artificially
inflated the price of RasterOps Common Stock by making misrepresentations and
omissions of material facts in various public statements issued during the
alleged class period, beginning October 18, 1990 and ending October 2, 1991, and
that certain officers and directors sold shares of RasterOps Common Stock during
the alleged class period while in possession of material non-public information.
The complaints sought unspecified compensatory damages and costs and attorneys'
fees on behalf of purchasers of the Company's Common Stock during the alleged
class period. The cause of action for violation of Corporations Code Section
25502.5 has been dismissed without prejudice by plaintiffs and defendants have
filed answers to the remainder of the derivative complaint. In June 1994,
plaintiffs filed a third consolidated class action complaint alleging violations
of section 10(b) and 20(a) of the Securities and Exchange Act of 1934. On
October 28, 1994, motions to dismiss the third amended complaint were granted in
part and denied in part, and defendants have filed answers to the third amended
complaint. The parties agreed to continue the trial date until October 16, 1995.
The court entered an order to that effect. In March of 1995, the parties entered
into a memorandum of understanding regarding settlement of both actions which
called for payments totaling $6.5 million paid in August of 1995. The total
settlement of $6.5 million was approved by the federal court on August 28, 1995.
(b) On July 20, 1993, RasterOps was granted U.S. Patent No. 5,229,852 for
"Real time Video Converter Providing Special Effects." This technology is used
in RasterOps' and its subsidiary, Truevision's video-in-a-window products. On
October 11, 1993, after reviewing Radius' VideoVision products, RasterOps
demanded that Radius cease the production, selling and use of these products and
any other products infringing on this patent. On November 23, 1993, RasterOps
filed a lawsuit in the Federal District Court of Northern California alleging
patent infringement. In September of 1994, the Company determined that the
continuing costs of this action were not in the Company's best interest and, as
a result, legal action was terminated in December 1994.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of fiscal 1995 to a vote
of the Company's security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of the Company are as follows:
<TABLE>
<S> <C> <C>
Louis J. Doctor 37 President and Chief Executive Officer
R. John Curson 52 Senior Vice President, Chief Financial Officer and
Secretary
Carl C. Calabria 36 Senior Vice President, Engineering
Robert J. O'Brien 45 Senior Vice President, Worldwide Sales
William M. Carter 46 Vice President, Operations
Rondal J. Moore 37 General Counsel, Vice President
Harvey Chesler 37 Corporate Controller
</TABLE>
All executive officers serve at the pleasure of the Board of Directors.
There are no family relationships among the directors or executive officers of
the Company.
Mr. Louis J. Doctor has been President and Chief Executive Officer since he
joined the Company in October 1994. Prior to joining the Company he was
president of the Arbor Group, which offered corporate clients a full range of
strategic services in the technology arena since May 1994. He also held
positions of Executive Vice President and Vice President of Business Development
at SuperMac Technology, Inc. from June 1991 to April 1994. In March 1981, Mr.
Doctor co-founded Raster Technologies, an industry pioneer in high-end graphics
and imaging systems, and served as its President until January 1989. Mr. Doctor
was an independent consultant from January 1989 to June 1991.
Mr. R. John Curson has been Senior Vice President, Chief Financial Officer
and Secretary since he joined the Company in November 1993. Prior to Joining the
Company he served as Chief Financial Officer at LH Research, Inc. from 1992 to
1993. Additionally, Mr. Curson has held positions such as Chief Financial
Officer for Martec Corporation and Chief Financial Officer for Dysan. He also
held Vice President of Finance positions for Xidex Corporation and Dataproducts
Corporation.
Mr. Carl C. Calabria has been Senior Vice President, Engineering since July
1994. From July 1990 through June 1994 he served as Executive Vice President,
Engineering of Truevision, Inc. From September 1987 until July 1990, he served
as Co-President and Director of Engineering of Truevision Inc., and from
September 1987 until December 1991, he served as a Director of Truevision, Inc.
In June 1984, Mr. Calabria co-founded the AT&T EPI Center and served as Senior
Design Engineer until 1986 when he was appointed Manager of Research and
Development.
Mr. Robert J. O'Brien has been Senior Vice President, Sales since joining
the Company in December 1994. Prior to joining the Company, Mr. O'Brien was
Senior Vice President, Sales and Marketing for ULSI Systems, Inc. from 1992 to
1994. Additionally, Mr. O'Brien has held positions such as Vice President, Sales
and Marketing InfoChip Systems, Inc. and Vice President/General Manager for
Western Digital Corporation. He also held National Sales Manager positions for
Tecmar Corporation, SoftSmith, and The GAP Stores.
Mr. William Matt Carter has been Vice President Operations since joining the
Company in April 1995. Prior to joining the Company, Mr. Carter founded Photon
Machines Incorporated in 1991. Mr. Carter served as President and Chief
Executive Officer. Prior to founding Photon Machines Inc. Mr. Carter was a
founder of Radius, Inc., a manufacturer of large screen monitors and graphics
peripherals for Apple Macintosh and IBM compatible personal computers. Mr.
Carter served as Vice President Operations, Corporate Secretary and as a member
of the Board of Directors. Before founding Radius, Inc. Mr. Carter held
management positions at other companies such as Apple Computer, Inc., and Four
Phase Systems, Inc.
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Mr. Harvey Chesler has been Corporate Controller since joining the Company
in July 1994. Prior to joining the Company, Mr. Chesler was Vice President of
Finance for the Merchandising Division of MCA/Universal from September 1992 to
July 1994. Additionally, Mr. Chesler has held Controller positions at Xidex
Corporation and Peripheral Technology.
Mr. Rondal J. Moore has been Vice President and General Counsel for the
Company since May 1995. Mr. Moore had been General Counsel since joining the
Company in November 1994. Prior to joining the Company, he served as Associate
Counsel for Business Development as well as in various other positions with
SuperMac Technology from December 1989 through November 1994. Additionally, Mr.
Moore has served as the General Manager for a transportation company, S & M
Marketing, and as a Supply Officer in the United States Navy.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
COMMON STOCK MARKET PRICE:
<TABLE>
<CAPTION>
QUARTER ENDED 1995 JULY 1 MARCH 31 DECEMBER 31 SEPTEMBER 30
---------------------------------------------------------------- ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
High............................................................ $ 6 5/8 $ 5 1/4 $ 4 3/4 $ 4 3/4
Low............................................................. $ 4 $ 2 3/4 $ 2 1/4 $ 3 1/8
<CAPTION>
QUARTER ENDED 1994 JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30
---------------------------------------------------------------- ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
High............................................................ $ 6 1/8 $ 9 $ 9 $ 11
Low............................................................. $ 4 1/8 $ 5 1/8 $ 6 5/8 $ 8 1/8
</TABLE>
The table above sets forth for the quarters indicated the high and low sales
prices for the common stock as reported on the NASDAQ National Market System. As
of September 6, 1995, the Company had approximately 336 shareholders. The price
for the common stock as of the close of business on September 6, 1995 was $9.50.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
JULY 1, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
YEAR ENDED 1995 1994 1993 1992 1991
------------------------------------------------- ---------- ---------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales........................................ $ 66,318 $ 79,175 $ 100,023 $ 121,699 $ 105,518
Restructuring and other costs.................... 3,654 6,694 9,590 -- --
Litigation settlement expense.................... 3,675 -- -- -- --
Income (loss) before income taxes................ (20,231) (20,865) (16,730) 8,359 11,711
Net income (loss)................................ (20,231) (20,865) (12,163) 5,157 7,543
Net income (loss) per share...................... (2.12) (2.20) (1.49) 0.64 0.92
Average common shares and equivalents............ 9,565 9,466 8,189 8,115 8,164
YEAR END STATUS
Total assets..................................... $ 40,726 $ 44,701 $ 66,704 $ 74,590 $ 64,104
Long-term obligations............................ $ 44 $ 247 $ 747 $ 1,250 $ 1,008
Shareholders equity.............................. $ 18,527 $ 30,231 $ 50,193 $ 50,779 $ 44,500
Working capital.................................. $ 14,215 $ 23,671 $ 42,487 $ 42,571 $ 37,878
Current ratio.................................... 1.6 2.7 3.7 2.9 3.0
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the selected
financial data and the consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS. The following tables set forth items in the
consolidated statements of operations as a percentage of net sales for each of
the three fiscal years in the period ended July 1, 1995, and the year-to-year
percentage change in the dollar amounts of certain items in fiscal 1995 and 1994
($ in thousands, except per share data):
<TABLE>
<CAPTION>
JULY 1, JUNE 30, JUNE 30,
PERCENTAGE OF NET SALES 1995 1994 1993
------------------------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Net sales..................................................................... 100.0% 100.0% 100.0%
Cost of sales................................................................. 77.8 76.2 64.5
----- ----- -----
Gross profit.................................................................. 22.2 23.8 35.5
Operating expenses:
Research and development.................................................... 10.3 9.9 8.8
Selling, general and administrative......................................... 31.0 31.9 34.4
Restructuring and other costs............................................... 5.5 8.5 9.6
----- ----- -----
Loss from operations.......................................................... (24.6) (26.5) (17.3)
Litigation, interest and other income (expense), net.......................... (5.9) 0.1 0.6
----- ----- -----
Loss before benefit from income taxes......................................... (30.5) (26.4) (16.7)
Benefit from income taxes..................................................... -- -- 4.5
----- ----- -----
Net loss...................................................................... (30.5)% (26.4)% (12.2)%
----- ----- -----
----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
1995 CHANGE 1994 CHANGE 1993
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................................................ $ 66,318 (16)% $ 79,175 (21)% $ 100,023
Gross profit............................................. 14,695 (22)% 18,882 (47)% 35,501
Operating expenses....................................... 31,021 (22)% 39,825 (25)% 52,827
Net loss................................................. (20,231) (3)% (20,865) 72% (12,163)
Net loss per share....................................... (2.12) (4)% (2.20) 48% (1.49)
</TABLE>
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES. RasterOps' total net sales for fiscal 1995 decreased $12.9
million, or 16.3%, to $66.3 million compared to total net sales of $79.2 million
in fiscal 1994. International net sales represented 30% of total net sales
compared to 31% in fiscal 1994. The decrease in net sales is due to a shift in
the Company's product focus during fiscal 1995. During the latter part of the
first quarter of fiscal 1995 the Company began to separate, view and analyze its
product lines in terms of "Truevision" and "RasterOps" products. The Truevision
product line consists of all video and OEM products, while the RasterOps product
line consists of its traditional products, such as Macintosh boards, PC graphics
acceleration cards and monitors. At that time, the Company elected to terminate
its entire PC graphics product line, reduce its dependency upon monitor sales
and focus its future on its higher-margin Truevision (desktop digital video)
product line.
10
<PAGE>
The following table indicates the total net sales by product line for the
years ended July 1, 1995 and June 30, 1994 ($ in millions):
<TABLE>
<CAPTION>
YEAR-YEAR %
PRODUCT LINE: 1995 % SALES 1994 % SALES CHANGE
------------------------------------------ --------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
RasterOps:
Macintosh boards........................ $ 7.1 10.7% $ 13.4 16.9%
Monitors................................ 13.7 20.7 30.4 38.4
PC graphics boards, other............... .2 0.3 2.3 2.9
--------- ----- --------- -----
21.0 31.7 46.1 58.2 (54.4)%
--------- ----- --------- -----
Truevision:
Macintosh OEM........................... 7.1 10.7 6.8 8.6
Video................................... 24.8 37.4 20.4 25.7
Video OEM............................... 12.0 18.1 5.9 7.5
Other................................... 1.4 2.1 -- --
--------- ----- --------- -----
45.3 68.3 33.1 41.8 36.9 %
--------- ----- --------- -----
Total net sales........................... $ 66.3 100.0% $ 79.2 100.0% (16.3)%
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>
Historically, the Company's net sales have consisted of a significant amount
of low-margin monitor products, however, in fiscal 1995 the Company exited
substantially all the monitor business. Of the $13.7 million of monitor sales
for fiscal 1995, the Company shipped only $400,000 during the last quarter of
fiscal 1995.
During fiscal 1995 the Company also focused its efforts to building its OEM
customer base. Sales to OEM's during fiscal 1995 were $19.1 million, or 28.8% of
total net sales, compared to $12.7 million, or 16.0% for fiscal 1994. During
fiscal 1995, the Company negotiated a three-year agreement with Avid who
accounted for 15.7% of the Company's total net sales for fiscal 1995.
RasterOps' non-OEM customers generally place orders on an as-needed basis
and, as a result, backlog at the beginning of each quarter represents only a
small percentage of the product sales anticipated in that quarter. Quarterly net
sales and operating results therefore depend on the volume and timing of
bookings received during a quarter, which are difficult to forecast. RasterOps'
results of operations may fluctuate from quarter to quarter due to changes in
backlog and to other factors such as announcements by RasterOps, its competitors
or the manufacturers of the platforms with which its products are used.
GROSS PROFIT. Gross profit as a percent of net sales decreased from 24% in
fiscal 1994 to 22% in fiscal 1995. During the first quarter of fiscal 1995 the
Company increased its inventory reserves by $6.0 million (excluding the $1.9
million included in restructuring) to reduce to the net realizable value its
Macintosh boards and monitor products as the Company was experiencing a
significant reduction in customer demand for these products. The Company
believes the demand reduction in graphics products was due primarily to
intensified competition, particularly late in the first quarter, and Apple
Computer Inc.'s integration of graphics acceleration features into its Macintosh
computers and the monitor business was receiving increased competition with
entry of Apple and Sony into this market. The Company's gross margins have
improved during the last three quarters of fiscal 1995 as the Company shifted
its focus to developing, manufacturing and selling more high-margin desktop
video products and at the same time gradually exiting the low-margin monitor
business.
RESEARCH AND DEVELOPMENT EXPENSES. For both fiscal 1995 and fiscal 1994,
research and development expenses were 10% of net sales. Spending decreased in
fiscal 1995 $1.0 million compared to that in fiscal 1994. This decrease in
fiscal 1995 can be attributed in part to reduced headcount, prototype material
purchases and the discontinuance of its printer software engineering operations
located in Boulder, Colorado during the quarter ended March 31, 1994.
11
<PAGE>
The Company believes that continued investment in research and development
is critical to its future growth and competitive position in its market for
broadcast video and color imaging systems and is directly related to timely
development of new and enhanced products. The Company, therefore, may experience
increased research and development spending in future periods. Because of the
inherent uncertainty of development projects, there can be no assurance that
increased research and development efforts will result in successful product
introductions or enable to maintain or increase sales. The Company estimates
that research and development spending as a percentage of sales will remain
relatively constant.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percent of net sales,
selling, general and administrative expenses were 31% and 32% in fiscal 1995 and
1994, respectively. The dollar decrease of $4.8 million in fiscal 1995 compared
to 1994 was principally a result of reduced commissions, partially due to
increasing OEM business, and related variable expenses due to lower net sales,
lower advertising and promotional spending.
INTEREST AND OTHER INCOME (EXPENSE). The decrease in interest income in
fiscal 1995 compared to fiscal 1994 was due to a lower level of invested funds.
The increase in interest expense in fiscal 1995 compared to fiscal 1994 was due
primarily to the Company's borrowings on its line of credit offset by the
partial repayment of notes payable.
INCOME TAXES. No net provision for income taxes was recorded for fiscal
years 1995 and 1994 as the Company incurred net operating losses for each of
those years. As of July 1, 1995, the Company no longer has any further carryback
potential. Because the Company believes there is sufficient uncertainty
regarding the utilization of all of the Company's tax loss and credit
carryovers, it recorded a valuation allowance for a portion of its net deferred
tax assets, which includes an amount relative to its current year's pretax loss
(Note 7).
SPECIAL CHARGES.
FISCAL 1995 -- Late in the quarter ended September 30, 1994, the Company
elected to terminate the production of its entire recently introduced PC
graphics product line which consisted of a variety of graphics acceleration
cards and record a charge for restructuring and other costs of $3.7 million. The
detail is as follows:
a) reserve of $1.9 million to reduce the related inventory to net
realizable value, and during the nine months ended July 1, 1995, the reserve
was virtually eliminated, yielding no margin on sales of related products.
The Company believes that the remaining inventory is adequately reserved;
b) Due to the discontinuance of these products, the Company recorded
additional charges aggregating $383,000 for prepaid royalties no longer
having economic value and cancellation charges on inventory purchase
commitments;
c) $1.2 million associated with downsizing of the Company's worldwide
operations, including lease terminations for offices located in California,
Indiana, Germany, France, United Kingdom and Japan and employee severance.
These lease terminations reduced facilities and amortization expenses by
$317,000 during fiscal 1995 and will decrease facilities and amortization
expense by $267,000 during fiscal 1996; and
d) $155,000 of other costs.
The Company has a remaining restructuring reserve balance of $478,000 as of
July 1, 1995 related to this restructuring (Note 2), which it believes is
adequate to complete the restructuring.
SETTLEMENT OF LITIGATION EXPENSE. As part of the $6.5 million settlement
agreement, which was approved by the federal court on August 28, 1995 of the
Company's class-action lawsuit (Note 10), the Company recorded litigation
expense of $3.7 million, which is net of proceeds received after July 1, 1995
from the Company's Director's and Officer's liability insurance carrier.
12
<PAGE>
FISCAL 1994 -- During the quarter ended September 30, 1993, the Company
recorded a charge for restructuring and litigation of $6.5 million utilizing
$4.9 million during fiscal year 1994. This charge included costs of downsizing
and integrating its current operations, write-down of certain assets as a result
of the discontinuance of certain product lines and write-off of other impaired
assets.
In September 1993, the Company decided to discontinue the production of its
CorrectPrint series of color printers, Sweet 16 monitors and other products. The
detail is as follows:
a) writedown of the related inventory was $4.3 million, of which
approximately $91,000 of inventory remains and is fully reserved;
b) write-offs of certain other assets in the amount of $500,000,
including prepaid royalties and fixed assets no longer having economic
value. These fixed asset reductions decreased depreciation expense in fiscal
years 1995 and 1994 by $156,000 and $254,000, respectively;
c) severance and related costs associated with the integration of
RasterOps and Truevision's customer support and manufacturing operations in
fiscal 1994, and the write-off of $225,000 of certain other assets; and
d) legal fees of $470,000 associated with the Company's class action
lawsuit (Note 10). Subsequent to the first quarter of fiscal 1994, the
Company incurred additional legal costs of $234,000 related to its class
action lawsuit.
FISCAL 1993 -- During the quarter ended March 31, 1993, RasterOps undertook
a series of actions to reduce costs and expenses. Restructuring charges totaling
$6.7 million were recorded, which included severance related costs, downsizing
of its current operations and write-off of non-performing assets as a result of
the discontinuance of certain product lines.
In connection with the merger with Truevision on August 28, 1992, RasterOps
recorded a charge for restructuring and merger costs of approximately $2.9
million to reflect the combination of operations of the companies. This includes
professional fees and other direct transaction costs associated with the merger,
severance related costs primarily for termination of redundant employees,
elimination and/or relocation of duplicate sales operations and write-off of
excess property and equipment and inventory which became obsolete by the merger.
FISCAL 1994 COMPARED TO FISCAL 1993
NET SALES. RasterOps' total net sales for fiscal 1994 decreased $20.8
million, or 21%, to approximately $79.2 million compared to total net sales of
$100.0 million in fiscal 1993. International net sales represented 31% of total
net sales in fiscal 1994 compared to 43% in fiscal 1993. During fiscal 1994 and
fiscal 1993, European and Asia/Pacific net sales, as a percent of net sales,
declined two percentage points and seven percentage points, respectively. The
Company believes that the declines in both years resulted from greater price
pressures on both its Macintosh monitor and board products and decreased unit
volume due to research and development and part availability related delays in
planned shipments of new products. Both domestic and international net sales for
fiscal 1994 were additionally affected by customer hesitation in anticipation of
Apple's transition to the Power Macintosh platform.
GROSS PROFIT. Gross profit as a percent of net sales declined from 36% in
fiscal 1993 to 24% in fiscal 1994. The decrease can be attributed to lower
average selling prices resulting from continuing competitive price pressures and
to shifts in the Company's product mix towards lower margin products. In
addition, in the fourth quarter of fiscal 1994, the Company incurred a $3.2
million write-off associated with excess inventory on certain products which did
not meet sales volume goals, in part due to market uncertainty regarding the
impact of the Power Macintosh.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
10% of net sales for fiscal 1994, compared to 9% for fiscal year 1993. Although
spending decreased $972,000, expenses as a percent of sales increased primarily
to the decrease in sales. The decrease in spending during
13
<PAGE>
fiscal 1994 can be attributed in part to the inclusion in fiscal 1993 of a
one-time charge of compensation expense of $247,000 in connection with the
Company's acquisition of Truevision, and the discontinuance of its printer
software engineering operations located in Boulder, Colorado during the quarter
ended March 31, 1994.
During fiscal 1994, RasterOps spent approximately 40% of its research and
development dollars on PC related products and 60% on Macintosh related
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percent of net sales,
selling, general and administrative expenses were 32% and 34% in fiscal 1994 and
1993, respectively. The decrease of $9.1 million in fiscal 1994 compared to 1993
was a result of reduced commissions and related variable expenses due to lower
net sales, lower advertising and promotional spending. In addition there were
reductions resulting from the Company's cost cutting measures implemented during
the first quarter of fiscal 1994 and a one time allocation of compensation
expense of $420,000 in fiscal 1993 in connection with the Company's acquisition
of Truevision, Inc. Sales and technical support expenditures also decreased
significantly during fiscal 1994 as the Company implemented its consolidation of
Macintosh and PC related technical support groups in an effort to provide better
customer support and further reduce expenses.
INTEREST AND OTHER INCOME (EXPENSE). Other expense in fiscal 1994 is
comprised primarily of transaction losses from foreign exchange. In fiscal 1993,
the Company sold its equity investment in two high technology companies which
resulted in a gain of $516,000.
The decrease in interest income in fiscal 1994 compared to fiscal 1993 was
due to a lower level of invested funds combined with lower interest rates.
The decrease in interest expense in fiscal 1994 compared to fiscal 1993 was
due primarily to the partial repayment of notes payable.
INCOME TAXES. No net provision for income taxes was recorded for fiscal
1994 as the Company incurred a net operating loss for the year ended June 30,
1994. This compares to a benefit of $4.6 million, or 27% of pretax loss, in
fiscal 1993. In fiscal 1993, the Company was able to record income tax benefit
from carryback of its net operating loss for federal income tax purposes. As of
June 30, 1994, the Company no longer had any substantial carryback potential.
The Company also recorded a valuation allowance for a portion of its total net
deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES. At July 1, 1995, RasterOps had cash and
cash equivalents of $10.4 million, compared to $8.3 million at June 30, 1994.
Working capital decreased from $23.7 million at June 30, 1994 to $14.2 million
at July 1, 1995. During fiscal 1995, net cash used in operating activities was
$7.1 million compared to $1.3 million during fiscal 1994. In fiscal years 1995
and 1994, the net losses in addition to changes in working capital items
contributed to net cash used.
Substantially all of the Company's sales are made directly to OEMs,
distributors, value added resellers (VAR's), authorized independent dealers and
retail chains. While RasterOps intends to continue its policy of careful
inventory and receivables management, it believes that in the future somewhat
greater levels of inventory and receivables relative to sales may be needed to
serve its distribution channels. RasterOps has no material commitments for the
purchase of capital equipment.
RasterOps satisfied its cash requirements for fiscal 1995 primarily from its
beginning balance of $8.3 million, $8.7 million (net of issuance costs),
generated from the issuance of 2,000,000 shares of the Company's Common Stock in
a private placement to multiple investors in June 1995, and borrowings of $1.7
million on its line of credit. For fiscal 1994, the Company's cash requirements
were satisfied primarily from the beginning balance offset by changes in working
capital. For fiscal 1993, the Company's cash requirements were satisfied
primarily from $9.5 million, net of issuance costs, generated from the issuance
of 1,250,000 shares of the Company's Common Stock in the private placement to
Scitex Corporation Ltd. In January 1995, the Company executed a revolving line
of credit with a bank under which up to $5,000,000 may be borrowed based upon
percentages of eligible
14
<PAGE>
accounts receivable. On June 13, 1995, the Company amended the original Credit
Agreement allowing it to borrow up to $7,000,000 based upon percentages of
eligible accounts receivable. As of July 1, 1995, the Company had borrowings of
$1.7 million under the Credit Agreement and guarantees through issuance of
letters of credit to suppliers of $800,000 and was eligible to borrow an
additional $3.7 million.
On August 8, 1995, the Company issued an additional 650,000 shares of its
Common Stock in a private placement to multiple investors for proceeds to the
Company of $6.26 per share, or $4,067,700, net of issuance costs. The proceeds
were used primarily to fund the settlement of the Company's class action
lawsuit, which the court has approved.
RasterOps believes that its current cash and cash to be generated from
operations in addition to its existing credit facilities will be sufficient to
meet the Company's cash requirements for at least the next year.
The Company believes that success in its industry requires substantial
capital in order to maintain the flexibility to take advantage of opportunities
as they may arise. The Company may, from time to time, as market and business
conditions warrant, invest in or acquire complementary businesses, products or
technologies. The Company may effect additional equity or debt financings to
fund such activities. The sale of additional equity or convertible debt
securities could result in additional dilution to the Company's shareholders.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS.
SUBSTANTIAL RECENT OPERATING LOSSES
From 1992 to 1993, the Company's revenues declined by approximately $21.7
million (or 18%), from 1993 to 1994, the Company's revenues declined by
approximately $20.8 million (or 21%) and from 1994 to 1995, the Company's
revenues declined by approximately $12.9 million (or 16%). In addition, the
Company has experienced significant operating losses during such periods. There
can be no assurance that revenues in the quarter ending September 30, 1995, will
equal or exceed revenues for the quarter ended July 1, 1995, or that the Company
will not experience significant operating losses in the future. As of July 1,
1995, the Company had an accumulated deficit of approximately $29.0 million. The
Company believes that continued investment in its business, particularly
research and development, is critical to its future growth and competitive
position. The Company, therefore, may experience increased operating expenses,
and in particular, research and development expenses in future periods. There
can be no assurance that increased research and development and other efforts
will result in successful product introductions or enable the Company to
maintain or increase sales, and there can be no assurance that the Company will
ever return to profitability.
SIGNIFICANT VOLATILITY IN OPERATING RESULTS
In the past, the Company has experienced significant fluctuations in its
quarterly operating results, and it anticipates that such fluctuations will
continue and could intensify in the future. Fluctuations in operating results
may result in volatility in the price of the Company's common stock. Operating
results may fluctuate as a result of many factors, including announcements by
the Company, its competitors or the manufacturers of the platforms with which
its products are used, volume and timing of orders received during the period,
the timing of new product introductions by the Company and its competitors,
product line maturation, the impact of price competition on the Company's
average selling prices, the availability and pricing of components for the
Company's products, changes in product or distribution channel mix and product
returns or price protection charges from customers. Many of these factors are
beyond the Company's control. In addition, due to the short product life cycles
that characterize the Company's markets, the Company's failure to introduce new,
competitive products consistently and in a timely manner would adversely affect
operating results for one or more product cycles.
The volume and timing of orders received during a quarter are difficult to
forecast. The Company's retail and distribution customers generally place orders
on an as-needed basis and, as a result, backlog at the beginning of each quarter
represents only a small percentage of the product sales
15
<PAGE>
anticipated in that quarter for those customers. Quarterly net sales and
operating results therefore depend on the volume and timing of bookings received
during a quarter, which are difficult to forecast. As a result, a shortfall in
sales in any quarter in comparison to expectations may not be identifiable until
the end of the quarter. In addition, in large part due to delays in receipt of
component supplies and manufacturing delays, the Company has in the past
recorded a substantial portion of its revenues in the last weeks of the quarter.
Notwithstanding the difficulty in forecasting future sales, the Company
generally must plan production, order components and undertake its development,
sales and marketing activities and other commitments months in advance.
Accordingly, any shortfall in revenues in a given quarter may impact the
Company's operating results due to an inability to adjust expenses or inventory
during the quarter to match the level of revenues for the quarter. Excess
inventory could also result in cash flow difficulties as well as expenses
associated with inventory writeoffs.
RISKS ASSOCIATED WITH MANUFACTURING OPERATIONS
Recent events at the Company have subjected it to significant manufacturing
risks. A significant part of the RasterOps product line was monitors that were
acquired fully assembled from the Company's suppliers and that had relatively
high unit prices. Truevision products are primarily complex board level
products, which require significantly more sophisticated manufacturing
technologies and operations and some of which sell for significantly less per
unit than monitors. In addition, the Company has recently transitioned its
Truevision manufacturing operations from Indiana to its Santa Clara, California
headquarters. Furthermore, the Company has recently introduced several new,
complex board level products. These factors have placed a substantial strain on
the Company's manufacturing operations, and the Company has experienced
significant dislocations in connection with these factors. The Company's future
operating results will depend in part on its ability to rapidly and
cost-effectively ramp manufacturing of complex new and existing board products.
Any delays or dislocations in this process could have a material adverse effect
on the Company's business and results of operations.
DISCONTINUANCE OF RASTEROPS GRAPHICS PRODUCTS; INCREASING DEPENDENCE ON
TRUEVISION VIDEO GRAPHICS PRODUCTS
Historically, the Company has derived a significant majority of its revenues
from sales of RasterOps color graphics products for the Apple platform. In the
years ended June 30, 1994 and July 1, 1995, sales of RasterOps products
accounted for $46.1 million (or 58% of revenues) and $21.0 million (or 32% of
revenues), respectively. In particular, the Company's RasterOps monitor business
contributed $30.4 million and $13.7 million to the Company's revenues in fiscal
1994 and 1995, respectively. In recent periods, the Company has determined to
eliminate several RasterOps product lines (including its monitor products) and
to shift its focus from RasterOps products to Truevision products generally. In
the quarter ended July 1, 1995, RasterOps products accounted for approximately
$2.1 million (or 13% of product sales), and Truevision and OEM products
accounted for approximately $14.2 million (or 87% product sales). In light of
the declines in sales of RasterOps products, the Company's future operating
results will substantially depend upon sales of Truevision and OEM products.
There can be no assurance that the Company will be successful in maintaining or
increasing sales of Truevision and OEM products.
DEPENDENCE ON EMERGING MARKET
The market for digital desktop video authoring products is an emerging one,
and the size and timing of its development are subject to substantial
uncertainties and are outside the control of the Company. There can be no
assurance of the rate, if any, that applications requiring development of new
video content will develop or of the rate, if any, at which digital,
open-system, desktop solutions for video authoring will achieve market
acceptance. If the market for digital desktop video authoring were to fail to
develop, or were to develop more slowly than anticipated, the Company's
business, financial position and results of operations could be materially
adversely affected.
16
<PAGE>
RAPID TECHNOLOGICAL CHANGE; NEED FOR MARKET ACCEPTANCE OF DVR ARCHITECTURE
The personal computer and workstation industry and the related computer
imaging market are characterized by intense competition, rapidly changing
technology and evolving industry standards, often resulting in short product
life cycles and rapid price declines. Accordingly, the Company's success is
highly dependent on its ability to develop, introduce to the marketplace in a
timely manner and sell complex new products. In this respect, the Company has
recently introduced and plan to introduce additional new versions of its Targa
2000 product for the PCI bus. The Company has in the past experienced some
delays in product introductions due to longer than anticipated development and
the time required to obtain necessary components, as well as delays in market
acceptance. If the Company were to experience similar delays in the future, with
respect to its PCI bus product or otherwise, the Company's results of operations
could be materially adversely affected.
The Company's most recent introductions in the Truevision product line,
including the Targa 2000, are based on the Company's DVR architecture, and it is
expected that any new Truevision products introduced in the foreseeable future
will also be based on the DVR architecture. The DVR architecture is a new
technology that has not yet achieved widespread commercial acceptance, and there
can be no assurance that it will do so in the future. Failure of the DVR
architecture to achieve widespread commercial acceptance would have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS AND SUBCONTRACTORS
Certain components used in the Company's products are currently available
only from a single source, and others are available from only a limited number
of sources. In particular, the Company's "hub" chips that are the basis of the
most recent generation of Truevision products are available only from LSI Logic
Corporation and are subject to substantial lead times, and other components
(particularly certain ASICs) are also available only from single sources. In the
past, the Company has experienced delays in the receipt of certain of its key
components and discontinuations of certain components, which have resulted in
delays in product deliveries. In particular, delays in receipt of certain
components interfered with the Company's ability to ship certain products in the
quarter ended April 1, 1995, and had a material adverse effect on the Company's
results of operations for that quarter. There can be no assurance that delays in
key components and product deliveries will not recur in the future or that these
vendors will continue to supply the Company. The inability to obtain sufficient
key components as required, or to develop alternative sources if and as required
in the future, could result in delays or reductions in product shipments to the
Company's customers. Any such delays or reductions could have a material adverse
effect on the Company's reputation and customer relationships which could, in
turn, have a material adverse effect on the Company's business and results of
operations. In addition, shortages of raw materials or production capacity
constraints at the Company's subcontractors or suppliers could negatively affect
the Company's ability to meet its production obligations and result in increased
prices for components. Any such reduction may result in delays in shipments of
the Company's products or increase the prices of components, either of which
could have a material adverse effect on the Company's business and results of
operations.
For the assembly of its products, the Company relies primarily on
subcontractors who use components purchased, tested and kitted by the Company.
The Company has in the past experienced interruptions in these services and
delays in product deliveries, which have in certain cases had a material adverse
effect on the Company's results of operations for particular periods (including
the quarter ended April 1, 1995), and there can be no assurance that such
problems will not recur in the future. The process of qualifying additional
subcontractors could be a lengthy one, and the inability of any of the Company's
subcontractors to provide the Company with these services in a timely fashion
could have a material adverse effect on the Company's operations until such time
as alternate sources of such services are established and the quality of such
services reaches an acceptable level.
FUTURE CAPITAL NEEDS UNCERTAIN
The Company's future capital requirements will depend upon many factors,
including the extent and timing of the Company's products in the market, the
progress of the Company's research and development, the Company's operating
results and the status of competitive products. The Company
17
<PAGE>
anticipates that its existing capital resources and cash generated from
operations, if any, will be sufficient to meet the Company's cash requirements
for at least the next twelve months at its current level of operations. The
Company's actual capital needs are difficult to predict, however, and there can
be no assurance that the Company will not require additional capital prior to
such time. In particular, the Company may seek additional funding during the
next twelve months and would likely do so after such time to finance working
capital, although the Company is unable to predict the amount and timing of such
capital needs at this time. There can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all, when
required by the Company. Shortages of working capital may cause delays in the
Company's ability to timely obtain adequate supplies of components or
sub-contracted services. The Company has in the past experienced, and may
continue to experience, difficulties and delays in obtaining certain components
and services on a timely basis due to working capital constraints. Any such
difficulties or delays could have a material adverse effect on the Company's
business and results of operations. Moreover, if additional financing was not
available, the Company could be required to reduce or suspend its operations,
seek a merger partner or sell securities on terms that are highly dilutive or
otherwise disadvantageous to investors purchasing the Units offered hereby. If
adequate financing sources are insufficient or not available, the Company's
financial position and results of operations could be materially adversely
affected.
The Company currently has a line of credit with a commercial bank that
includes financial and other covenants that must be satisfied for borrowings to
be permitted and that limits borrowings to percentages of accounts receivable.
The Company has within the last twelve months been in violation of certain of
the covenants. Although the Company is currently in compliance with the bank
agreement, there can be no assurance that waivers would be granted in the future
if necessary. If the Company were unable to access the line of credit as
required, its business, financial position and results of operations could be
materially adversely affected.
COMPETITION
The Company's markets are intensely competitive, and the Company expects
this competition to continue to increase. The Company has experienced continued
competitive pricing pressures on a number of its product lines, and the Company
expects that these pricing pressures will continue. To the extent that
competitive pressures require price reductions more rapidly than the Company is
able to cut its costs, the Company's gross margins and results of operations
will be adversely affected. Many of the Company's competitors are more
established, have greater name recognition and have significantly greater
financial, technological, production and sales and marketing resources than the
Company. In addition to products currently in production by such competitors,
the Company expects that additional competitive products will be developed and
that new companies will enter its markets, both of which will continue to
increase competition. There can be no assurance that products or technologies
developed by others will not render the Company's products or technologies
noncompetitive or obsolete. The Company believes that its ability to compete
depends on elements both within and outside its control, including the success
and timing of new product development by the Company and its competitors,
product performance and price, distribution and general economic conditions or
by a downturn in the demand for personal computers or workstations. There can be
no assurance that the Company will be able to compete successfully with respect
to these or other factors, and the Company's results of operations may fluctuate
from quarter to quarter due to these and other factors.
DEPENDENCE ON KEY PERSONNEL; RECENT MANAGEMENT CHANGES
The Company's future success substantially depends on the efforts of certain
of its officers and key technical and other employees, many of whom have only
recently joined the Company. In particular, the Company's Chief Executive
Officer was hired in October 1994, and since that date, the Company has hired
several new executive officers. The loss of any one of these officers or
employees could have a material adverse effect on the Company's business and
results of operations. The Company believes that its future success also
substantially depends on its ability to attract, retain and motivate highly
skilled employees, who are in great demand. There can be no assurance that the
Company will be successful in doing so.
18
<PAGE>
SHORT PRODUCT LIFE CYCLES
The market in which the Company operates is increasingly being characterized
by frequent new product introductions, which can result in short product life
cycles. The Company must continually monitor industry trends and make difficult
choices in selecting new technologies and features to incorporate into its
products. Each new product cycle presents new opportunities for current or
prospective competitors of the Company to gain market share. If the Company does
not successfully introduce new products within a given product cycle, the
Company's sales will be adversely affected for that cycle and possibly
subsequent cycles. Moreover, because of the possibility of short product life
cycles coupled with long lead times for many components used in the Company's
products, the Company may not be able to quickly reduce its production or
inventory levels in response to unexpected shortfalls in sales or, conversely,
to increase production in response to unexpected demand.
As is customary for high technology companies, sales of individual products
can often be characterized by steep declines in sales, pricing and margins
toward the end of the respective product's life cycle, the precise timing of
which may be difficult to predict. As new products are planned and introduced,
the Company attempts to monitor closely the inventory of older products and to
phase out their manufacture in a controlled manner. Nevertheless, the Company
has in the past experienced and could in the future experience unexpected
reductions in sales of older generation products as customers anticipate new
products. These reductions have resulted in and could in the future give rise to
additional charges for obsolete or excess inventory, returns of older generation
products by distributors, or substantial price protection charges. To the extent
that the Company is unsuccessful in managing product transitions, its business
and operating results could be materially adversely affected.
DEPENDENCE ON AVID
During the quarter and the fiscal year ended July 1, 1995, Avid Technology,
Inc. ("Avid") accounted for approximately 29.2% and 15.7%, respectively, of the
Company's revenues. The Company's operating results have depended increasingly
upon its ability to obtain orders from, maintain relationships with and provide
support to Avid and other key customers, and this dependence could increase in
the future. In addition, Avid or other key customers could design their own
products competitive with those of the Company. Any cancellation of, or
reduction or delay in, orders from Avid or other key customers could have a
material adverse effect on the Company's business and results of operations. In
addition, the Company's agreement with Avid provides that Avid has the right to
manufacture products upon payment of a royalty rather than purchasing them from
the Company. Avid does not yet manufacture any of the Company's products. If
Avid chooses to manufacture the Company's products rather than purchase them,
the Company's revenues, gross margins and operating income would be adversely
affected. There can be no assurance that Avid will not choose to manufacture the
Company's products in the future.
RELATIONSHIP WITH SYSTEM SOFTWARE VENDORS
The Company's open systems, desktop strategy is substantially dependent on
its ability to maintain product compatibility and relationships with system
software vendors such as Microsoft and Apple. If the Company's relationship with
either Microsoft or Apple were to deteriorate, its business and results of
operations could be materially adversely affected.
UNCERTAINTY REGARDING PROPRIETARY RIGHTS
The Company attempts to protect its intellectual property rights through
patents, trademarks, trade secrets and a variety of other measures. There can be
no assurance, however, that such measures will provide adequate protection for
the Company's intellectual property, that the Company's trade secrets or
proprietary technology will not otherwise become known or become independently
developed by competitors or that the Company can otherwise meaningfully protect
its intellectual property rights. There can be no assurance that any patent
owned by the Company will not be invalidated, that any rights granted thereunder
will provide competitive advantages to the Company or that any of the Company's
pending or future patent applications will be issued with the scope of the claim
sought by the Company, if at all. Furthermore, there can be no assurance that
others will not develop similar
19
<PAGE>
products, duplicate the Company's products or design around the patents owned by
the Company or that third parties will not assert intellectual property
infringement claims against the Company. The failure of the Company to protect
its proprietary rights could have a material adverse effect on its business,
financial condition and results of operations.
Litigation may be necessary to protect the Company's intellectual property
rights and trade secrets, to determine the validity of and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
management resources and could have a material adverse effect on the Company's
business, financial condition and results of operations. From time to time in
the past the Company has received communications from third parties alleging
that the Company may be in violation of such third parties' intellectual
property rights, and there can be no assurance that such claims, or claims for
indemnification resulting from infringement claims against others, will not be
asserted in the future. If any such claims or actions are asserted against the
Company, the Company may seek to obtain a license under a third parties'
intellectual property rights. There can be no assurance, however, that a license
would be obtainable on reasonable terms or at all. In addition, should the
Company be required to litigate any such claims, such litigation could be
extremely expensive and time consuming and could materially adversely affect the
Company's business, financial condition and results of operations, regardless of
the outcome of the litigation.
INTEGRATION OF PRODUCT FUNCTIONALITY BY MOTHERBOARD MANUFACTURERS
In general, the Company's products are individual add-in subsystems which
function with computer systems to provide additional functionality.
Historically, as a given functionality becomes technologically stable and widely
accepted by users, the cost of providing the functionality is typically reduced
by means of large scale integration onto semiconductor chips which are then
incorporated onto motherboards. The Company has experienced such integration and
incorporation and expects that it will continue to occur with respect to the
functionality provided by the Company's products. The Company's success will
remain dependent, in part, on its ability to continue to develop products which
incorporate new and rapidly evolving technologies that computer makers have not
yet fully incorporated into motherboards, and there can be no assurance that
incorporation of new functionality's onto motherboards will not adversely affect
the market for the Company's products.
INTERNATIONAL OPERATIONS
For the fiscal years ended June 30, 1994 and July 1, 1995, approximately 31%
and 30%, respectively, of the Company's net sales were derived from sales to
international customers. The Company expects that international sales will
continue to represent a significant portion of net sales. Although the Company's
sales are denominated in dollars, its international business may be affected by
changes in demand resulting from fluctuations in exchange rates as well as by
risks such as unexpected changes in regulatory requirements, tariffs and other
trade barriers, costs and risks of localizing products for foreign countries,
longer accounts receivable payment cycles, difficulties in managing
international distributors, potentially adverse tax consequences, repatriation
of earnings and the burdens of complying with a wide variety of foreign laws. In
addition, the laws of certain foreign countries do not protect the Company's
intellectual property rights to the same extent as do the laws of the United
States.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been volatile and trading
volumes have been relatively low. Factors such as variations in the Company's
revenue, operating results and cash flow and announcements of technological
innovations or price reductions by the Company, its competitors, or providers of
alternative products could cause the market price of the Company's Common Stock
to fluctuate substantially. In addition, the stock markets have experienced
significant price and volume fluctuations that particularly have affected
technology-based companies and resulted in changes in the market prices of the
stocks of many companies that have not been directly related to the operating
performance of those companies. Such broad market fluctuations may adversely
affect the market price of the Company's Common Stock.
20
<PAGE>
The Company has recently received a request from the National Association of
Securities Dealers, Inc. (the "NASD") in connection with the Company's private
placement of securities consummated in June 1995. The NASD has asked the Company
to verify that the placement was consistent with the NASD's shareholder approval
requirements. The Company believes that there was no violation of such
shareholder approval requirements. However, the Company and the NASD have not
reached a resolution of this matter at this time, and there can be no assurance
that the NASD will not take action against the Company in connection with such
matter. Such action could include removing the Company from quotation on the
Nasdaq National Market or from quotation on the Nasdaq Stock Market entirely.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS PAGE
----
Report of Independent Accountants................. 21
Consolidated Balance Sheets -- July 1, 1995 and
June 30, 1994.................................... 22
Consolidated Statements of Operations -- Three
years ended July 1, 1995......................... 23
Consolidated Statements of Shareholders' Equity --
Three years ended July 1, 1995................... 24
Consolidated Statements of Cash Flows -- Three
years ended July 1, 1995......................... 25
Notes to Consolidated Financial Statements........ 26
2. FINANCIAL STATEMENT SCHEDULES The following financial statement schedule of
RasterOps for the three years ended July 1, 1995 is filed as part of this
Report and should be read in conjunction with the Consolidated Financial
Statements of RasterOps.
SCHEDULE PAGE
-------------------------------------------------- ----
II Valuation and Qualifying Accounts.............. 39
Schedules not listed above have been omitted because they are not applicable
or are not required or the information required to be set forth therein
is included in the consolidated financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of RasterOps
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
RasterOps and its subsidiaries at July 1, 1995 and June 30, 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended July 1, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Jose, California
August 10, 1995, except as to
the litigation settlement described in Note 10,
which is as of August 28, 1995
22
<PAGE>
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JULY 1, 1995 JUNE 30, 1994
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 10,377 $ 8,254
Accounts receivable, less allowance for doubtful
accounts of
$897 and $622................................... 10,726 11,022
Inventory (Note 3)............................... 10,613 16,331
Prepaid expenses and other assets (Note 10)...... 4,295 1,099
Deferred income taxes (Note 7)................... 60 540
Income taxes receivable.......................... 299 648
------------ -------------
Total current assets......................... 36,370 37,894
Property and equipment, net (Note 4)............... 2,668 4,858
Other assets....................................... 235 496
Deferred income taxes (Note 7)..................... 1,453 1,453
------------ -------------
Total assets................................. $ 40,726 $44,701
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit (Note 6).......................... $ 1,684 $ --
Current portion of long-term obligations (Note
5).............................................. 200 505
Accounts payable................................. 9,156 10,329
Accrued employee compensation.................... 678 1,023
Accrued litigation settlement (Note 10).......... 6,600 --
Other accrued liabilities........................ 3,837 2,366
------------ -------------
Total current liabilities.................... 22,155 14,223
Long-term obligations (Note 5)..................... 44 247
------------ -------------
Total liabilities............................ 22,199 14,470
------------ -------------
Commitments and contingencies (Note 11)
Shareholders' equity (Note 8):
Preferred Stock, no par value; 2,000,000 shares
authorized;
none issued or outstanding...................... -- --
Common Stock, no par value; 15,000,000 shares
authorized;
11,587,000 and 9,516,000 shares issued and
outstanding..................................... 47,657 38,971
Accumulated deficit.............................. (28,978) (8,747)
Cumulative translation adjustment................ (152) 7
------------ -------------
Total shareholders' equity......................... 18,527 30,231
------------ -------------
Total liabilities and shareholders' equity... $ 40,726 $44,701
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
23
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
JULY 1, 1995 JUNE 30, 1994 JUNE 30, 1993
------------ ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales............................... $ 66,318 $ 79,175 $100,023
Cost of sales........................... 51,623 60,293 64,522
------------ ------------- -------------
Gross profit............................ 14,695 18,882 35,501
------------ ------------- -------------
Operating expenses:
Research and development.............. 6,831 7,844 8,816
Selling, general and administrative... 20,536 25,287 34,421
Restructuring and other costs......... 3,654 6,694 9,590
------------ ------------- -------------
Total operating expenses............ 31,021 39,825 52,827
------------ ------------- -------------
Loss from operations.................... (16,326) (20,943) (17,326)
Other income (expense), net............. (76) (41) 561
Interest income......................... 84 255 309
Interest expense........................ (238) (136) (274)
Litigation settlement expense (Note
10).................................... (3,675) -- --
------------ ------------- -------------
Loss before benefit from income taxes... (20,231) (20,865) (16,730)
Benefit from income taxes (Note 7)...... -- -- (4,567)
------------ ------------- -------------
Net loss................................ $(20,231) $(20,865) $(12,163)
------------ ------------- -------------
------------ ------------- -------------
Net loss per share...................... $ (2.12) $ (2.20) $ (1.49)
------------ ------------- -------------
------------ ------------- -------------
Average common shares................... 9,565 9,466 8,189
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
24
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED JULY 1, 1995
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
-------------------- ACCUMULATED TRANSLATION
SHARES AMOUNT DEFICIT ADJUSTMENT TOTAL
--------- --------- ------------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCES AT JUNE 30, 1992........................... 7,867 $ 26,510 $ 24,281 $ (12) $ 50,779
Issuance of Common Stock to an investor, net........ 1,250 9,540 -- -- 9,540
Exercise of Common Stock incentive options.......... 49 90 -- -- 90
Issuance of common stock in connection with Employee
Stock Purchase Plan................................ 193 1,777 -- -- 1,777
Tax benefit associated with stock options........... -- 64 -- -- 64
Issuance of Common Stock in exchange for RIPS Common
Stock.............................................. 38 328 -- -- 328
Currency translation adjustment..................... -- -- -- (222) (222)
Net loss............................................ -- -- (12,163) -- (12,163)
--------- --------- ------------ ----------- ----------
BALANCES AT JUNE 30, 1993........................... 9,397 38,309 12,118 (234) 50,193
Exercise of Common Stock incentive options.......... 58 250 -- -- 250
Issuance of Common Stock in connection with Employee
Stock Purchase Plan................................ 61 412 -- -- 412
Currency translation adjustment..................... -- -- -- 241 241
Net loss............................................ -- -- (20,865) -- (20,865)
--------- --------- ------------ ----------- ----------
BALANCES AT JUNE 30, 1994........................... 9,516 38,971 (8,747) 7 30,231
Issuance of Common Stock to investors, net.......... 2,000 8,428 -- -- 8,428
Exercise of Common Stock incentive options.......... 6 29 -- -- 29
Issuance of Common Stock in connection with Employee
Stock Purchase Plan................................ 65 229 -- -- 229
Currency translation adjustment..................... -- -- -- (159) (159)
Net loss............................................ -- -- (20,231) -- (20,231)
--------- --------- ------------ ----------- ----------
BALANCES AT JULY 1, 1995............................ 11,587 $ 47,657 $ (28,978) $ (152) $ 18,527
--------- --------- ------------ ----------- ----------
--------- --------- ------------ ----------- ----------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
25
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
JULY 1,
1995 JUNE 30, 1994 JUNE 30, 1993
----------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING CASH FLOWS:
Net loss............................................................... $ (20,231) $ (20,865) $ (12,163)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization...................................... 2,771 3,328 2,890
Gain on sale of investments........................................ -- -- (516)
Income tax benefit from disqualifying dispositions of employee
stock options..................................................... -- -- 64
Compensation expense resulting from issuance of common stock....... -- -- 711
Deferred income taxes.............................................. 480 1,273 (414)
Other.............................................................. 129 770 907
Changes in assets and liabilities:
Accounts receivable................................................ 296 6,484 5,474
Inventory.......................................................... 5,718 6,832 (2,619)
Prepaid expenses and other assets.................................. (3,196) 370 690
Income taxes receivable............................................ 349 2,099 (2,747)
Accounts payable................................................... (1,173) (717) (3,636)
Accrued litigation settlement...................................... 6,600 -- --
Accrued expenses................................................... 1,126 (826) (289)
Income taxes payable............................................... -- -- (2,872)
----------- ------------- -------------
Net cash used in operating activities.................................. (7,131) (1,252) (14,520)
----------- ------------- -------------
INVESTING CASH FLOWS:
Acquisitions of property and equipment................................. (564) (1,237) (3,070)
Proceeds from sale of investments...................................... -- -- 1,223
Acquisitions of other assets........................................... (44) (7) (41)
----------- ------------- -------------
Net cash used in investing activities.................................. (608) (1,244) (1,888)
----------- ------------- -------------
FINANCING CASH FLOWS:
Proceeds from line of credit, net...................................... 1,684 -- --
Repayment of long-term obligations..................................... (508) (498) (503)
Issuance of Common Stock, net.......................................... 8,686 662 10,696
----------- ------------- -------------
Net cash provided by financing activities.............................. 9,862 164 10,193
----------- ------------- -------------
Net increase (decrease) in cash and cash equivalents................... 2,123 (2,332) (6,215)
Cash and cash equivalents, beginning of year........................... 8,254 10,586 16,801
----------- ------------- -------------
Cash and cash equivalents, end of year................................. $ 10,377 $ 8,254 $ 10,586
----------- ------------- -------------
----------- ------------- -------------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year:
Interest........................................................... $ 238 $ 136 $ 274
Income taxes....................................................... $ 36 $ 95 $ 1,466
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The consolidated
financial statements of the Company include the financial statements of
RasterOps and its wholly-owned subsidiaries, after elimination of intercompany
accounts and transactions. During 1995, the Company changed its reporting year
to end on the Saturday closest to June 30, which for 1995 was July 1. The
Company's reporting year end for 1994 and 1993 ended on June 30 each year.
FOREIGN CURRENCY TRANSLATION The Company operates on a multinational basis
and a portion of its business is conducted in currencies other than the U.S.
dollar. Local currencies are the functional currencies in each of the Company's
foreign subsidiaries. Assets and liabilities of foreign operations are
translated to U.S. dollars at current rates of exchange, and revenues and
expenses are translated using average rates for the period. Gains and losses
from foreign currency translation are included in shareholders' equity under the
caption "cumulative translation adjustment."
CASH EQUIVALENTS The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
INVENTORY Inventory is stated at the lower of cost or market; cost is
determined on a first-in, first-out basis, and includes materials, labor and
manufacturing overhead.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method based
upon the shorter of the estimated useful lives of the assets, generally three to
five years, or the lease term of the respective assets, if applicable.
INCOME TAXES The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, SFAS 109
generally considers all expected future events other than enactment of changes
in the tax law or rates.
REVENUE RECOGNITION Sales are generally recognized upon shipment. The
Company grants customers limited rights to return products and records reserves
to cover these rights of return at the time of sale.
NET INCOME (LOSS) PER SHARE Net income (loss) per share is computed on the
basis of the weighted average number of common shares outstanding plus common
stock equivalents, when dilutive.
CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF FINANCIAL
INSTRUMENTS Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company places its cash and cash equivalents, primarily
checking and money market accounts at July 1, 1995 and June 30, 1994, with high
credit-quality financial institutions and does not believe that any significant
credit risk is associated with these financial instruments. The Company has net
accounts receivable from customers located primarily in the United States,
Europe and Asia/Pacific and other geographic areas of $8,567,000, $1,840,000 and
$319,000, respectively. The Company performs various evaluations of its
customers' financial condition and credit worthiness, and maintains an allowance
for uncollectable accounts receivable based upon expected collectibility of all
accounts receivable. The Company believes the recorded value of financial
instruments approximate fair value at each balance sheet date.
27
<PAGE>
NOTE 2. RESTRUCTURING AND OTHER COSTS
During the quarter ended September 30, 1994, the Company recorded a charge
for restructuring and other costs of $3.7 million resulting primarily from the
Company's decision to terminate the production of its entire PC graphics product
line which consisted of a variety of graphics acceleration cards. The Company
established a reserve in the amount of $1.9 million to reduce the related
inventory to net realizable value, and during the nine months ended July 1,
1995, utilized $1.8 million for sales of related products. The $94,000 of
inventory as of July 1, 1995 is fully reserved. Due to the discontinuance of
these products, the Company recorded additional charges aggregating $383,000 for
prepaid royalties no longer having economic value and cancellation charges on
inventory purchase commitments. Also included in the restructuring charge were
costs aggregating $1.2 million associated with downsizing of the Company's
worldwide operations, including lease terminations for offices located in
California, Indiana, Germany, France, United Kingdom and Japan and employee
severance. These lease terminations reduced facilities and amortization expenses
by $317,000 during fiscal 1995 and will decrease facilities and amortization
expense by $267,000 during fiscal 1996. The reserve for employee severance has
essentially been fully utilized. The Company has remaining reserves of $478,000
as of July 1, 1995 related to this restructuring.
During the quarter ended September 30, 1993, the Company recorded a charge
for restructuring and litigation of $6.5 million. This charge includes costs of
downsizing and integrating its current operations, write-down of certain assets
as a result of the discontinuance of certain product lines and write-off of
other impaired assets.
In September 1993, the Company decided to discontinue the production of its
CorrectPrint series of color printers, Sweet 16 monitors and other products. The
total writedown of the related inventory was $4.3 million, of which
approximately $91,000 as of July 1, 1995 remains fully reserved. Also, due to
the discontinuance of these products, the Company had non-cash write-offs of
certain other assets in the amount of $500,000, including prepaid royalties and
fixed assets no longer having economic value, which are included in the charge.
Also included in the restructuring and litigation charge are severance and
related costs associated with the integration of RasterOps and Truevision's
customer support and manufacturing operations in fiscal 1994, and the write-off
of $225,000 of certain other assets and legal fees of $470,000 associated with
the Company's class action lawsuit (Note 10).
During the quarter ended March 31, 1993, RasterOps undertook a series of
actions to reduce costs and expenses. Restructuring charges totaling $6.7
million were recorded, which includes severance related costs, downsizing of its
current operations and write-off of non-performing assets as a result of the
discontinuance of certain product lines.
In connection with the merger with Truevision on August 28, 1992, RasterOps
recorded a charge for restructuring and merger costs of approximately $2.9
million to reflect the combination of operations of the companies. This includes
professional fees and other direct transaction costs associated with the merger,
severance related costs primarily for termination of redundant employees,
elimination and/or relocation of duplicate sales operations and write-off of
excess property and equipment and inventory which became obsolete by the merger.
28
<PAGE>
NOTE 2. RESTRUCTURING AND OTHER COSTS (CONTINUED)
A summary of charges for restructuring and other costs along with the
respective remaining reserves follows (in thousands):
<TABLE>
<CAPTION>
NON-
PRODUCT PERFORMING LEASE LITIGATION MERGER
SEVERANCE DISCONTINUANCE ASSETS TERMINATIONS COSTS COSTS OTHER TOTALS
--------- -------------- ---------- ----------- --------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charges....................... $ 568 $ 4,200 $ 1,615 $ -- $ 550 $ 1,879 $ 778 $ 9,590
Payments / other.............. (392) (13) -- -- (82) (1,879) (842) (3,208)
Utilization of inventory
reserves..................... -- (3,164) -- -- -- -- -- (3,164)
Asset write-offs.............. -- -- (1,731) -- (550) -- -- (2,281)
--------- ------- ---------- ----------- --------- ------- ----- -------
Balance 6/30/93............... 176 1,023 (116) -- (82) -- (64) 937
Charges....................... 500 4,310 1,130 -- 704 -- 50 6,694
Payments / other.............. (657) (253) (648) -- (237) -- 38 (1,757)
Utilization of inventory
reserves..................... -- (2,853) -- -- -- -- -- (2,853)
Asset write-offs.............. -- -- (766) -- (467) -- (2) (1,235)
Reclassifications............. (48) (228) 214 -- 82 -- -- 20
--------- ------- ---------- ----------- --------- ------- ----- -------
Balance 6/30/94............... (29) 1,999 (186) -- -- -- 22 1,806
Charges....................... 270 2,383 106 740 -- -- 155 3,654
Payments / other.............. (248) (474) -- (284) -- -- (172) (1,178)
Utilization of inventory
reserves..................... -- (3,521) -- -- -- -- -- (3,521)
Asset write-offs.............. -- -- (102) -- -- -- -- (102)
Reclassifications............. 15 (202) 182 (80) -- -- (5) (90)
--------- ------- ---------- ----------- --------- ------- ----- -------
Balance 7/01/95............... $ 8 $ 185 $ -- $ 376 $ -- $ -- $ -- $ 569
--------- ------- ---------- ----------- --------- ------- ----- -------
--------- ------- ---------- ----------- --------- ------- ----- -------
</TABLE>
NOTE 3. INVENTORY
A summary of inventory follows (in thousands):
<TABLE>
<CAPTION>
JULY 1,
1995 JUNE 30, 1994
----------- -------------
<S> <C> <C>
Purchased parts and subassemblies........................................... $ 6,812 $ 7,226
Work-in-progress............................................................ 2,153 3,529
Finished goods.............................................................. 1,648 5,576
----------- -------------
Total................................................................... $ 10,613 $ 16,331
----------- -------------
----------- -------------
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
<TABLE>
<CAPTION>
JULY 1,
1995 JUNE 30, 1994
----------- -------------
<S> <C> <C>
Computer equipment and machinery............................................ $ 12,785 $ 13,089
Furniture and fixtures...................................................... 879 923
Leasehold improvements...................................................... 431 521
----------- -------------
Subtotal.................................................................... 14,095 14,533
Less: accumulated depreciation.............................................. (11,427) (9,675)
----------- -------------
Total................................................................... $ 2,668 $ 4,858
----------- -------------
----------- -------------
</TABLE>
29
<PAGE>
NOTE 5. LONG-TERM OBLIGATIONS
Long-term obligations at July 1, 1995 consists of four unsecured notes
payable in the aggregate amount of $244,000. The notes are payable in quarterly
installments ranging from $4,000 to $22,000, plus interest at 9%, through
September 1996. Annual maturities of the notes payable will total $200,000 and
$44,000 in fiscal years 1996 and 1997, respectively.
NOTE 6. LINE OF CREDIT
Under the terms of a revolving credit agreement with a bank (the "Credit
Agreement") which expires June 13, 1996, the Company may borrow up to 75% of
eligible accounts receivable plus the lesser of 20% of the value of eligible
inventory or $1,250,000, subject to a maximum of $7,000,000. The Credit
Agreement provides for interest based on the bank's prime rate plus 2.75%. As a
condition of the Credit Agreement, the Company is required to maintain a minimum
net worth and certain financial ratios. Borrowings under the Credit Agreement
are collateralized by the Company's assets. As of July 1, 1995, the Company was
in compliance with its bank covenants and had $1,684,000 outstanding and
$3,715,000 available under the Credit Agreement. The amount available under the
Credit Agreement at July 1, 1995 has been reduced by letter of credit totaling
$800,000 issued as guarantees of payment to certain suppliers.
NOTE 7. INCOME TAXES
The components of the provision (benefit) for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
JULY 1, 1995 JUNE 30, 1994 JUNE 30, 1993
------------ ------------- -------------
<S> <C> <C> <C>
Current tax expense (benefit):
Federal............................. $(209) $(1,225) $(4,302)
State............................... -- (80) 77
Foreign............................. 19 32 72
------ ------------- -------------
Subtotal........................ (190) (1,273) (4,153)
------ ------------- -------------
Deferred tax expense (benefit):
Federal............................. 190 1,121 (31)
State............................... -- 152 (383)
------ ------------- -------------
Subtotal........................ 190 1,273 (414)
------ ------------- -------------
Total......................... $ -- $ -- $(4,567)
------ ------------- -------------
------ ------------- -------------
</TABLE>
Deferred tax assets (liabilities) consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 1,
1995 JUNE 30, 1994 JUNE 30, 1993
----------- ------------- -------------
<S> <C> <C> <C>
Inventory reserves........................................... $ 1,021 $ 2,002 $ 1,168
Other reserves and amortization.............................. 295 273 728
Accrued expenses............................................. 616 746 518
Other........................................................ 76 131 495
Credit carryovers............................................ 1,468 1,268 404
Net operating loss carryovers................................ 15,602 6,566 507
----------- ------------- -------------
Gross deferred tax assets................................ 19,078 10,986 3,820
----------- ------------- -------------
Valuation allowance.......................................... (17,430) (8,723) --
----------- ------------- -------------
Depreciation................................................. (135) (270) (415)
Other........................................................ -- -- (139)
----------- ------------- -------------
Gross deferred tax liabilities........................... (135) (270) (554)
----------- ------------- -------------
Total net deferred tax assets.......................... $ 1,513 $ 1,993 $ 3,266
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
30
<PAGE>
NOTE 7. INCOME TAXES (CONTINUED)
Management believes sufficient uncertainty exists regarding the
realizability of the gross deferred tax assets that a valuation allowance of
$17,140,000 was recorded and is allocated pro rata to federal and state current
and noncurrent deferred tax assets. The ultimate realization of the net July 1,
1995 deferred tax asset is dependent upon approximately $3,900,000 of future
taxable income, which management believes is attainable.
The Company has approximately $39,000,000 of net operating loss and credit
carryovers that expire in 2000 through 2010. Net operating losses may be limited
due to changes in ownership under section 382 of the Internal Revenue Code.
The provision for income taxes differs from the amount of income tax
permitted by applying the applicable U.S. statutory rate to pretax income as a
result of the following differences:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Federal statutory rate............................... (34.0)% (34.0)% (34.0)%
State income taxes, net of federal tax benefit....... (6.1) (3.9) (1.2)
Increase in valuation allowance...................... 41.6 41.8 --
Non-deductible merger costs.......................... -- -- 5.9
Other, net........................................... (1.5) (3.9) 2.0
------- ------- -------
Total.......................................... --% --% (27.3)%
------- ------- -------
------- ------- -------
</TABLE>
NOTE 8. SHAREHOLDERS' EQUITY
COMMON STOCK. In June 1995 the Company issued 2,000,000 shares of Common
Stock in a private placement to investors in exchange for cash of $4.43 per
share. As part of the sale of shares to the investors, the Company issued
warrants to the investors for the purchase of 500,000 additional shares of
Common Stock and also issued a warrant to the placement agent of the private
placement for the purchase of 135,824 shares of Common Stock. The purchase price
of each share issuable upon exercise of each warrant is $5.22. Additionally,
subsequent to July 1, 1995, the Company, issued an additional 650,000 shares of
its Common Stock in a private placement to multiple investors for proceeds, net
of issuance costs, to the Company of $6.26 per share, or $4,067,700.
In October 1994, the Company issued a warrant to Mr. Lou Doctor, the
Company's president and chief executive officer, for the purchase of 400,000
shares of Common Stock. The warrant vested 25% during the first three months and
1/48 per month thereafter. The purchase price of each share issuable upon
exercise of the warrant is $2.75 and, as of July 1, 1995, a total of 150,000
shares of the Company's Common Stock may be purchased under the warrant.
In June 1993, the Company, as part of the sale of shares to an investor,
issued a warrant to the investor for the purchase of up to such number of
additional shares of Common Stock such that the aggregate investor holding of
Common Stock, acquired directly from the Company as of the date of any such
purchase, will not exceed 19.99% of the then issued and outstanding Common Stock
of the Company. The purchase price of each share issuable upon exercise of the
rights under the warrant is $9. As of August 8, 1995 a total of 1,461,875 shares
may be purchased under the warrant.
INCENTIVE STOCK. During the year ended June 30, 1988, the Company adopted
the 1988 Incentive Stock Plan (the "Option Plan"). Under the Option Plan,
2,526,300 shares of Common Stock have been reserved for issuance to employees
and consultants of the Company, as approved by the Board of Directors. The
Option Plan, which expires in 1998, provides for incentive as well as non
statutory stock options and stock purchase rights.
Options and stock purchase rights under the Option Plan are granted at
prices determined by the Board, subject to certain conditions more fully
described in the Option Plan. Generally, these conditions specify floor prices
for the grants ranging from 85% to 110% of the fair market value of the stock at
the date of the grant, as determined by the Board, based upon the type of the
award and the number
31
<PAGE>
NOTE 8. SHAREHOLDERS' EQUITY (CONTINUED)
of shares of Common Stock held by the grantees at the date of the award. No
options have been granted at exercise prices less than 100% of such fair market
value at the date of grant. Options granted under the Option Plan expire over
ten years.
Options granted generally vest 25% one year after issuance and 1/48th each
month thereafter for 36 months. Options are adjusted pro rata for any changes in
the capitalization of the Company, such as stock splits and stock dividends. In
addition, the outstanding options issued under the Option Plan will terminate
within a period set by the Board after termination of employment. As of July 1,
1995, options for a total of 238,169 shares were exercisable under the Option
Plan.
1991 DIRECTOR OPTION PLAN. In July 1991, the Board of Directors of the
Company adopted the RasterOps 1991 Director Option Plan (the "Plan") which
provides for the granting of non-statutory stock options to non-employee
directors of the Company. A total of 150,000 shares of Common Stock have been
reserved for issuance under the Plan. Under the terms of the Plan, non-employee
directors receive an option to purchase 10,000 shares of Common Stock of the
Company, which will become exercisable at the rate of 25% per year for four
years following the date of grant. In addition, under the terms of the Plan,
each non-employee director will receive, on each anniversary of the date such
director joined the Board (or in the case of the directors who were members of
the Board on July 25, 1991 on each anniversary of July 1, 1991) an additional
option to purchase 2,500 shares of Common Stock subject to the four-year vesting
from the date of grant similar to the vesting provisions set forth above.
Options granted under the Plan have a term of ten years. As of July 1, 1995,
options to purchase 80,000 shares of Common Stock are outstanding under the
Plan, 24,375 of which are exercisable.
The activity under the option plans, combined, was as follows:
<TABLE>
<CAPTION>
SHARES
AVAILABLE STOCK OPTIONS EXERCISE PRICE
FOR GRANT OUTSTANDING PER SHARE
--------------- ------------- -----------------
<S> <C> <C> <C>
BALANCES AT JUNE 30, 1992........................... 810,191 751,598
Shares reserved..................................... -- --
Options granted..................................... (1,616,477) 1,616,477 $4.88 - $11.25
Options exercised................................... -- (49,891) $1.65 - $ 8.00
Options canceled.................................... 1,121,187 (1,121,187) $0.90 - $28.50
--------------- -------------
BALANCES AT JUNE 30, 1993........................... 314,901 1,196,997
Shares reserved..................................... 300,000 --
Options granted..................................... (565,125) 565,125 $4.50 - $ 9.75
Options exercised................................... -- (57,940) $0.22 - $ 7.50
Options canceled.................................... 568,858 (568,858) $2.25 - $13.25
--------------- -------------
BALANCES AT JUNE 30, 1994........................... 618,634 1,135,324
Shares reserved..................................... 476,000 --
Options granted..................................... (1,669,109) 1,669,109 $2.75 - $ 4.12
Options exercised................................... -- (5,969) $4.50 - $ 5.12
Options canceled.................................... 1,048,993 (1,048,993) $2.75 - $11.25
--------------- -------------
BALANCES AT JULY 1, 1995............................ 474,518 1,749,471
--------------- -------------
--------------- -------------
Shares Exercisable at July 1, 1995.................. 231,735
-------------
-------------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN. In August 1990, the Board of Directors
adopted an Employee Stock Purchase Plan which enables substantially all
employees in the United States to subscribe to shares of Common Stock on
semi-annual offering dates at a purchase price of 85% of the fair market value
of the shares on the offering date or, if lower, 85% of the fair market value of
the shares on the
32
<PAGE>
NOTE 8. SHAREHOLDERS' EQUITY (CONTINUED)
semi-annual exercise date. A maximum of 500,000 shares are authorized for
subscription over a 20 year period. During fiscal years 1995 and 1994, there
were 64,991 and 60,610 shares, respectively, issued under the Plan.
The Company has reserved such number of shares of Common Stock as necessary
to cover shares issuable under options, warrants and its Employee Stock Purchase
Plan.
NOTE 9. INDUSTRY, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in one industry segment which is computer peripherals.
The Company has no significant foreign assets. Export sales by geographic area,
as a percentage of total net sales, for the years ended July 1, 1995, and June
30, 1994 and 1993, consist of the following:
<TABLE>
<CAPTION>
JULY 1, 1995 JUNE 30, 1994 JUNE 30, 1993
------------- --------------- ---------------
<S> <C> <C> <C>
Europe............................................. 20.9% 18.3% 20.4%
Asia/Pacific....................................... 7.7 8.2 14.7
Other.............................................. 1.0 4.2 7.8
--- --- ---
Total........................................ 29.6% 30.7% 42.9%
--- --- ---
--- --- ---
</TABLE>
During fiscal 1995, the Company entered into an agreement with a major
customer under which the customer has agreed to make minimum aggregate purchases
of certain products of $40,000,000 during calendar years 1995 through 1997 and
at July 1, 1995 had advanced the Company $1,000,000 for future purchases. The
customer also, under certain circumstances, has the right to manufacture certain
of the Company's products pursuant to this agreement and will be required to pay
related royalties. Management believes the customer has not manufactured any of
the specified products. This customer accounted for 15.7% of the Company's sales
during 1995. No customer accounted for more than 10% of sales in 1994 or 1993.
NOTE 10. SHAREHOLDER LITIGATION SETTLEMENT
During fiscal 1992, and as later amended, the Company and certain of its
current and former officers and directors were named in a shareholder class
action lawsuit alleging certain violations of federal securities laws and other
statutes of the state of California seeking unspecified damages and attorneys
fees on behalf of the plaintiffs. In March 1995, the Company entered into a
memorandum of understanding with the plaintiffs regarding settlement of all
claims; consequently at July 1, 1995 the total settlement of $6,600,000,
including legal costs, was accrued as a liability. In early August 1995, the
Company made a payment totaling $3,500,000, and the Company's insurance carrier
paid $3,000,000 which the Company had recorded in prepaid expenses and other
assets at July 1, 1995. On August 28, 1995, the federal court approved the
settlement agreement.
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company occupies its present principal facilities under non-cancelable
leases expiring February 1996 and June 1998. These lease agreements also provide
the Company options to extend the lease terms through February 2006 at the then
determined fair rental value for the renewal period. In addition, the Company is
required to pay taxes, insurance and maintenance expenses. The Company also
leases other facilities and equipment under operating leases. Rent expense under
non-cancelable operating leases, principally for the rental of office space, for
the years ended July 1, 1995 and June 30, 1994 and 1993 was $1,132,000,
$1,797,000 and $1,689,000, respectively.
33
<PAGE>
NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments at July 1, 1995 under non-cancelable operating
leases are as follows:
<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR ENDING LEASES
----------------------------------------------------------------------------------------- -------------
<S> <C>
1996..................................................................................... $ 1,028,000
1997..................................................................................... 565,000
1998..................................................................................... 552,000
-------------
Total................................................................................ $ 2,145,000
-------------
-------------
</TABLE>
The Company, in the normal course of business, receives and makes inquiries
with respect to possible patent infringements and other litigation. The Company
believes that it is unlikely that the outcome of the patent infringement
inquiries and other litigation will have an adverse material effect on the
Company's financial position or results of operations.
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JULY 1 APRIL 1 DECEMBER 31 SEPTEMBER 30
--------------------------------------------------- --------- --------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1995
Net sales.......................................... $ 16,284 $ 16,012 $ 17,742 $ 16,280
Gross profit (loss)................................ 5,875 5,533 5,785 (2,498)
Income (loss) from operations...................... 122 (462) (194) (15,792)
Net income (loss).................................. 32 (4,194) (285) (15,784)
Net income (loss) per share........................ $ 0.00 $ (0.44) $ (0.03) $ (1.65)
<CAPTION>
JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30
--------- --------- ------------ -------------
<S> <C> <C> <C> <C>
1994
Net sales.......................................... $ 17,160 $ 19,380 $ 21,600 $ 21,035
Gross profit....................................... 305 6,226 7,296 5,055
Loss from operations............................... (7,564) (1,830) (628) (10,905)
Net loss........................................... (8,476) (1,098) (387) (10,904)
Net loss per share................................. $ (0.89) $ (0.12) $ (0.04) $ (1.16)
</TABLE>
During the quarter ended June 30, 1994, the Company increased its valuation
allowance for deferred tax assets by $1.0 million and recorded reserves for
obsolete and excess inventory of approximately $3.2 million.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
34
<PAGE>
PART III
Certain information required by Part III is omitted from this report in that
the registrant will file a definitive proxy statement pursuant to Regulation 14A
with respect to the 1995 Annual Meeting of Shareholders (the "Proxy Statement")
with the Securities and Exchange Commission; certain information to be included
therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information concerning the Company's directors required by this Item
is incorporated by reference to the section entitled "Election of Directors --
Nominees," "-- Information Concerning Nominees," "Certain Relationships and
Related Transactions" and "Miscellaneous -- Section 16 Filings" in the Company's
Proxy Statement.
(b) The information concerning the Company's executive officers required by
this Item is incorporated by reference to the section in Part I entitled
"Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
sections entitled "Compensation of Directors," "Executive Compensation --
Summary Compensation Table," "Option Grants In Last Fiscal Year," "Aggregated
Option Exercises In Last Fiscal Year And Fiscal Year-End Option Values,"
"Employment Agreements" and "Compensation Committee Interlocks and Insider
Participation" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
section entitled "Security Ownership Of Certain Beneficial Owners And
Management" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
section entitled "Election of Directors -- Nominees," "-- Information Concerning
Nominees" and "Certain Relationships and Related Transactions" in the Company's
Proxy Statement.
With the exception of the information explicitly incorporated by reference
to the Company's Proxy Statement in Part IV of this Form 10-K, the Company's
Proxy Statement is not deemed as filed as part of this report.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS -- see Item 8
(b) REPORTS FILED ON FORM 8-K
During the quarter ended July 1, 1995, the registrant filed one report
on Form 8-K on June 20, 1995, reporting the issuance and sale of the
Company's Common Stock in the private placement between RasterOps and
various purchasers.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- ---------------------------------------------------------------------------------
<C> <S> <C>
3.1 Amended and Restated Articles of Incorporation (1)...............................
3.2 Bylaws, as amended (2)...........................................................
4.1 See Exhibit 3.1..................................................................
4.2 Modification Agreement dated October 27, 1988, as amended March 12, 1990. (2)....
10.1 Amended 1988 Incentive Stock Plan (2)............................................
10.2 Form of Incentive Stock Option Agreement (3).....................................
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- ---------------------------------------------------------------------------------
<C> <S> <C>
10.3 Form of Incentive Stock Option Agreement (provides for payment by promissory
note) (3).......................................................................
10.4 Form of Nonstatutory Stock Option Agreement (3)..................................
10.5 Form of Nonstatutory Stock Option Agreement (provides for payment by promissory
note) (3).......................................................................
10.6 Form of Stock Purchase Agreement (3).............................................
10.7 Form of Stock Purchase Agreement (provides for payment by promissory note) (3)...
10.8 Form of Stock Bonus Agreement (3)................................................
10.9 1990 Employee Stock Purchase Plan (3)............................................
10.10 Form of 1990 Employee Stock Purchase Plan Subscription Agreement (3).............
10.11 1991 Director Option Plan (4)....................................................
10.12 Certificate of Amendment to the 1991 Director Option Plan (1)....................
10.13 Form of director Option Agreement (4)............................................
10.14 Lease Agreement for the Company's executive offices in Santa Clara, California
dated February 1989, as amended May 1989 (2)....................................
10.15 Lease Agreements for Truevision's executive offices in Indianapolis, Indiana,
dated June 7, 1991 (6)..........................................................
10.16 Form of Indemnification Agreement (2)............................................
10.17 Form of Promissory Note with Officers (2)........................................
10.18 Form of Indemnification agreement dated May 8, 1990 among the Company, Kieth
Sorenson and David Smith (2)....................................................
10.19 Revolving Credit Agreement by and among the Company and Silicon Valley Bank dated
January 4, 1995 and amendment to the agreement dated June 13, 1995..............
10.20 Employment Agreement by and between RasterOps and Kieth E. Sorenson, dated as of
January 5, 1994 (6).............................................................
10.21 Employment Agreement by and between RasterOps and Paul J. Smith, dated as of
April 7, 1993 (6)...............................................................
10.22 Agreement and Plan of Reorganization among RasterOps, RasterOps Acquisition
Corporation II and Truevision, Inc., dated as of May 21, 1992 (1)...............
10.23 Agreement and Plan of Merger between Truevision, Inc. and RasterOps Acquisition
Corporation II, dated as of May 21, 1992 (1)....................................
10.24 Private Placement Agreement between RasterOps and Scitex Corporation Ltd., dated
as of June 7, 1993 (5)..........................................................
10.25 Agreement between Truevision, Inc. and Avid Technology dated December 30, 1994...
10.26 Form of Employment Agreement between the Company and Lou Doctor..................
21.1 List of Subsidiaries.............................................................
24.1 Consent of Independent Accountants. (See page 38)................................
<FN>
NOTES TO EXHIBITS
(1) Filed as an exhibit to the Company's Registration Statement on Form S-4,
File No. 33-48114, which was declared effective on July 24, 1992, and
incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form S-1,
File No. 33-33995 which was declared effective May 8, 1990, incorporated
herein by reference.
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
(3) Filed as an exhibit to the Company's Registration Statement on Form S-8,
Filed February 1, 1991, and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K, for the
fiscal year ended June 30, 1991 and incorporated herein by reference.
(5) Filed as an exhibit to the Company's report on Form 8-K, filed June 8, 1993
and incorporated herein by reference.
(6) Filed as an exhibit to the Company's report on Form 10-K, for the fiscal
year ended June 30, 1994 and incorporated herein by reference.
</TABLE>
(d) FINANCIAL STATEMENT SCHEDULES
See Item (a) above.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Santa Clara, State of California, on September 13, 1995.
RASTEROPS
By: ________/s/_R. JOHN CURSON________
R. John Curson
V.P. FINANCE, CFO AND SECRETARY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on 10-K has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
-------------------------------------- ------------------------------------------ -----------------------
<C> <S> <C>
/s/ WALTER W. BREGMAN
------------------------------ Chairman of the Board of Directors September 13, 1995
Walter W. Bregman
/s/ LOUIS J. DOCTOR
------------------------------ President, Chief Executive Officer September 13, 1995
Louis J. Doctor (Principal Executive Officer)
/s/ R. JOHN CURSON Senior Vice President, Chief Financial
------------------------------ Officer and Secretary (Principal September 13, 1995
R. John Curson Financial Officer)
/s/ HARVEY CHESLER
------------------------------ Corporate Controller (Principal Accounting September 13, 1995
Harvey Chesler Officer)
/s/ GORDON E. EUBANKS, JR.
------------------------------ Director September 13, 1995
Gordon E. Eubanks, Jr.
/s/ WILLIAM H. MCALEER
------------------------------ Director September 13, 1995
William H. McAleer
/s/ KIETH E. SORENSON
------------------------------ Director September 13, 1995
Kieth E. Sorenson
/s/ DANIEL D. TOMPKINS
------------------------------ Director September 13, 1995
Daniel D. Tompkins
/s/ CONRAD J. WREDBERG
------------------------------ Director September 13, 1995
Conrad J. Wredberg
</TABLE>
38
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-53458, 33-36138, 33-38886 and 33-86288) of
RasterOps of our report dated August 10, 1995 (except as to the litigation
settlement described in Note 10, which is as of August 28, 1995) appearing on
page 21 in this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
San Jose, California
September 11, 1995
39
<PAGE>
RASTEROPS
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JULY 1, 1995, AND JUNE 30, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------------------------------------------------
DEDUCTIONS
BALANCE CHARGED TO CHARGED TO FROM BALANCE
BEGINNING COSTS AND OTHER RESERVES AT END
OF PERIOD EXPENSES (1) ACCOUNTS (2) OF PERIOD
----------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1995:
Allowance for sales returns, doubtful accounts
and price protection............................ $ 1,360 $ 381 $ 228 $ 678 $ 1,291
1994:
Allowance for sales returns, doubtful accounts
and price protection............................ $ 4,018 $ 1,276 -- $ 3,934 $ 1,360
1993:
Allowance for sales returns, doubtful accounts
and price protection............................ $ 4,753 $ 1,347 -- $ 2,082 $ 4,018
<FN>
------------------------
(1) Includes amounts charged to net sales for sales returns.
(2) Includes amounts charged to reserves for sales returns.
</TABLE>
40
<PAGE>
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated as of January 4, 1995
between
SILICON VALLEY BANK
and
RASTEROPS
and
TRUEVISION, INC.
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION........................................ 1
1.1 Definitions.................................................. 1
1.2 Accounting Terms............................................. 13
2. LOAN AND TERMS OF PAYMENT......................................... 13
2.1 Revolving Advances........................................... 13
2.2 Letters of Credit............................................ 15
2.3 Overadvances................................................. 16
2.4 Interest Rates, Interest Payments, and
Calculations................................................. 16
2.5 Crediting Payments........................................... 17
2.6 Fees......................................................... 17
2.7 Additional Costs............................................. 18
2.8 Term; Payment of Obligations on Maturity Date................ 18
3. CONDITIONS OF LOANS............................................... 18
3.1 Conditions Precedent to Initial Loan......................... 18
3.2 Conditions Precedent to all Loans............................ 19
4. CREATION OF SECURITY INTEREST ................................... 20
4.1 Grant, Confirmation, Restatement and Continuation
of Security Interest......................................... 20
4.2 Limitation With Respect to Patents and Trademarks
and Copyrights............................................... 21
4.3 Delivery of Additional Documentation Required................ 21
4.4 Right to Inspect............................................. 22
4.5 Lockbox...................................................... 22
5. REPRESENTATIONS AND WARRANTIES.................................... 22
5.1 Due Organization and Qualification........................... 22
5.2 Due Authorization; No Conflict .............................. 22
5.3 No Prior Encumbrances; First Priority Security
Interest in Accounts......................................... 22
5.4 Bona Fide Accounts........................................... 23
5.5 Merchantable Inventory....................................... 23
5.6 Name; Location of Chief Executive Office..................... 24
5.7 Litigation................................................... 24
5.8 No Material Adverse Change in Financial
Statements................................................... 24
5.9 Solvency .................................................... 24
5.10 Regulatory Compliance........................................ 24
5.11 Environmental Condition...................................... 25
5.12 Taxes........................................................ 25
5.13 Subsidiaries................................................. 25
5.14 Government Consents.......................................... 25
5.15 Full Disclosure ............................................. 25
5.16 Locations of Collateral...................................... 25
5.17 Tax Identification Numbers................................... 26
5.18 No Instruments .............................................. 26
5.19 Inventory of Subsidiaries.................................... 26
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5.20 Indebtedness to Bell Atlantic - Tricon Leasing
Corporation.................................................. 26
5.21 Copyrights, Trademarks and Patent............................ 26
6. AFFIRMATIVE COVENANTS............................................. 26
6.1 Good Standing................................................ 26
6.2 Government Compliance........................................ 27
6.3 Financial Statements, Reports, Certificates.................. 27
6.4 Returns...................................................... 28
6.5 Taxes........................................................ 28
6.6 Insurance.................................................... 28
6.7 Principal Depository......................................... 29
6.8 Quick Ratio.................................................. 29
6.9 Tangible Net Worth........................................... 29
6.10 Debt-Net Worth Ratio......................................... 29
6.11 Profitability................................................ 30
6.12 Further Assurances........................................... 30
7. NEGATIVE COVENANTS................................................ 30
7.1 Extraordinary Transactions and Disposal of Assets............ 30
7.2 Loans; Contingent Liabilities................................ 30
7.3 Restructure.................................................. 30
7.4 Mergers or Acquisitions...................................... 31
7.5 Indebtedness................................................. 31
7.6 Encumbrances................................................. 31
7.7 Distributions................................................ 31
7.8 Investments.................................................. 31
7.9 Transactions With Affiliates................................. 31
7.10 Subordinated Debt............................................ 32
7.11 Compliance................................................... 32
7.12 Instruments; Security Interest............................... 32
7.13 Chattel Paper................................................ 32
8. EVENTS OF DEFAULT................................................. 32
8.1 Payment Default.............................................. 32
8.2 Reporting, Insurance, Financial and Negative
Covenant Defaults............................................ 32
8.3 Other Covenant Defaults...................................... 32
8.4 Material Adverse Effect...................................... 33
8.5 Attachment................................................... 33
8.6 Insolvency................................................... 33
8.7 Other Agreements............................................. 33
8.8 Subordinated Debt............................................ 33
8.9 Judgments ................................................... 33
8.10 Misrepresentations........................................... 34
8.11 Default Under Agreements With Bell Atlantic.................. 34
9. BANK'S RIGHTS AND REMEDIES....................................... 34
9.1 Rights and Remedies.......................................... 34
9.2 Power of Attorney............................................ 35
9.3 Bank Expenses; Attorneys' Fees and Costs..................... 36
9.4 Bank Expenses; Payments Made on Behalf of
Borrowers.................................................... 37
9.5 Remedies Cumulative.......................................... 38
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10. WAIVERS; INDEMNIFICATION; REVIVAL................................ 38
10.1 DEMAND; PROTEST AND OTHER WAIVERS........................... 38
10.2 Bank's Liability for Collateral............................. 39
10.3 Indemnification............................................. 39
10.4 Disgorgement; Revival of Obligations........................ 39
11. NOTICES.......................................................... 40
12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER....................... 41
13. GENERAL PROVISIONS............................................... 41
13.1 Successors and Assigns...................................... 41
13.2 Time of Essence ............................................ 41
13.3 Severability of Provisions.................................. 41
13.4 Amendments in Writing, Integration.......................... 41
13.5 Counterparts................................................ 42
13.6 Survival.................................................... 42
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LIST OF EXHIBITS AND SCHEDULES
Exhibit A -- Form of Amended and Restated Promissory Note
Schedule of Exceptions
Schedule 2.1 -- Borrowing Certificate
Schedule 5.4 -- Bona Fide Accounts
Schedule 5.7 -- Legal Proceedings
Schedule 5.13 -- Subsidiaries
Schedule 5.16 -- Schedule of Offices, Locations of Collateral and
Records Concerning Collateral for RasterOps and Truevision
Schedule 6.3(a) -- Daily Sales and Collections Report
Schedule 6.3(b) -- Borrowing Base Certificate
Schedule 6.3(c) -- Compliance Certificate
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This SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered
into as of January 4 , 1995, effective as of November 15, 1994, by and among
---
SILICON VALLEY BANK ("Bank"), RASTEROPS, a California corporation, and
TRUEVISION, INC., an Indiana corporation, and amends, restates and supersedes
the "Amended and Restated Loan Agreement", as defined below. RasterOps and
Truevision are hereafter collectively referred to as "Borrowers" and
individually as a "Borrower."
RECITALS
A. On or about May 26, 1994, Borrower and Lender entered into that
certain Amended and Restated Loan and Security Agreement, effective as of
November 15, 1993 (the "Amended and Restated Loan Agreement"), which amended,
restated and superseded that certain Business Loan Agreement dated as of May 12,
1993, and certain other "Related Documents" as defined in the Business Loan
Agreement;
B. The Amended and Restated Loan Agreement matured on November 15, 1994
and Borrowers have requested that Bank extend the maturity date, renew its loan
facility with Borrowers for another year, and amend the terms of the Amended and
Restated Loan Agreement;
C. Bank is willing to extend the maturity date, renew its loan facility
and amend the terms and conditions of the Amended and Restated Loan Agreement,
but only upon the terms, and subject to the conditions, contained herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, the parties hereto agree as follows:
AGREEMENT
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, rights to payment, contract rights, chattel paper, general
intangibles, and all other forms of obligations owing to any Borrower, each
arising out of or in connection with the sale or lease of goods by such
Borrower, the rendering of services by such Borrower or the licensing of any
property of such Borrower, whether or not earned by performance,
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any and all credit insurance, guaranties, and other security therefor, as well
as all merchandise returned to or reclaimed by such Borrower, such Borrower's
Books relating to any of the foregoing, and all accounts receivable of every
kind and nature. The term Accounts includes all "accounts" as such term is
defined in the Code.
"Advances" shall have the meaning set forth in Section 2.1
hereof.
"Affiliate" means any person or entity that owns or controls
directly or indirectly ten percent or more of the stock of another entity, any
person that controls or is controlled by or is under common control with such
persons or any Affiliate of such persons or each of such person's officers,
directors, joint venturers or partners.
"Agreement" shall mean this Amended and Restated Loan and
Security Agreement, including all amendments, modifications and supplements
hereto and any appendices, exhibits or schedules to any of the foregoing, and
shall refer to this Agreement as the same may be in effect at the time such
reference becomes operative.
"Amended and Restated Loan Agreement" shall have the meaning set
forth in the Recitals to this Agreement.
"Avid-Technology - Ireland" means Avid Technology - Ireland.
"Bank" means Silicon Valley Bank and its assignees.
"Bank Expenses" shall have the meaning assigned to it in Section
9.3 of this Agreement.
"Borrower(s)" means RasterOps, a California corporation, and
Truevision, Inc., an Indiana corporation.
"Borrower's Books" means all of each Borrower's books and records
including: ledgers; records concerning such Borrower's assets or liabilities,
the Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" shall have the meaning set forth in Section 2.1
hereof.
"Borrowing Base Certificate" shall have the meaning set forth in
Section 6.3 hereof.
"Borrowing Certificate" shall have the meaning set
forth in Section 2.1 hereof.
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"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Cash Collateral Account" shall mean the deposit account
maintained by Borrowers with Bank in connection with the Lockbox Agreement.
"Chattel Paper" means "chattel paper" as defined in the Code.
"Closing Date" means the date on which all of the conditions
precedent in Section 3.1 and 3.2 are satisfied and the initial Advance is made.
"Code" means the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of California; PROVIDED, HOWEVER, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of Bank's security interest in any Collateral
is governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "Code" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provision.
"Collateral" shall mean the property described in Section 4.1 of
this Agreement.
"Collateral Assignments" means those certain Collateral
Assignment, Patent Mortgage and Security Agreements dated as of May 12, 1993,
between RasterOps and Bank, and those certain Collateral Assignment, Mortgage
and Security Agreements (Copyrights, Trademarks and Patents) dated as of May 26,
1994 between Truevision and Bank, including all amendments, modifications and
supplements to each of the foregoing, and appendices, exhibits or schedules to
any of the foregoing, and shall refer to the Collateral Assignments as the same
may be in effect at the time such reference becomes operative.
"Committed Line" means $5,000,000.
"Compliance Certificate" shall have the meaning set forth in
Section 6.3 hereof.
"Computation Date" the last day of each fiscal quarter of
RasterOps, which fiscal quarters end on April 1, July 1, September 30 and
December 30 of each year.
"Contingent Obligation" means, as applied to any person, any
direct or indirect liability, contingent or otherwise, of that person with
respect to any indebtedness, lease, dividend, letter of credit or other
obligation of another,
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including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed (otherwise than for collection or deposit in the ordinary
course of business), co-made or discounted or sold with recourse by that person,
or in respect of which that person is otherwise directly or indirectly liable.
The amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported.
"Copyrights" means any and all copyrights, copyright rights,
copyright applications, copyright registrations, copyright licenses, and like
protections in each work or authorship and derivative work thereof, whether
published or unpublished, and whether or not the same also constitutes a trade
secret, now or hereafter existing, created, acquired or held, including the
copyrights described in each of the Collateral Assignments.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrowers as at such date.
"Current Liabilities" means as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrowers as at such date, plus, to the
extent not already included therein, all Advances made under this Agreement, and
all Indebtedness that is payable upon demand or within one year from the date of
determination thereof unless such Indebtedness is renewable or extendable at the
option of any Borrower or any subsidiary to a date more than one year from the
date of determination.
"Dai Nippon" means Dai Nippon Screen Manufacturing Co., Ltd.
"Documents" means "documents" as defined in the Code.
"Domestic Distributor Accounts" means those Eligible Accounts
with respect to which either Ingram, Tech Data, Merisel, or Intelligence
Electronic is the account debtor.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrowers' business from each Borrower's sale or lease of
goods or rendering of services that have been validly assigned and comply with
all of Borrowers' representations and warranties to Bank and that are and at all
times shall continue to be acceptable to Bank in all respects, together with
Accounts of a like character acquired by Borrowers from other entities;
PROVIDED, that standards of eligibility may be fixed and revised from time to
time by Bank in Bank's reasonable judgment and upon notification thereof to
Borrowers in
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accordance with the provisions hereof. Unless otherwise agreed to by Bank,
Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of any Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of any Borrower;
(f) Accounts with respect to which the account debtor is not a
resident of the United States or Canada except for Eligible Foreign Accounts;
(g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States;
(h) Accounts with respect to which any Borrower is liable to
the account debtor for goods sold or services rendered by the account debtor, or
otherwise, to such Borrower, but only to the extent of the amounts owing to the
account debtor against amounts owed to RasterOps;
(i) Accounts with respect to an account debtor whose total
obligations to any Borrower, together with the total obligations of such account
debtor's subsidiaries and affiliates to such Borrower, exceeds twenty-five
percent (25%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(k) Accounts the collection of which Bank reasonably determines
after reasonable inquiry to be doubtful by reason of the account debtor's
financial condition;
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<PAGE>
(1) Accounts generated from the sale of any Sony Inventory or
any Panasonic Inventory;
(m) Accounts that are represented by an instrument or chattel
paper of any kind; and
(n) Accounts arising out of the delivery of samples, trial
merchandise, promotional or demonstration materials.
"Eligible Foreign Accounts" means Accounts that are otherwise
Eligible Accounts but with respect to which the account debtor is not a resident
of the United States or Canada, and either (1) such Accounts are supported by
one or more letters of credit in favor of Bank as beneficiary, in an amount and
of a tenor, and issued by a financial institution, acceptable to Bank, or (2)
the account debtor is Dai Nippon, Avid Technology Ireland, or Marubeni.
"Equipment" means all machinery, equipment, apparatus, fittings,
furniture, fixtures, vehicles, and tools. The term Equipment includes all
"equipment" as defined in the Code.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"Event of Default" shall have the meaning set forth in Section 8
hereof.
"Existing Obligations" means on the date of this Agreement, all
of the outstanding obligations and indebtedness, if any, of Borrowers to the
Bank under the Amended and Restated Loan Agreement and the "Loan Documents" (as
defined in the Amended and Restated Loan Agreement).
"Factoring Agreement" means that certain Factoring
Agreement dated as of December----,1994, executed by Borrowers
in favor of Bank.
"Fixtures" means all "fixtures" as defined in the Code.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"General Intangibles" means "general intangibles" as defined in
the Code, including, without limitation, all rights to payment, causes of
action, rights to receive tax refunds, customer lists, guaranties, deposit
accounts, cash, rights in and claims under insurance policies (including rights
to unearned premiums), Copyrights, Patents, Trademarks, tradenames, rights under
license agreements and all other intellectual property.
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"IBM Credit" means IBM Credit Corporation.
"IBM Inventory Collateral" means the inventory collateral
described in that certain IBM Credit Flooring Line.
"IBM Credit Flooring Line" means that certain Agreement for
Wholesale Financing dated September 30, 1994 and executed by RasterOps in favor
of IBM Credit as may be amended from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations, and
(d) all Contingent Obligations.
"Ingram" means Ingram Micro, Inc.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Instruments" means "instruments" as defined in the Code.
"Intelligent Electronics" means Intelligent Electronics, Inc.
"Inventory" means all present and future inventory in which any
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process, and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description, now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of any Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing, and
any documents of title representing any of the above, and Borrower's Books
relating to any of the foregoing. The term Inventory includes all "inventory"
as such term is defined in the Code.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
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<PAGE>
"Letters of Credit" shall mean commercial or standby letters of
credit issued at the request of RasterOps, as agent for each Borrower, for the
account of Borrowers, and bankers' acceptances accepted at the request of
RasterOps, as agent for each Borrower, and for the account of Borrowers, for
which Bank has incurred Letter of Credit Obligations pursuant thereto.
"Letter of Credit Obligations" shall mean all outstanding
obligations incurred by Bank at the request of RasterOps, as agent for each
Borrower, whether direct or indirect, contingent or otherwise, due or not due,
in connection with the issuance or guaranty, by Bank or another, of letters of
credit, bankers' acceptances in respect of letters of credit, or the like. The
aggregate amount of such Letter of Credit Obligations shall not exceed the
maximum amount set forth in Section 2.2(b).
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien (including judgment liens,
landlords' liens, liens of mechanics, suppliers and other Persons for the
provision of goods or services, and all other liens arising under statute,
common law or judicial interpretation), charge, claim, security interest,
easement or encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever intended or having the
effect of providing security for an obligation (including, any lease or title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement perfecting a security interest under the Code or comparable
law of any jurisdiction).
"Loan Documents" means, collectively, this Agreement, the
Revolving Note, Lockbox Agreement, Factoring Agreement, any other note or notes
executed by Borrowers, the Collateral Assignments, and any other agreement
entered into between any Borrower and Bank in connection with this Agreement,
all as amended, supplemented or extended from time to time, and shall refer to
the Loan Documents as the same may be in effect at the time such reference
becomes operative.
"Lockbox Agreement" means the check collection and deposit
arrangement created under that certain Lockbox Services Subscriber Agreement,
dated December 21, 1994, between Borrowers and Bank pursuant to which payments
made to each Borrower are paid into or deposited into the Cash Collateral
Account, or any modifications, additions or replacements thereof.
"Marubeni" means Marubeni International Electronics.
"Maturity Date" means December 31, 1995.
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"Material Adverse Effect" means a material adverse effect on:
(i) the business, assets, operations, prospects, projections or financial or
other condition of Borrowers and any Subsidiary of Borrowers, taken as a whole,
(ii) the ability of Borrowers taken as a whole to pay and perform the
Obligations in accordance with the terms hereof, (iii) the Collateral or Bank's
Liens on the Collateral or the priority of any such Lien, or (iv) Bank's rights
and remedies under this Agreement or under any of the other Loan Documents.
"Merisel" means, collectively, Merisel America, Inc. and Merisel
Canada.
"Negotiable Collateral" means all of Borrowers' present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, documents of title, and chattel paper, and each Borrower's Books
relating to any of the foregoing.
"Notice of Borrowing" shall have the meaning set forth in Section
2.1 hereof.
"Obligations" means all debt, principal, interest and other
amounts (including all amounts charged to Borrowers' loan account pursuant to
any agreement authorizing Bank to charge Borrowers' loan account), obligations,
covenants, and duties owing by any Borrower to Bank of any kind and description
(whether pursuant to or evidenced by the Loan Documents, or by any other
agreement between Bank and any such Borrower, and whether or not for the payment
of money), whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and including any debt, liability, or
obligation owing from any Borrower to others that Bank may have obtained by
assignment or otherwise, and further including all interest not paid when due
and all Bank Expenses that Borrowers are required to pay or reimburse by the
Loan Documents, by law, or otherwise.
"Panasonic Inventory" means any inventory which is manufactured,
sold and/or delivered to RasterOps by or on behalf of Panasonic Industrial
Company, or which bears Panasonic Industrial Company's name or identification,
together with all parts and accessories and all replacements and substitutions
thereof or thereto.
"Patents" means all patents, patent applications, and like
protections including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same, now or hereafter existing, created, acquired or held, including the
patents and patent applications described in each of the Collateral Assignments.
"Periodic Payments" means all installments or similar recurring
payments that any Borrower may now or hereafter
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become obligated to pay to Bank pursuant to the terms and provisions of any
instrument, or agreement now or hereafter in existence between such Borrower and
Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrowers in favor of Bank arising under
this Agreement;
(b) Lease payment obligations under leases that Borrowers are
not prohibited from entering into under the Loan Documents;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors, other than
Sony, incurred in the ordinary course of business;
(e) Indebtedness to IBM Credit and Bell Atlantic - Tricon
Leasing Corporation for the purchase or acquisition of Sony Inventory, and
Panasonic Inventory, respectively, not to exceed, at any time, the aggregate
outstanding amount of $2,000,000;
(g) Extensions of any of items of Permitted Indebtedness (a)
through (f) above, PROVIDED that the principal amount thereof is not increased
or the terms thereof are not modified to impose more burdensome terms upon
Borrowers; and
(h) Any other existing Indebtedness disclosed on the Schedule.
"Permitted Investment" means:
(a) Investments existing on the date of this Agreement disclosed
in the Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
"Permitted Liens" means the following:
(a) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, PROVIDED the same have no priority over any of Bank's
security interests;
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(b) Liens (i) upon or in any equipment acquired or held by any
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, PROVIDED that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(c) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in clause
(b) above, PROVIDED that any extension, renewal or replacement Lien shall be
limited to the property encumbered by the existing Lien and the principal amount
of the indebtedness being extended, renewed or refinanced does not increase; and
(d) Any Lien of IBM Credit against RasterOps in the collateral,
and proceeds thereof, described in the financing statement bearing file No.
9429860480, filed with the California Secretary of State's office on October 3,
1994, and any Lien of Bell Atlantic - Tricon Leasing Corporation against
RasterOps in the collateral described in the financing statement bearing file
No. 94083300, which was filed with the California Secretary of State's office on
April 28, 1994.
"Person" shall mean any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether Federal, state, county, city, municipal or otherwise,
including any instrumentality, division, agency, body or department thereof).
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means at any date as of which the amount thereof
shall be determined, on a consolidated basis, the cash, accounts receivable and
investments with maturities not to exceed 90 days, of Borrowers.
"Related Documents" shall have the meaning set forth in the
Recital.
"Revolving Facility" means the facility under which RasterOps, as
agent for each Borrower, may request Bank to issue cash advances or commercial
letters of credit for the benefit of Borrowers, as specified in Section 2.1
hereof.
"Revolving Note" means a promissory note in substantially the
form of EXHIBIT A attached hereto, as the same may be amended or supplemented
from time to time, and shall refer
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to the Revolving Note as the same may be in effect at the time such reference
becomes operative.
"Schedule" means the Schedule of Exceptions attached to this
Agreement.
"Sony" shall mean Sony Corporation of America, Sony Corporation,
Sony Component(s) Product(s) Division, or any division, affiliate or subsidiary
of any of the foregoing.
"Sony Inventory" means any inventory now held or hereafter
acquired by RasterOps bearing the tradenames and/or trademarks "Sony" either
singly or in combination with other words.
"Subordinated Debt" means any debt subordinated to the debt owing
by each Borrower to Bank on terms acceptable to Bank.
"Subsidiary" shall mean, with respect to any Person, any
corporation of which an aggregate of more than 50% of the outstanding stock
(including all shares, options, warrants, interests, participations or other
equivalents (regardless of how designated) of or in a corporation or equivalent
entity) having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether, at the time, stock of
any other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially by such Person and/or one or more
Subsidiaries of such Person.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, on a consolidated basis, the total assets of
Borrowers MINUS (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, (c) all reserves not already deducted from assets, and
(d) current and non-current deferred taxes AND
(ii) Total Liabilities.
"Tech Data" means Tech Data Corporation.
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of
Borrowers, including in any event all Indebtedness, but specifically excluding
Subordinated Debt.
"Trademarks" means all trademarks, trademark applications,
trademark registrations, trademark licenses, and like protections including,
without limitation, improvements,
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divisions, continuations, renewals, reissues, extensions, and continuations-in-
part of the same, now or hereafter existing, created, acquired or held,
including the trademarks and trademark applications described in each of the
Collateral Assignments.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter. The term "including" shall not be
limiting or exclusive, unless specifically indicated to the contrary.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement, Bank
agrees to make revolving advances ("Advances") to Borrowers, as requested solely
by RasterOps, as agent for each Borrower, in an amount not to exceed the lesser
of (i) the Committed Line or (ii) the Borrowing Base, in either case less the
amount of outstanding Letter of Credit Obligations. For purposes of this
Agreement "Borrowing Base" shall mean an amount equal to the sum of (1) sixty-
five percent (65%) of Eligible Accounts other than Domestic Distributor
Accounts, and (2) forty percent (40%) of Domestic Distributor Accounts. On the
Closing Date, all of the Existing Obligations, if any, shall be rolled over into
this Agreement and shall constitute and be deemed to be Advances under this
Agreement, and shall bear interest and be repayable in accordance with, and
shall be subject to all of the terms and conditions set forth in, this
Agreement. Borrowers' availability under the Revolving Facility on the Closing
Date shall be an amount equal to the amount, if any, by which the lesser of (i)
the Committed Line or (ii) the Borrowing Base, exceeds the Existing Obligations,
if any.
(b) To evidence the Advances, Borrowers shall execute and
deliver to Bank on the date hereof the Revolving Note, which shall amend,
restate and supersede the "Revolving Note" delivered in connection with the
Amended and Restated Loan Agreement.
(c) Whenever Borrowers desire an Advance, RasterOps, as agent
for each Borrower, will notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. California time, on the same Business Day that the Advance
is to be made ("Notice of Borrowing"). Each such notification shall be
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promptly confirmed by a "Borrowing Certificate" in substantially the form of
SCHEDULE 2.1 hereto.
(d) Bank is authorized to make Advances under this Agreement,
based upon instructions received from an officer of RasterOps, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank will credit the
amount of Advances made under this Section 2.1 to Borrowers' loan account.
Amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at
any time during the term of this Agreement so long as no Event of Default has
occurred and is continuing.
(e) The Revolving Facility shall terminate on the Maturity Date,
at which time all amounts advanced under this Section 2.1 together with all
other Obligations, shall be immediately due and payable.
(f) If at any time or times after the Closing Date and before
the Maturity Date, there are no Advances outstanding under the Revolving
Facility and Borrowers desire Bank to make an Advance hereunder, RasterOps, as
agent for each Borrower, will provide to Bank, at least ten (10) days before any
such Advance under this Agreement: (a) a company prepared consolidated balance
sheet, income statement and cash flow statement covering Borrowers' operations
during the previous month, certified by an officer of RasterOps acceptable to
Bank; (b) a Borrowing Base Certificate together with aged listings of accounts
receivable and accounts payable, (c) a Compliance Certificate, and (d) all other
financial statements, reports, and certificates required pursuant to Section 6.3
of this Agreement.
(g) Any Advance which may be made or deemed made by Bank to
RasterOps, as agent for each Borrower, are and shall be received by RasterOps in
trust for each Borrower. RasterOps shall distribute the proceeds of any such
Advances solely to or for the account of Borrowers. Each Borrower shall be
directly indebted to Bank for each Advance distributed to it by RasterOps, in
its capacity as agent for each Borrower, as if that Advance had been advanced
directly by Bank to the Borrower which received the proceeds thereof.
2.2 LETTERS OF CREDIT.
(a) On the date of this Agreement, all letter of credit
obligations of Borrowers to Bank under the Amended and Restated Loan Agreement,
if any, shall be rolled over into this Agreement and shall constitute and be
deemed to be Letter of Credit Obligations hereunder.
(b) Bank agrees, subject to the terms and conditions
hereinafter set forth, so long as no Event of Default has occurred and is
continuing, at any time prior to the Maturity Date, to incur Letter of Credit
Obligations, as RasterOps, as
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agent for each Borrower, shall request by written notice to Bank which written
notice must be received by Bank not later than 12:00 noon on the same Business
Day of the requested date of issuance of the Letters of Credit supporting
obligations of Borrowers arising in the ordinary course of business; PROVIDED,
HOWEVER, that the proposed documentation for each Letter of Credit Obligation is
reasonably satisfactory to Bank and that the aggregate amount of all Letter of
Credit Obligations pursuant to this Section 2.2(b) at any one time outstanding
(whether or not then due and payable) shall not, when added to the aggregate
amount of the Advances outstanding, exceed the limit on Advances set forth in
Section 2.1; AND FURTHER PROVIDED, HOWEVER, that (A) no such Letter of Credit
shall have an expiry date which is later than the Maturity Date, and (B) one
hundred percent (100%) of the amount of such Letter of Credit Obligations shall
be deducted from availability under the Revolving Facility. The determination
of the bank or other legally authorized Person (including Bank) which shall
issue or accept, as the case may be, any letter of credit or bankers acceptance
contemplated by this Section 2.2, and a determination whether or not the
proposed documentation with respect to any Letter of Credit Obligation is
reasonably acceptable, shall be made by Bank in its sole discretion.
(c) In the event that Bank shall make any payment on account of
or with respect to any Letter of Credit Obligation, such payment shall then be
deemed to constitute an Advance under Section 2.1.
(d) In the event that Bank shall incur any Letter of Credit
Obligations hereunder, Borrowers agree to pay to Bank, all fees and charges paid
by Bank on account of such Letter of Credit Obligations to the issuer or like
party.
2.3 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrowers to Bank pursuant to Section 2.1 of this Agreement
is greater than the lesser of (i) the Committed Line or (ii) the Borrowing Base,
Borrowers shall immediately pay to Bank, in cash, the amount of such excess.
2.4 INTEREST RATES, INTEREST PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. Interest shall accrue on the principal
amount of the Obligations evidenced by the Revolving Note outstanding at the end
of each day at a fluctuating rate per annum equal to the Prime Rate plus two
percent (2.OO%).
(b) DEFAULT RATE. All Obligations shall bear interest, from
and after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
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(c) PAYMENTS. Interest hereunder shall be due and payable on
the last Business Day of each calendar month during the term hereof. Bank
shall, at its option, charge such interest, all Bank Expenses, and all Periodic
Payments against Borrowers' deposit accounts or against the Committed Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) COMPUTATION. The foregoing rate of interest shall be
increased or decreased, as the case may be, by an amount equal to any increase
or decrease in the Prime Rate, with such adjustments to be effective as of the
opening of business on the day that any such change in the Prime Rate becomes
effective. If this Agreement is executed on a day that is not a Business Day,
the Prime Rate in effect on the date hereof shall be the Prime Rate for the last
Business Day immediately preceding the date hereof. Interest shall be
calculated on a daily basis (computed on the actual number of days elapsed over
a year of 360 days), commencing on the date hereof, and shall be payable as
provided in Section 2.4(c).
(e) MAXIMUM INTEREST. In no contingency or event whatsoever
shall the aggregate of all amounts deemed interest hereunder and charged or
collected pursuant to the terms of this Agreement exceed the highest rate
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. In the event that such a court
determines that Bank has charged or received interest hereunder in excess of the
highest applicable rate, the rate in effect hereunder shall automatically be
reduced to the maximum rate permitted by applicable law and Bank shall promptly
refund to Borrowers any interest received by Bank in excess of the maximum
lawful rate or, if so requested by Borrowers, shall apply such excess to the
principal balance of the Obligations. It is the intent hereof that Borrowers
not pay or contract to pay, and that Bank not receive or contract to receive,
directly or indirectly in any manner whatsoever, interest in excess of that
which may be paid by Borrowers under applicable law.
2.5 CREDITING PAYMENTS. The receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce the Obligations, but shall not be considered a payment on
account unless such wire transfer is of immediately available federal funds and
is made to the appropriate deposit account of Bank or unless and until such
check or other item of payment is honored when presented for payment and has
actually been collected and credited to Borrowers' account; PROVIDED, that any
wire transfer, check or other item of payment received by Bank after 11:00 a.m.
California time shall be deemed to have been received by Bank as of the opening
of business on the immediately following Business
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Day. Notwithstanding anything to the contrary in the immediately preceding
sentence, if Bank receives payment by check, interest shall accrue on that
portion of the Obligations equal to the amount of such check through the date
such check is deemed to have been received by Bank as set forth in the proviso
of this Section 2.5, and interest shall accrue on that portion of the
Obligations equal to the amount of such check after the date upon which such
check is deemed to have been received as set forth in the proviso in this
Section 2.5 only if such check is dishonored when presented for payment.
2.6 FEES. Borrowers shall pay to Bank the following:
(a) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary
fees and out-of-pocket expenses for Bank's audits of each Borrower's Accounts
and Inventory, and for each appraisal of Collateral and financial analysis and
examination of each Borrower performed from time to time by Bank or its agents;
and
(b) BANK EXPENSES. On the date hereof, all Bank Expenses
incurred through the date hereof, including, without limitation, reasonable
attorneys' fees and expenses in connection with the preparation of the Loan
Documents.
2.7 ADDITIONAL COSTS. In case any law, regulation, treaty or
official directive or the interpretation or application thereof by any court of
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrowers or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof); or
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to their
performance under this Agreement, and the result of any of the foregoing is to
increase the cost to Bank, reduce the income receivable by Bank or impose any
expense upon Bank with respect to any loans, Bank shall notify Borrowers
thereof. Borrowers agree to pay to Bank the amount of such increase in cost,
reduction in income or additional expense as and when such cost, reduction or
expense is incurred or determined, upon presentation by Bank of a statement in
the amount and setting
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forth Bank's calculation thereof, which statement shall be deemed true and
correct absent manifest error.
2.8 TERM; PAYMENT OF OBLIGATIONS ON MATURITY DATE. This Agreement
shall become effective upon acceptance by Bank and shall continue in full force
and effect for a term ending on the Maturity Date. Notwithstanding the
foregoing, Bank shall have the right to terminate this Agreement immediately and
without notice upon the occurrence of an Event of Default. Unless sooner paid
or due and payable as provided herein, all Obligations, including, without
limitation, principal, interest, fees and Bank Expenses, under this Agreement,
the Revolving Note or any of the other Loan Documents, shall be due and payable
in full on the Maturity Date. Each Borrower shall be jointly and severally
liable for the Obligations.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL LOAN. The obligation of Bank to
make the initial Advance is subject to the condition precedent that Bank shall
have received on or before the Closing Date, in form and substance satisfactory
to Bank, the following:
(a) this Agreement, together with all schedules and exhibits,
an amendment to the Collateral Assignments, the Lockbox Agreement, the Factoring
Agreement, and the Revolving Note, each duly executed by Borrowers or a
Borrower, as required therein, each in a form acceptable to Bank;
(b) a certificate of the secretary of each Borrower with
respect to incumbency and resolutions of the board of directors of such Borrower
authorizing the execution, delivery and performance of this Agreement, the
Revolving Note, the Lockbox Agreement, the Factoring Agreement, and Collateral
Assignments;
(c) guarantees from each of each Borrower's Subsidiaries, in
form acceptable to Bank;
(d) a non-refundable commitment fee in the amount of Sixty-Five
Thousand Dollars ($65,000);
(e) an accounts receivable audit;
(f) payment of the fees and Bank Expenses then
due and specified in section 2.6 hereof;
(g) those agreements, documents and other information set forth
in the Schedule of Documents delivered in connection with this Agreement; and
(h) such other documents, and completion of such other matters,
as Bank may deem necessary or appropriate.
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3.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of Bank to
make each Advance, including the initial Advance, is further subject to the
following conditions:
(a) timely receipt by Bank of the Notice of Borrowing as
provided in Section 2.1;
(b) the representations, warranties and disclosures contained
in this Agreement and in any other Loan Documents shall not be misleading and
shall be true and accurate in all material respects on and as of the date of
such Notice of Borrowing and on the effective date of each Advance as though
made at and as of each such date;
(c) no Event of Default shall have occurred and be continuing,
or would result from such Advance;
(d) there are no facts and circumstances which would, in the
Bank's reasonable determination, negatively affect the Bank's ability to collect
any outstanding Obligations;
(e) no event shall have occurred and be continuing, or would
result from any Advance, which constitutes or would constitute an Event of
Default; and
(f) the aggregate unpaid principal amount of the Obligations
after giving effect to such Advance shall not exceed the limitation set forth in
Section 2.1.
The acceptance by any Borrower of the proceeds of each Advance shall be
deemed to be as of the date of such acceptance (i) a representation and warranty
by each Borrower on the date of such Advance that the conditions of this Section
3.2 have been satisfied, and (ii) a confirmation by each Borrower of the
granting and continuance of Bank's Liens pursuant to this Agreement and the
other Loan Documents.
4. CREATION OF SECURITY INTEREST
4.1 GRANT, CONFIRMATION, RESTATEMENT AND CONTINUATION OF SECURITY
INTEREST. In order to secure prompt repayment of any and all Obligations and in
order to secure prompt performance by Borrowers of each of their covenants and
duties under this Agreement, the Revolving Note and the other Loan Documents,
each Borrower hereby grants to Bank a continuing Lien upon and security interest
in all of such Borrower's right, title, and interest in, to, and under the
following, whether now owned by or owing to such Borrower or hereafter acquired
by or arising in favor of such Borrower, and regardless of where located (all of
which being hereinafter collectively referred to as the "Collateral"):
(a) All Inventory;
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(b) All Chattel Paper that (i) is proceeds of Inventory,
Accounts, Equipment, or Fixtures, or (ii) evidences a right to payment for goods
sold or leased, for services rendered or for property licensed, whether or not
earned by performance;
(c) All Accounts;
(d) All contract rights and causes of action
arising out of or in connection with the sale or lease of goods by such
Borrower, the rendering of services by such Borrower or the licensing of
property by such Borrower;
(e) All Equipment and Fixtures;
(f) All General Intangibles;
(g) All Documents;
(h) All Instruments;
(i) All accessions to, substitutions for and all
replacements, rents, profits, products, and cash and non-cash proceeds of (a),
(b), (c), (d), (e), (f), (g) and (h) above, including proceeds of and any
unearned premiums with respect to insurance policies insuring any of the
Collateral; and
(j) All books and records of such Borrower pertaining to any of
(a), (b), (c), (d), (e), (f), (g), (h) or (i) above.
The foregoing grant of a security interest is also a confirmation,
restatement, and continuation of the existing security interests granted to Bank
under the Amended and Restated Loan Agreement, and any other security interest
granted by any Borrower to Bank. The security interest herein provided for and
all previously granted security interests, as amended hereby, shall continue to
be perfected by all of the financing statements, fixture filings or other
filings or recordations that were filed or recorded on or before November 15,
1993, naming any Borrower as debtor and Bank as secured party (including the
financing statement filed with the Office of the Secretary of State on August
15, 1988, as file No. 88198336, as amended and continued), as well as being also
perfected by any such filings or recordations made on or after November 15,
1993.
4.2 LIMITATION WITH RESPECT TO PATENTS AND TRADEMARKS AND
COPYRIGHTS. Notwithstanding (i) anything to the contrary in this Agreement or
in any of the Collateral Assignments, (ii) Borrowers' granting to Bank of a
security interest in the Patents, Trademarks, and Copyrights, and (iii) that
the Patents, Trademarks, and Copyrights are included in the Collateral, Bank
shall not enforce its security interest in any Patents, Trademarks or
Copyrights; PROVIDED, that Bank shall have the right to enforce its security
interest in all Collateral other
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than the Patents, Trademarks or Copyrights, including all Accounts, Inventory,
Equipment, and other Collateral (including proceeds), relating to or arising
from or in connection with the Patents, Trademarks or Copyrights. The security
interest granted to Bank in the Patents, Trademarks, and Copyrights is being
granted solely to the extent necessary for Bank to have a perfected security
interest in the Collateral other than the Patents, Trademarks, and Copyrights
and to protect and assist Bank in enforcing Bank's security interest in such
Collateral.
4.3 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Each Borrower
shall from time to time execute and deliver to Bank, at the request of Bank, all
financing statements and other documents that Bank may reasonably request, in
form satisfactory to Bank, to perfect and continue perfected Bank's security
interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents.
4.4 RIGHT TO INSPECT. Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to time
during any Borrower's usual business hours, to inspect such Borrower's Books and
to make copies thereof and to check, test, and appraise the Collateral in order
to verify such Borrower's financial condition or the amount, condition of, or
any other matter relating to, the Collateral.
4.5 LOCKBOX. Until such time as all of Borrowers' Obligations to
Bank have been paid and satisfied in full, Borrowers shall instruct all obligors
under instruments held by Borrowers and all account debtors to remit all
payments to the Cash Collateral Account. Borrowers shall not modify or
terminate the Lockbox Agreement without Bank's prior written consent. Borrowers
shall promptly deposit any checks or other payments directly received by them on
account of any right to payment of Borrowers into the Cash Collateral Account.
5. REPRESENTATIONS AND WARRANTIES
Each Borrower represents, warrants and covenants as
follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Such Borrower is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified, except for such states as to which
any failure so to qualify would not have a Material Adverse Effect on such
Borrower.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within such Borrower's powers, have been
duly authorized, and are not in
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conflict with nor constitute a breach of any provision contained in such
Borrower's Articles of Incorporation or Bylaws, nor will they constitute an
event of default under any material agreement to which such Borrower is a party
or by which such Borrower is bound. Such Borrower is not in default under any
agreement to which it is a party or by which it is bound, which default could
have a Material Adverse Effect on the financial condition or business operations
of such Borrower.
5.3 NO PRIOR ENCUMBRANCES; FIRST PRIORITY SECURITY INTEREST IN
ACCOUNTS. Such Borrower has good and indefeasible title to the Collateral, free
and clear of liens, claims, security interests, or encumbrances, except as held
by Bank and except for Permitted Liens. The liens and security interests of
Bank in the Accounts are prior to any liens and security interests of any other
Person in Accounts. Except as disclosed in the Schedule, such Borrower has not
acquired any part of the Collateral from an assignor outside the ordinary course
of such assignor's business. The security interests granted to Bank in the
Collateral constitute (i) valid security interests in such Collateral, and (ii)
first priority security interests in all Collateral, other than (a) Panasonic
Inventory to the extent Bell Atlantic-Tricon Leasing Corporation has a valid and
perfected security interest in such Panasonic Inventory and has complied with
the requirements set forth in the Code for obtaining purchase money priority,
and (b) IBM Inventory Collateral if and to the extent IBM Credit has a valid and
perfected security interest in such IBM Inventory Collateral and to the extent
Bank has subordinated its security interest therein.
5.4 BONA FIDE ACCOUNTS. The Eligible Accounts are and shall remain
bona fide existing obligations created by the sale and delivery of Inventory or
the rendition of services to account debtors in the ordinary course of
Borrowers' business, unconditionally owed to Borrowers without defenses,
disputes, offsets, counterclaims, or, except to the extent otherwise provided on
SCHEDULE 5.4, rights of return or cancellation. The property giving rise to
such Eligible Accounts has been delivered to the account debtor or to the
account debtor's agent for immediate shipment to and, except to the extent
otherwise provided on SCHEDULE 5.4, unconditional acceptance by the account
debtor. Neither Borrower has, and at all times hereafter, shall not have,
received notice of actual or imminent bankruptcy or insolvency of any account
debtor at the time an account due from such account debtor is included in the
Borrowing Base or any Borrowing Base Certificate as an Eligible Account or
Domestic Distributor Account.
5.5 MERCHANTABLE INVENTORY. All Inventory reported on the
consolidated financial statements of Borrowers delivered to Bank before the
Closing Date, and on any consolidated financial statements delivered after the
Closing Date, is now and at all times hereafter shall be in all material
respects of good and marketable quality, and free from all material defects.
Without
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the Bank's prior consent, the Inventory is not now and shall not at any time
hereafter be stored with a bailee, warehouseman, or similar party unless Bank
has received a pledge of the warehouse receipt covering such Inventory. Except
for Inventory sold in the ordinary course of business and except for such other
locations as Bank may approve in writing, each Borrower shall keep the Inventory
only at the location set forth in Section 11 hereof, the locations described on
SCHEDULE 5.16, and such other locations of which such Borrower gives Bank prior
written notice and as to which such Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
5.6 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in
the Schedule, such Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of such
Borrower is located at the address indicated in Section 11 hereof. Such
Borrower will not, without (i) thirty (30) days prior written notification to
Bank, and (ii) taking such action as is necessary to cause the Lien of Bank in
the Collateral to continue to be perfected, relocate such chief executive
office.
5.7 LITIGATION. There are no actions or proceedings pending by or
against such Borrower before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect on such Borrower or the
Collateral, except as disclosed on the SCHEDULE 5.7. Such Borrower does not have
knowledge of any such pending or threatened actions or proceedings. Such
Borrower will promptly notify Bank in writing if any action, proceeding or
governmental investigation, involving such Borrower is commenced that may result
in damages or costs to such Borrower of Fifty Thousand Dollars ($50,000) or
more.
5.8 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
financial statements relating to Borrowers or any Affiliate or Subsidiary of
Borrowers that have been or may hereafter be delivered by any Borrower to Bank
fairly present in all material respects Borrowers' financial condition as of the
date thereof and Borrowers' results of operations for the period then ended.
There has not been a material adverse change in the financial condition of any
Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.9 SOLVENCY. Such Borrower is solvent and able to pay its debts
(including trade debts) as they mature.
5.10 REGULATORY COMPLIANCE. Such Borrower has met and at all times
will meet the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from such
Borrower's failure to comply with ERISA that is reasonably likely to result in
such Borrower's incurring any liability that could have a Material Adverse
Effect on the financial condition or business operations
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of any Borrower. Such Borrower is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940. Such Borrower is not engaged principally, or as one of the
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations G, T and
U of the Board of Governors of the Federal Reserve System), and the proceeds of
the Advances will not be used for such purpose. Such Borrower has complied with
all the provisions of the Federal Fair Labor Standards Act.
5.11 ENVIRONMENTAL CONDITION. None of such Borrower's properties or
assets has ever been used by any Borrower or, to the best of such Borrower's
knowledge, by previous owners or operators in the disposal of, or to produce,
store, handle, treat, release, or transport, any hazardous waste or hazardous
substance other than in accordance with applicable law; none of such Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by such Borrower; and such Borrower has not received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal or state governmental agency concerning any action or omission by
any Borrower resulting in the releasing, or otherwise disposing of hazardous
waste or hazardous substances into the environment.
5.12 TAXES. Such Borrower has filed or caused to be filed all tax
returns required to be filed, and has paid, or has made adequate provision for
the payment of, all taxes that are due and payable.
5.13 SUBSIDIARIES. Except as disclosed on SCHEDULE 5.13 such Borrower
does not own any stock, partnership interest or other equity securities of any
entity, except for Permitted Investments.
5.14 GOVERNMENT CONSENTS. Such Borrower has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all governmental authorities that are necessary for the
continued operation of Borrowers' business as currently conducted.
5.15 FULL DISCLOSURE. No representation, warranty or other statement
made by such Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
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5.16 LOCATIONS OF COLLATERAL. Such Borrower's chief executive
office (which is also described in Section 11), corporate offices and all other
locations of Collateral and its records concerning the Collateral, including the
location of all warehouses and storage facilities, are as set forth on SCHEDULE
5.16 attached hereto; PROVIDED, that all of the warehouses and storage
facilities described on SCHEDULE 5.16 are operated by a Borrower and not by any
other Persons. Such Borrower shall not change its chief executive office,
principal place of business, corporate offices, warehouses or storage facilities
or remove such records unless it has taken such action as is necessary to cause
the Lien of Bank to continue to be perfected. Such Borrower shall not change
its chief executive office, principal place of business, corporate offices,
warehouses or storage facilities or the location of its records concerning the
Collateral without giving thirty (30) days,' prior written notice thereof to
Bank.
5.17 TAX IDENTIFICATION NUMBERS. The federal employer identification
number for RasterOps is 77 0161747. The federal employer identification number
for Truevision is 35 1719168.
5.18 NO INSTRUMENTS. None of the amounts owed by any customer of
either Borrower to such Borrower for any Inventory sold or services performed by
such Borrower is evidenced by a promissory note or other instrument in favor of
such Borrower.
5.19 INVENTORY OF SUBSIDIARIES. None of the Subsidiaries of
RasterOps, other than Truevision, has any inventory located in the United
States.
. 5.20 INDEBTEDNESS TO BELL ATLANTIC - TRICON LEASING CORPORATION AND IBM
CREDIT. The aggregate outstanding indebtedness of Borrowers to Bell Atlantic -
Tricon Leasing Corporation and IBM Credit does not as of the date of this
Agreement and shall not any time hereafter exceed $2,000,000 in the aggregate.
5.21 COPYRIGHTS, TRADEMARKS AND PATENT. Borrowers reaffirm that the
Patents, Trademarks and Copyrights listed in the schedules of the Collateral
Assignments are the only Patents, Trademarks and Copyrights of Borrowers and
that Borrowers have not acquired any additional Patents, Trademarks and/or
Copyrights.
6. AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that, until payment
in full of the Obligations, such Borrower shall do all of the following:
6.1 GOOD STANDING. Such Borrower shall maintain its corporate
existence and its good standing in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in
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which the failure to so qualify could have a Material Adverse
Effect on the financial condition, operations or business of such
Borrower. Such Borrower shall maintain in force all licenses,
approvals and agreements, the loss of which could have a Material
Adverse Effect on its financial condition, operations or
business.
6.2 GOVERNMENT COMPLIANCE. Such Borrower shall comply
with all statutes, laws, ordinances and government rules and
regulations to which it is subject, noncompliance with which
could materially adversely affect the financial condition,
operations or business of any Borrower.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
RasterOps shall deliver, or cause to be delivered, to Bank:
(a) as soon as available, but in no event later
than 3:00 p.m. on each day after the date of this Agreement that
is not a Saturday or Sunday, a report in the form of SCHEDULE
6.3(a) of the Borrowers' sales and collections for the prior day
that is not a Saturday or Sunday;
(b) as soon as available but in no event later
than fifteen (15) days after the last day of each month, a
"Borrowing Base Certificate" signed by an officer of RasterOps in
substantially the form of SCHEDULE 6.3(b) hereto, together with
(i) aged listings of accounts receivable and accounts payable,
(ii) a schedule showing purchases of Sony Inventory and Panasonic
Inventory for the month then ended and the total aggregate
indebtedness outstanding to Bell Atlantic - Tricon Leasing
Corporation, and IBM Credit as of the end of such month,
(iii) the distributor sell through reports that report the five
highest aggregate sell throughs of the previous month, and
(iv) all sales return information reports;
(c) as soon as available, but in no event later
than thirty (30) days after the end of each month, (i) a company
prepared consolidated and consolidating balance sheet, income
statement and cash flow statement covering the Borrowers' and
their Subsidiaries' operations during such period, certified by
an officer of RasterOps reasonably acceptable to Bank, and
(ii) as agent for each Borrower, a "Compliance Certificate"
signed by an authorized officer of RasterOps in substantially the
form of SCHEDULE 6.3(c) hereto;
(d) as soon as available, but in no event later
than ninety (90) days after the end of RasterOps's fiscal year,
audited consolidated and consolidating financial statements of
RasterOps covering RasterOps and its Subsidiaries' operations
during the previous fiscal year which are prepared in accordance
with GAAP, consistently applied, by an independent certified
public accounting firm reasonably acceptable to Bank, together
with an unqualified opinion on such financial statements of such
independent certified public accounting firm, and (at the time of
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filing with the appropriate tax authorities) the tax returns of
Borrowers;
(e) as soon as available, but in no event later
than five (5) days after RasterOps files the same with the
Security and Exchange Commission, a copy of RasterOps's quarterly
10-Q report and annual 10-K report;
(f) promptly upon becoming available, copies of
all statements, reports and notices sent or made available
generally by any Borrower to its security holders or to any
holders of Subordinated Debt;
(g) immediately upon receipt of written notice
thereof, a report of any material legal actions pending or
threatened against any Borrower; and
(h) such budgets, sales projections, operating
plans or other financial information as Bank may reasonably
request from time to time.
Bank shall have a right from time to time to audit
Borrowers' Accounts at borrowers' expense, provided that such
audits will be conducted no more often than every three (3)
months unless an Event of Default has occurred.
6.4 RETURNS. Returns and allowances, if any, as
between such Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices
of such Borrower, as they exist at the time of the execution and
delivery of this Agreement. Such Borrower shall promptly notify
Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves
more than Fifty Thousand Dollars ($50,000).
6.5 TAXES. Such Borrower shall make due and timely
payment or deposit of all federal, state, and local taxes,
assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof; and such Borrower
will make timely payment or deposit of all tax payments and
withholding taxes required of it by applicable laws, including,
but not limited to, those laws concerning F.I.C.A., F.U.T.A.,
state disability, and local, state, and federal income taxes, and
will, upon request, furnish Bank with proof satisfactory to Bank
indicating that such Borrower has made such payments or deposits;
provided that such Borrower need not make any payment if the
amount or validity of such payment is contested in good faith by
appropriate proceedings and is adequately reserved against by
such Borrower.
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6.6 INSURANCE.
(a) Such Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft,
explosion, sprinklers, and all other hazards and risks, and in
such amounts, as ordinarily insured against by other owners in
similar businesses conducted in the locations where such
Borrower's business is conducted on the date hereof. Such
Borrower shall also maintain insurance relating to such
Borrower's ownership and use of the Collateral in amounts and of
a type that are customary to businesses similar to Borrower's
business.
(b) All such policies of insurance shall be in
such form, with such companies, and in such amounts as reasonably
satisfactory to Bank. All such policies of insurance shall
contain a lender's loss payable endorsement, in a form
satisfactory to Bank, showing Bank as a loss payee thereof, and
shall specify that the insurer must give at least ten (10) days
notice to Bank before canceling its policy for any reason. Such
Borrower shall deliver to Bank certified copies of such policies
of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at
the option of Bank, be payable to Bank to be applied on account
of the Obligations.
6.7 PRINCIPAL DEPOSITORY. Borrowers shall maintain
their principal depository and operating accounts with Bank;
PROVIDED, that prior to opening any accounts with any other banks
or financial institutions RasterOps shall provide Bank with at
least five (5) days, prior written notice of the bank or
financial institution at which such account will be opened, the
account number, and the purpose for which such account will be
used. Truevision shall provide Bank with the same information
with respect to each bank account as is required to be provided
by RasterOps. Each bank account maintained by any Borrower on
the Closing Date is listed on the Schedule.
6.8 QUICK RATIO. As of each Computation Date,
RasterOps shall have a ratio of Quick Assets to Current
Liabilities of at least 0.75 to 1.0. For purposes of calculating
the Quick Ratio only, all Letter of Credit Obligations shall be
considered as part of the Indebtedness constituting the Current
Liabilities of RasterOps.
6.9 TANGIBLE NET WORTH. As of the date of this
Agreement, RasterOps shall have a Tangible Net Worth of not less
than Eleven Million Two Hundred Fifty Thousand Dollars
($11,250,000.00), which amount shall thereafter increase, on each
Computation Date after the date of this Agreement, by eighty
percent (80%) of the net profits after taxes, and with no
deduction for losses, that RasterOps earned during the previous
fiscal quarter.
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6.10 DEBT-NET WORTH RATIO. As of each Computation
Date, RasterOps shall have a ratio of Total Liabilities less
Subordinated Debt to Tangible Net Worth plus Subordinated Debt of
not more than 1.70 to 1.0.
6.11 PROFITABILITY. The losses incurred by RasterOps
on a consolidated basis for the fiscal quarters ending
December 30, 1994, and April 1, 1995 shall not exceed $700,000.00
and $200,000.00, respectively. RasterOps shall not have any loss
for the fiscal quarter ending July 1, 1995. RasterOps shall be
profitable, on a consolidated basis, before taxes and after taxes
on each Computation Date beginning September 30, 1995 and
continuing thereafter.
6.12 FURTHER ASSURANCES. At any time and from time to
time such Borrower shall execute and deliver such further
instruments and take such further action as may reasonably be
requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Each Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until payment in full of
the Obligations, such Borrower will not do any of the following:
7.1 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS.
Enter into any transaction not in the ordinary and usual course
of such Borrower's business, including, but not limited to, the
sale, lease, or other disposition of, moving, relocation, or
transfer, whether by sale or otherwise, of such Borrower's
assets, other than (i) sales of Inventory in the ordinary and
usual course of such Borrower's business as presently conducted,
(ii) sales or other dispositions in the ordinary course of
business of assets that have become worn out or obsolete or that
are promptly being replaced, (iii) sales of Equipment having an
aggregate book value not to exceed One Hundred Thousand Dollars
($100,000) in any calendar year, for not less than fair market
value.
7.2 LOANS; CONTINGENT LIABILITIES. Except for
Permitted Investments, make or accrue any loans or advances of
money to any third party, or, except for Permitted Indebtedness,
guarantee or otherwise become in any way liable with respect to
the obligations of any third party except by endorsement of
instruments or items of payment for deposit to the account of
such Borrower or which are transmitted or turned over to Bank.
7.3 RESTRUCTURE. Change such Borrower's name; make
any material change in such Borrower's financial structure or
business operations; cause, permit or suffer any material change
in such Borrower's ownership; or suspend operation of such
Borrower's business; PROVIDED, that the (i) exercise by Scitex of
any warrants existing as of the Closing Date, or (ii) the
issuance of any stock to any officers, directors or any other
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employees of such Borrower pursuant to such Borrower's employee
benefit plan as it exists as of the Closing Date, shall not
constitute a change in such Borrower's financial structure or
ownership for the purpose of this Section 7.3.
7.4 MERGERS OR ACQUISITIONS. Merge or consolidate
with or into any other business organization, or acquire directly
or indirectly all or substantially all of the capital stock or
property of another Person.
7.5 INDEBTEDNESS. Create, incur, assume or be or
remain liable with respect to any Indebtedness other than
Permitted Indebtedness.
7.6 ENCUMBRANCES. Create, incur, assume or suffer to
exist any mortgage, lien, security interest or other encumbrance
with respect to any of its property, or assign or otherwise
convey any right to receive income, including the sale of any
Accounts, except for Permitted Liens.
7.7 DISTRIBUTIONS. Pay any dividends or make any
other distribution or payment on account of or in redemption,
retirement or purchase of any capital stock; PROVIDED, that such
Borrower can redeem capital stock issued to any employee,
consultant, and director of such Borrower out of legally
available funds upon (i) termination of such employee's
employment agreement with such Borrower, (ii) termination of such
consultant's consulting agreement with such Borrower, or
(iii) resignation or termination of such directors from the board
of directors of such Borrower, but only to the extent provided
under any written employment agreement between any such employee
and Borrower, any written consulting agreement between any such
consultant and such Borrower or any written agreement between any
such director and such Borrower.
7.8 INVESTMENTS. Directly or indirectly make or own
any beneficial interest in (including stock, partnership
interest, or other securities of), or make any loan, advance, or
capital contribution to, any Person other than Permitted
Investments, and other than advances by any Borrower in or to
(i) any Borrower, or (ii) any Subsidiary of RasterOps that is not
a Borrower.
7.9 TRANSACTIONS WITH AFFILIATES. Directly or
indirectly enter into or permit to exist any material transaction
with any Person controlling, controlled by, or under common
control (whether by contract, ownership of voting securities, or
otherwise) with any Borrower except for transactions that are in
the ordinary course of such Borrower's business, upon fair and
reasonable terms that are no less favorable to such Borrower than
would be obtained in an arm's length transaction with a non-
affiliated Person.
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7.10 SUBORDINATED DEBT. Make any payment in respect of
any Subordinated Debt except in compliance with the terms of such
Subordinated Debt, or amend any provision contained in any
documentation relating to the Subordinated Debt if such amendment
would adversely affect the interests of Bank.
7.11 COMPLIANCE. Fail to meet the minimum funding
requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur, or violate any law or
regulation, which violation could have a material adverse effect
on the condition or prospects of any Borrower.
7.12 INSTRUMENTS: SECURITY INTEREST. Accept any
promissory note or other instrument from any customer of such
Borrower as payment for any Inventory of such Borrower or
services performed by such Borrower without first notifying Bank
that it intends to accept a promissory note or other instrument;
PROVIDED, that such Borrower shall, immediately upon receipt,
deliver such promissory note or other instrument to Bank to hold
as Collateral under this Agreement.
7.13 CHATTEL PAPER. Accept or generate any Chattel
Paper in connection with the sale any Inventory of Borrower or
otherwise.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an "Event of
Default" under this Agreement:
8.1 PAYMENT DEFAULT. If any Borrower fails to pay
when due and payable or when declared due and payable in
accordance with the Loan Documents, any portion of the
Obligations;
8.2 REPORTING, INSURANCE, FINANCIAL AND NEGATIVE
COVENANT DEFAULTS. If any Borrower fails to perform, keep or
observe any obligation, covenant or agreement under Sections 6.2,
6.6, 6.7, 6.8, 6.9, 6.10 or 6.11, or violates any of the
covenants contained in Article 7 of this Agreement;
8.3 OTHER COVENANT DEFAULTS. If any Borrower fails or
neglects to perform, keep, or observe any material term,
provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present
or future agreement between any Borrower and Bank (other than the
monetary Obligations, insurance, and financial covenants and
negative covenants described in Sections 8.1 and 8.2 above or any
other covenant specifically dealt with in Section 8 of this
Agreement) and the same has not been cured to Bank's satisfaction
within thirty (30) days after any Borrower shall have received
written notice of any such failure from Bank;
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8.4 MATERIAL ADVERSE EFFECT. If there occurs any
event that would have a Material Adverse Effect, which event
continues for thirty (30) days after any Borrower shall have
received written notice thereof;
8.5 ATTACHMENT. If any material portion of any
Borrower's assets is attached, seized, subjected to a writ or
distress warrant, or is levied upon, or comes into the possession
of any trustee, receiver or Person acting in a similar capacity
and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within ten (10)
days, or if any Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any
material part of its business affairs, or if a judgment or other
claim becomes a lien or encumbrance upon any material portion of
any Borrower's assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of any
Borrower's assets by the United States Government, or any
department, agency, or instrumentality thereof, or by any state,
county, municipal, or governmental agency, and the same is not
paid within twenty (20) days after any Borrower receives notice
thereof, PROVIDED that none of the foregoing shall constitute an
Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contesting by
any Borrower (PROVIDED that no Advances will be made during such
cure period);
8.6 INSOLVENCY. If an Insolvency Proceeding is
commenced by any Borrower, or if an Insolvency Proceeding is
commenced against any Borrower and is not dismissed within thirty
(30) days (PROVIDED that no Advances will be made prior to the
dismissal of such case);
8.7 OTHER AGREEMENTS. If there is a default in any
agreement to which any Borrower is a party with a third party or
parties resulting in a right by such third party or parties,
whether or not exercised, to accelerate the maturity of any
material Indebtedness.
8.8 SUBORDINATED DEBT. If any Borrower makes any
payment on account of Subordinated Debt, except to the extent
such payment is allowed under any subordination agreement entered
into with Bank;
8.9 JUDGMENTS. If a judgment or judgments for the
payment of money in an amount, individually or in the aggregate,
of Fifty Thousand Dollars ($50,000) shall be rendered against any
Borrower and shall remain unsatisfied and unstayed for a period
of ten (10) days (PROVIDED that no Advances will be made prior to
the satisfaction or stay of such judgment); or
8.10 MISREPRESENTATIONS. If any material
misrepresentation or material misstatement exists now or
hereafter in any warranty, representation, statement, or report
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made to Bank by any Borrower or any officer, employee, agent, or
director of any Borrower.
8.11 DEFAULT UNDER AGREEMENTS WITH BELL ATLANTIC AND
IBM CREDIT. If any Borrower fails or neglects to pay or perform
any obligation under any of its agreements with Bell Atlantic -
Tricon Leasing Corporation and/or IBM Credit and any such failure
or neglect is not remedied within any applicable cure period
PROVIDED in any such agreements, or a default or event of default
occurs under any such agreements which default or event of
default is not waived by Bell Atlantic-Tricon Leasing Corporation
and/or IBM Credit.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence of an
Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the
following, all of which are authorized by each Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise,
immediately due and payable (PROVIDED that upon the occurrence of
an Event of Default described in Section 8.6 all Obligations
shall become immediately due and payable without any action by
Bank);
(b) Cease advancing money or extending credit to
or for the benefit of Borrowers under this Agreement or under any
other agreement between any Borrower and Bank;
(c) in Bank's reasonable discretion, activate the
Factoring Agreement;
(d) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever
order that Bank reasonably considers advisable;
(e) Without notice to or demand upon borrowers'
make such payments and do such acts as Bank considers necessary
or reasonable to protect its security interest in the Collateral.
Each Borrower agrees to assemble the Collateral if Bank so
requires, and to make the Collateral available to Bank as Bank
may designate. Each Borrower authorizes Bank to enter the
premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien
which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in
connection therewith. Each Borrower hereby grants Bank a license
and the right to enter into possession of such premises and to
occupy the same in order to exercise any of Bank's rights or
remedies PROVIDED herein, at law, in equity, or otherwise, and if
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such premises are owned by such Borrower, such Borrower agrees
not to charge Bank for Bank's use of such premises;
(f) Without notice to Borrowers set off and apply
to the Obligations any and all (i) balances and deposits of
Borrowers held by Bank, or (ii) indebtedness at any time owing to
or for the credit or the account of Borrowers held by Bank;
(g) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell
(in the manner PROVIDED for herein) the Collateral. Bank is
hereby granted a license or other right, solely pursuant to the
provisions of this section 9.1, to use, without charge, each
Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it
pertains to the Collateral, solely in completing production of,
advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this
section 9.1, each Borrower's rights under all licenses and all
franchise agreements shall inure to Bank's benefit;
(h) Sell the Collateral at either one or more
public or private sales, or both, by way of one or more contracts
or transactions, in lots or in bulk, for cash or on terms or any
combination thereof, in such manner and at such times and places
(including Borrowers' premises) as Bank determines is
commercially reasonable. Each Borrower hereby agrees that seven
(7) days' written notice to Borrowers of any public or private
sale or other disposition of the Collateral shall be reasonable
notice thereof;
(i) Bank may credit bid and purchase at any
public sale; and
(j) Any deficiency that exists after disposition
of the Collateral as PROVIDED above will be paid immediately by
Borrowers.
9.2 POWER OF ATTORNEY. Each Borrower hereby
irrevocably appoints Bank (and any of Bank's designated officers,
or employees) as such Borrower's true and lawful attorney to:
(a) At such time or times hereafter as Bank, in its
sole discretion, may determine:
(i) endorse such Borrower's name on any checks or
other forms of payment or security that may come
into Bank's possession;
(ii) sign the name of such Borrowers on any of the
documents described in Section 4.3; and
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(iii) do all other acts and things necessary, in
Bank's determination, to fulfill such Borrower's
Obligations under this Agreement.
(b) At such time or times upon the occurrence and
continuation of an Event of Default:
(i) send requests to account debtors for
verification of Accounts;
(ii) sign such Borrower's name on any invoice or
bill of lading relating to any Account, drafts
against account debtors, schedules and assignments
of Accounts, verifications of Accounts, and
notices to account debtors;
(iii) make, settle, and adjust all claims under
and decisions with respect to such Borrower's
policies of insurance; and
(iv) settle and adjust disputes and claims
respecting the Accounts directly with account
debtors, for amounts upon terms which Bank
determines to be reasonable.
The appointment of Bank as such Borrower's attorney in fact, and
each and every one of Bank's rights and powers, being coupled
with an interest, is irrevocable until all of the Obligations
have been fully repaid and performed.
9.3 BANK EXPENSES; ATTORNEYS' FEES AND COSTS.
Borrowers shall pay all reasonable out-of-pocket expenses of Bank
in connection with the preparation of, or any payment under or
termination of, the Loan Documents (including the reasonable fees
and expenses of all of its counsel retained in connection with
the Loan Documents, the transactions contemplated thereby, or any
repayment or termination thereunder). If, at any time or times,
regardless of the existence of an Event of Default, Bank shall
employ counsel or other professional advisors for advice or other
representation or shall incur reasonable legal, appraisal,
accounting, consulting or other costs and expenses in connection
with:
(a) any amendment, modification or waiver of, or
consent with respect to, any of the Loan Documents;
(b) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Bank, any Borrower,
or any other Person) in any way relating to the Collateral, any
of the Loan Documents, including any litigation, contest,
dispute, suit, case, proceeding or action, and any appeal or
review thereof, in connection with a case commenced by or against
any Borrower, or any other Person that may be obligated to Bank
by virtue of the Loan Documents, under the United States
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Bankruptcy Code or any other applicable Federal, state, or
foreign bankruptcy or other similar law;
(c) any attempt to enforce any rights of Bank
against any Borrower, or any other Person that may be obligated
to Bank by virtue of any of the Loan Documents; and/or
(d) any attempt to inspect, verify, protect,
collect, sell, liquidate or otherwise dispose of the Collateral;
then, and in any such event, the reasonable fees of such
attorneys and other professional advisors arising from such
services, including those of any appellate proceedings, and all
reasonable expenses, costs, charges and other fees incurred by
such counsel or other professionals in any way or respect arising
in connection with or relating to any of the events or actions
described in this Section 9.3 shall be payable, on demand, by
Borrowers to Bank, in the manner described in Section 2.4(c) of
this Agreement, and shall be additional Obligations secured by
the Collateral. All fees and expenses described in this
Section 9.3, together with those expenses described in
Section 9.4 of this Agreement, shall be referred to hereinafter
collectively, as the "Bank Expenses".
9.4 BANK EXPENSES; PAYMENT MADE ON BEHALF OF BORROWERS.
If any Borrower fails to pay any amounts or furnish
any required proof of payment due to third Persons as required
under the terms of this Agreement, then Bank may do any or all of
the following: (a) make payment of the same or any part thereof;
(b) set up such reserves in Borrowers' loan account as Bank deems
necessary to protect Bank from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.6 of this Agreement, and take any
action with respect to such policies as Bank deems prudent. Any
amounts paid or deposited by Bank shall constitute Bank Expenses,
shall be immediately due and payable, and shall bear interest at
the then applicable rate hereinabove PROVIDED, and shall be
secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the
future or a waiver by Bank of any Event of Default under this
Agreement.
9.5 REMEDIES CUMULATIVE. Bank's rights and remedies
under this Agreement, the Loan Documents, and all other
agreements are cumulative and may be exercised singly or
concurrently and are not exclusive of any rights and remedies
PROVIDED by law. Bank shall have all other rights and remedies
as PROVIDED under the Code, by law, or in equity. No exercise by
Bank of one right or remedy shall be deemed an election, and no
waiver by Bank of any Event of Default on any Borrower's part
shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it.
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<PAGE>
10. WAIVERS: INDEMNIFICATION: REVIVAL.
10.1 DEMAND: PROTEST AND OTHER WAIVERS. EACH BORROWER
WAIVES (I) DEMAND, PROTEST, NOTICE OF PROTEST, NOTICE OF DEFAULT
OR DISHONOR, NOTICE OF PAYMENT AND NONPAYMENT, NOTICE OF ANY
DEFAULT, NONPAYMENT AT MATURITY, RELEASE, COMPROMISE, SETTLEMENT,
EXTENSION, OR RENEWAL OF ACCOUNTS, DOCUMENTS, INSTRUMENTS,
CHATTEL PAPER, AND GUARANTEES AT ANY TIME HELD BY BANK ON WHICH
SUCH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND
CONFIRMS WHATEVER BANK MAY DO IN THIS REGARD; (II) NOTICE PRIOR
TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR
SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING
BANK TO EXERCISE ANY OF BANK'S REMEDIES, INCLUDING THE ISSUANCE
OF AN IMMEDIATE WRIT OF POSSESSION; (III) THE BENEFIT OF ALL
VALUATION, APPRAISEMENT AND EXEMPTION LAWS; (IV) ANY RIGHT SUCH
BORROWER MAY HAVE UPON PAYMENT IN FULL OF THE OBLIGATIONS TO
REQUIRE BANK TO TERMINATE ITS SECURITY INTEREST IN THE COLLATERAL
OR IN ANY OTHER PROPERTY OF SUCH BORROWER UNTIL TERMINATION OF
THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS AND THE EXECUTION BY
SUCH BORROWER, AND BY ANY PERSON WHOSE LOANS TO SUCH BORROWER IS
USED IN WHOLE OR IN PART TO SATISFY THE OBLIGATIONS, OF AN
AGREEMENT INDEMNIFYING BANK FROM ANY LOSS OR DAMAGE BANK MAY
INCUR AS THE RESULT OF DISHONORED CHECKS OR OTHER ITEMS OF
PAYMENT RECEIVED BY BANK FROM SUCH BORROWER OR ANY ACCOUNT DEBTOR
AND APPLIED TO THE OBLIGATIONS; AND (V) NOTICE OF ACCEPTANCE
HEREOF.
IF AND TO THE EXTENT THAT ANY OBLIGATION OF ANY
BORROWER TO BANK SHALL BE CONSIDERED AN OBLIGATION OF GUARANTY OR
SURETYSHIP, THEN THE FOLLOWING WAIVER SHALL APPLY WITH RESPECT TO
EACH SUCH PERSON: SUCH BORROWER AGREES THAT BANK SHALL BE UNDER
NO OBLIGATION TO: (i) MARSHAL ANY ASSETS IN FAVOR OF SUCH
PERSON, (ii) TO PROCEED FIRST AGAINST ANY OTHER PERSON OR ANY
PROPERTY OF ANY OTHER PERSON OR AGAINST ANY COLLATERAL, (iii)
ENFORCE FIRST ANY OTHER GUARANTY OBLIGATIONS WITH RESPECT TO, OR
SECURITY FOR, THE OBLIGATIONS, (iv) PURSUE ANY OTHER REMEDY IN
BANK'S POWER THAT SUCH BORROWER MAY NOT BE ABLE TO PURSUE ITSELF
AND THAT MAY LIGHTEN SUCH BORROWER'S BURDEN, ANY RIGHT TO WHICH
SUCH BORROWER HEREBY EXPRESSLY WAIVES.
TO THE EXTENT THAT ANY BORROWER SHALL BE REQUIRED TO
REPAY A PORTION OF ANY OBLIGATIONS WHICH SHALL EXCEED THE GREATER
OF (X) THE AMOUNT OF SUCH BORROWING ACTUALLY RECEIVED BY SUCH
BORROWER AND (Y) THE AMOUNT WHICH SUCH BORROWER WOULD OTHERWISE
HAVE PAID IF EACH BORROWER HAD REPAID THE AGGREGATE AMOUNT OF
SUCH BORROWING IN THE SAME PROPORTION AS SUCH BORROWER'S NET
WORTH IMMEDIATELY AFTER THE CLOSING DATE BEARS TO THE AGGREGATE
NET WORTH OF ALL OF BORROWERS IMMEDIATELY AFTER THE CLOSING DATE,
THEN SUCH BORROWER SHALL BE REIMBURSED BY THE OTHER BORROWER FOR
THE AMOUNT OF SUCH EXCESS, PRO RATA, BASED UPON THEIR RESPECTIVE
NET WORTHS IMMEDIATELY AFTER THE CLOSING DATE. THIS PARAGRAPH IS
INTENDED ONLY TO DEFINE THE RELATIVE RIGHTS OF THE borrowers' AND
NOTHING SET FORTH IN THIS PARAGRAPH IS INTENDED TO OR SHALL
IMPAIR THE OBLIGATIONS OF borrowers' JOINTLY AND SEVERALLY, TO
37
<PAGE>
PAY TO BANK THE OBLIGATIONS AS AND WHEN THE SAME SHALL BECOME DUE
AND PAYABLE IN ACCORDANCE WITH THE TERMS HEREOF.
EACH BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS
AND THE WAIVERS SET FORTH IN SECTION 12 OF THIS AGREEMENT, ARE A
MATERIAL INDUCEMENT TO BANK'S ENTERING INTO THIS AGREEMENT AND
THAT BANK IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE
DEALINGS WITH SUCH BORROWER.
10.2 BANK'S LIABILITY FOR COLLATERAL. So long as Bank
complies with its Obligations, if any, under Section 9207 of the
Code, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any
lose or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof;
or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person whomsoever. All risk of loss,
damage or destruction of the Collateral shall be borne by
Borrowers.
10.3 INDEMNIFICATION. Each Borrower shall defend,
indemnify and hold harmless Bank and its officers, employees, and
agents against: (a) all Obligations, demands, claims, and
liabilities claimed or asserted by any other party in connection
with the transactions contemplated by this Agreement, and (b) all
losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrowers whether
under this Agreement, or otherwise (including without limitation
attorneys fees and expenses), except for losses caused by Bank's
gross negligence or willful misconduct or Bank's breach of any
specific Obligations to Borrowers as set forth in this Agreement.
10.4 DISGORGEMENT: REVIVAL OF OBLIGATIONS. In the
event that any proceeds of Collateral paid or distributed to or
realized by the Bank, or any other payment made to Bank pursuant
to the terms hereof, is required to be disgorged, returned,
repaid, turned over, or refunded to the Borrowers or to any other
Person, the Obligations shall be reinstated, revived, or restored
by the amount that is required to be disgorged, returned, repaid,
turned over, or refunded, the same as if such payment,
distribution, or realization had never been made. The
Obligations, as reinstated, revived, or restored, shall continue
to be secured by the Collateral.
11. NOTICES
Unless otherwise PROVIDED in this Agreement, all
notices or demands by any party relating to this Agreement or any
other agreement entered into in connection herewith shall be in
writing and (except for financial statements and other
informational documents which may be sent by first-class mail,
postage prepaid) shall be personally delivered or sent by
certified mail, postage prepaid, return receipt requested, or by
38
<PAGE>
prepaid telefacsimile to Borrowers or to Bank, as the case may
be, at its addresses set forth below:
If to Borrowers: RasterOps
2500 Walsh Avenue
Santa Clara, CA 95051
Attn: R. John Curson
Telephone: (408) 562-4200
Facsimile: (408) 562-4066
with a copy to: Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Alan K. Austin
Telephone: (415) 493-9300
Facsimile: (415) 858-4486
If to Bank: Silicon Valley Bank
3000 Lakeside Drive
Santa Clara, CA 95054
Attn: Jane A. Braun
Telephone: (408) 654-5554
Facsimile: (408) 748-9478
with a copy to: Silicon Valley Bank
2202 North First Street
San Jose, CA 95131
Attn: Catherine Ngo, Esq.
Telephone: (408) 383-5146
Facsimile: (408) 954-0832
with a copy to: Murphy, Weir & Butler
101 California Street, 39th Floor
San Francisco, California 94111
Attn: Jane K. Springwater
Telephone: (415) 398-4700
Facsimile: (415) 788-0783
The parties hereto may change the address at which they are
to receive notices hereunder, by notice in writing in the
foregoing manner given to the other.
12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF
BORROWERS AND BANK HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SANTA
CLARA, STATE OF CALIFORNIA. EACH BORROWER AND BANK HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
39
<PAGE>
ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR
ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON
LAW OR STATUTORY CLAIMS.
13. GENERAL PROVISIONS
13.1 SUCCESSORSAND ASSIGNS. This Agreement shall bind
and inure to the benefit of the respective successors and
permitted assigns of each of the parties; PROVIDED, HOWEVER, that
neither this Agreement nor any rights hereunder may be assigned
by any Borrower without Bank's prior written consent, which
consent may be granted or withheld in Bank's sole discretion.
Bank shall have the right without the consent of or notice to
Borrowers to sell, transfer, negotiate, or grant participations
in all or any part of, or any interest in Bank's rights and
benefits hereunder.
13.2 TIME OF ESSENCE. Time is the essence for the
performance of all Obligations set forth in this Agreement.
13.3 SEVERABILITY OF PROVISIONS. Each provision of
this Agreement shall be severable from other provision of
this Agreement for the purpose of determining the legal
enforceability of any specific provision.
13.4 AMENDMENTS IN WRITING, INTEGRATION. This
Agreement cannot be changed or terminated orally. All prior
agreements, understandings, representations, warranties, and
negotiations between the parties hereto with respect to the
subject matter of this Agreement, if any, are merged into this
Agreement.
13.5 COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall
be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement.
13.6 SURVIVAL. All covenants, representations and
warranties made in this Agreement shall continue in full force
and effect so long as any Obligations remain outstanding. The
Obligations of each Borrower to indemnify Bank with respect to
the expenses, damages, losses, costs and liabilities described in
40
<PAGE>
Section 10.3 shall survive until all applicable statute of
limitations periods with respect to actions that may be brought
against Bank have run.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
"Borrowers"
RASTEROPS
By:/S/(illegible)
---------------------
Title: CFO
------------------
TRUEVISION, INC.
By:/s/(illegible)
---------------------
Title: CFO
------------------
"Bank"
SILICON VALLEY BANK
By:/s/Jane A. Brown
--------------------
Title:Vice President
------------------
41
<PAGE>
EXHIBIT A
SECOND AMENDED AND RESTATED REVOLVING PROMISSORY NOTE
$5,000,000 Santa Clara, California
December ____, 1994
FOR VALUE RECEIVED, the undersigned, RASTEROPS, a California
corporation and TRUEVISION, INC., an Indiana corporation (which corporations are
referred to individually as "Borrower" and collectively as "Borrowers"), promise
to pay to the order of Silicon Valley Bank ("Bank"), or its registered assigns,
at such place as the holder hereof may designate, in lawful money of the United
States of America, the aggregate unpaid principal amount of all advances
("Advances") made by Bank to Borrowers under this Second Amended and Restated
Revolving Promissory Note ("Revolving Note"), up to a maximum principal amount
of Five Million and 00/100 Dollars ($5,000,000). Borrowers shall also pay
interest on the aggregate unpaid principal amount of such Advances at the rates
and in accordance with the terms of the Second Amended and Restated Loan and
Security Agreement between Borrowers and Bank of even date herewith, as amended
from time to time (the "Loan Agreement") on the last Business Day (as defined
below) of each month. The entire principal amount and all accrued interest
shall be due and payable in full on December 31, 1995.
As used herein, the term "Business Day" means any day that is not a
Saturday, Sunday, or other day on which banks in the State of California are
authorized or required to be closed.
This Revolving Note is issued pursuant to the Loan Agreement, which
shall govern the rights and obligations of each Borrower with respect to all
Obligations hereunder. All of the terms, covenants and conditions of the Loan
Agreement and all other instruments evidencing or securing the indebtedness
hereunder (including, without limitation, the "Loan Documents" as defined in the
Loan Agreement) are hereby made a part of this Revolving Note and are deemed
incorporated herein in full. All capitalized terms used herein, unless
otherwise specifically defined in this Revolving Note, shall have the meanings
ascribed to them in the Loan Agreement.
Each Borrower irrevocably waives the right to direct the application
of any and all payments at any time hereafter received by Bank from or on behalf
of any Borrower, and each Borrower irrevocably agrees that Bank shall have the
continuing exclusive right to apply any and all such payments against the then
due and owing obligations of any Borrower as Bank may deem advisable. In the
absence of a specific determination by Bank with respect thereto, all payments
shall be applied in the following order: (a) then due and payable fees and
expenses; (b) then due and payable interest payments and mandatory prepayments;
and (c) then due and payable principal payments and optional prepayments.
1
<PAGE>
Upon and after the occurrence of an Event of Default, this Revolving
Note may, as provided in the Loan Agreement, and without demand, notice or legal
process of any kind, be declared, and upon such declaration immediately shall
become, or upon certain circumstances set forth in the Loan Agreement may become
without declaration, due and payable in full.
Bank is hereby authorized by Borrowers to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any errors in
notation) shall not affect the obligations of any Borrower with respect to
Advances made hereunder, and payments of principal by each Borrower shall be
credited to Borrowers notwithstanding the failure to make a notation (or any
errors in notation) thereof on such books and records.
Borrowers promise to pay Bank all costs and expenses of collection of
this Revolving Note and to pay all reasonable attorneys' fees incurred in such
collection or in any suit or action to collect this Revolving Note or in any
appeal thereof. Each Borrower waives presentment, demand, protest, notice of
protest, notice of dishonor, notice of nonpayment, and any and all other notices
and demands in connection with the delivery, acceptance, performance, default or
enforcement of this Revolving Note, as well as any applicable statute of
limitations. No delay by Bank in exercising any power or right hereunder shall
operate as a waiver of any power or right. Time is of the essence as to all
obligations hereunder.
This Revolving Note shall be deemed to be made under, and shall be
construed in accordance with and governed by, the laws of the State of
California, excluding conflicts of laws principles.
2
<PAGE>
This Revolving Note amends, restates and supersedes the Amended and
Restated Revolving Promissory Note dated as of May 26, 1994, by Borrowers in
favor of Bank (the "Amended Note").
Each Borrower shall be jointly and severally liable for all
indebtedness and obligations under this Revolving Note.
IN WITNESS WHEREOF, Borrowers have caused this Revolving Note to be
duly executed and delivered to Bank on the date first above written.
("Borrowers")
RASTEROPS
By:______________________________
Title:___________________________
TRUEVISION, INC.
By:______________________________
Title:___________________________
3
<PAGE>
SCHEDULE 2.1
BORROWING CERTIFICATE
The undersigned hereby certifies as follows:
I, ____________________________, am the duly elected and acting __________
_______________ of RASTEROPS (a "Borrower").
This certificate is delivered pursuant to Section 2.1 of that certain
Second Amended and Restated Loan and Security Agreement by and between Silicon
Valley Bank ("Bank") and RasterOps and Truevision, Inc. (the "Loan Agreement").
RasterOps and Truevision, Inc. are referred to collectively as "Borrowers" and
individually as a "Borrower." The terms used in this Borrowing Certificate which
are defined in the Loan Agreement have the same meaning herein as ascribed to
them therein.
RasterOps, as agent for each Borrower, is confirming its telephone request
made on ____________________, 19__ for an Advance as follows:
(a) The date on which the Advance is to be made is,
_______________,19__
(b) The amount of the Advance is to be $___________________.
All representations and warranties of each Borrower stated in the Loan
Agreement are true, accurate and complete in all material respects as of the
date of the telephone request for an Advance confirmed by this Borrowing
Certificate; provided, however, that those representations and warranties
expressly referring to another date shall be true, accurate and complete in all
material respects as of such date.
IN WITNESS WHEREOF, this Borrowing Certificate is executed by the
undersigned as of this _______ day of _______________________ 19__.
RASTEROPS
By: __________________________________
Title: _______________________________
<PAGE>
SCHEDULE 5
DISCLOSURE STATEMENT
DECEMBER, 1994
The following disclosures constitute the RasterOps Disclosure Schedule as
referenced in the Amended and Restated Loan and Security Agreement, dated as of
__________, 1994 (the "Agreement") by and among RasterOps ("RasterOps"),
Truevision, Inc. ("Truevision") and Silicon Valley Bank.
Each of these disclosures applies to each Section of the Agreement to which it
pertains, whether or not the specific Section numbers are indicated below. All
capitalized terms used herein shall, unless the context indicates otherwise,
have the definition ascribed to them in the Agreement. The disclosures herein
should be read together and are qualified by the other pertinent information
contained herein.
Schedule 5.1 Organization and Qualification.
See attached Articles of Incorporation and By-laws of RasterOps and Truevision,
Inc.
Schedule 5.4 Bona Fide Accounts.
RasterOps and Truevision provide customers with industry standard rights of
return on their respective products.
Schedule 5.7 Legal Proceedings.
1) In re RasterOps Corporation Securities Litigation, United States District
Court, Northern District of California No. C-92-20349-RMW (EAI).
In June, 1992, two virtually identical class action lawsuits were filed against
the Company and certain of its current and former officers and directors
alleging violations of the federal securities laws. The original complaints
alleged, among other things, that the Company and the individual defendants
artificially inflated the price of RasterOps Common Stock by making
misrepresentations and omissions of material facts in various public statements
issued during the alleged class period, beginning October 18, 1990 and ending
October 2, 1991 and that certain officers and directors sold shares of RasterOps
Common Stock during the alleged class period while in possession of material
non-public information. The complaints sought unspecified compensatory damages
and costs and attorneys' fees on behalf of purchasers of the Company's Common
Stock during the alleged class period. On August 26, 1992, the plaintiffs filed
an amended consolidated complaint consolidating the two above-referenced actions
and adding direct and derivative causes of action for violation by the
individual defendants of federal and state prohibitions against trading in
securities while in possession of material non-public information. The court
granted defendants' motions to dismiss the consolidated complaint on January 6,
1993. In February 1993, plaintiffs filed a second amended class action
complaint asserting claims for violation of the federal securities laws and a
derivative complaint purporting to assert claims on behalf of the Company
against the individual defendants for breach of fiduciary duty and violation of
state law prohibiting trading on the basis of material non-public information.
2) Radius, Inc. v. RasterOps Corporation, United States District Court, Northern
District of California, Case No. C-94 20119.
<PAGE>
Radius, Inc. ("Radius") has filed suit against RasterOps, alleging False
Advertising, Unfair Trade Practice and Trade Libel in connection with a certain
advertisement that has been circulated by RasterOps. Radius is seeking an
injunction against RasterOps' use of the advertisement in question as well as
unspecified compensatory and punitive damages.
Schedule 5.13 Subsidiaries.
RasterOps has the following subsidiaries:
- RasterOps Foreign Sales Corporation
Jurisdiction of Incorporation: Barbados
Shares Outstanding: 1,000
Shares Owned Directly: 1,000
- RasterOps S.A.R.L.
Jurisdiction of Incorporation: France
Shares Outstanding: 500
Shares Owned Directly: 499
- RasterOps France S.A.R.L.
Jurisdiction of Incorporation: France
Shares Outstanding: 500
Shares Owned Directly: 500
- RasterOps U.K. Limited
Jurisdiction of Incorporation: United Kingdom
Shares Outstanding: 1,000
Shares Owned Directly: 999
- Raster Image Processing Systems
Jurisdiction of Incorporation: Delaware
Shares Outstanding: 1,000
Shares Owned Directly 1,000
- Truevision, Inc.
Jurisdiction of Incorporation: Indiana
Shares Outstanding 1,000
Shares Owned Directly 1,000
- RasterOps GmbH
Jurisdiction of Incorporation: Germany
Shares Outstanding: 1
Shares Owned Directly 1
- RasterOps B.V.
Jurisdiction of Incorporation: The Netherlands
Shares Outstanding: 1
Shares Owned Directly: 1
- RasterOps Japan, Inc.
Jurisdiction of Incorporation: California
Shares Outstanding: 1,000
Shares Owned Directly: 1,000
<PAGE>
Schedule 5.16 Borrowers' Collateral Locations.
Amsterdam
Shipweg 3
1118 AA Schipol South
The Netherlands
Australia
(Maxwell Optical)
Unit 27 Level A
Harris Street
Paramount, 2009 Australia
Canada
6390 N. West Drive
Mississauga, Ontario
Canada L4VS1
CTS
2071 Ringwood
San Jose, CA 95131
RasterOps - Main Bldg.
2500 Walsh Avenue
Santa Clara, CA
RasterOps - Bldg. 2
3000 Kifer Road
Santa Clara, CA
SCI - San Jose
2000 Ringwood Avenue
San Jose, CA 95131
SCI - South Dakota
222 Disk Drive
Rapid City, SD 57701
Startech
683 West Maude Avenue
Sunnyvale, CA 94086
Truevision, Inc.
7340 Shadeland Station
Indianapolis, IN 46256
<PAGE>
SCHEDULE 6.3(a)
DAILY SALES AND COLLECTIONS REPORT
SILICON VALLEY BANK
COLLATERAL RECONCILIATION
------------------------------------------------------------------------------
------------------------------------------------------------------------------
RECONCILIATION OF A/R AGING TO GENERAL LEDGER
For the period from: / / to / /
------------------------------------------------------------------------------
------------------------------------------------------------------------------
PREVIOUS A/R AGING - DATED: _____/_____/_____ $
------------------------------------------------------------------------------
-------------
a) Add: Invoices $
b) Debit Memos $
c) Deduct: Credit Memos $( )
NET SALES (per invoice/credit memo register)-
(total of a thru c) $
------------------------------------------------------------------------------
d) Deduct: A/R Cash Receipts $( )
e) Cash Discounts $( )
f) Adjustments + or
(-)(explain): $
----------------------------------------------
----------------------------------------------
TOTAL DEDUCTIONS TO A/R (per cash receipts journal)-
(total of d thru f) $( )
------------------------------------------------------------------------------
OTHER ADJUSTMENTS and/or JOURNAL ENTRIES (explain):
Write-offs $( )
----------------------------------------------
$
----------------------------------------------
$
----------------------------------------------
TOTAL ADJUSTMENTS + or (-) $
------------------------------------------------------------------------------
-------------
TOTAL MUST EQUAL TOTAL OF ATTACHED A/R
AGING DATED: _____/_____/_____ $
------------------------------------------------------------------------------
GENERAL LEDGER A/R BALANCE as of: _____/_____/_____ $
------------------------------------------------------------------------------
DIFFERENCE BETWEEN AGING and G/L (explain): $
------------------------------------------------------------------------------
-------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
RECONCILIATION OF A/R AGING TO DAILY TRANSACTION REPORTS
For the month of: _____________, 199_
------------------------------------------------------------------------------
------------------------------------------------------------------------------
BALANCE FROM TRANS. REPORT
#__________ DATED: _____/_____/_____ $
------------------------------------------------------------------------------
-------------
Add: A/R Billings in Transit (list total by date & TR#):
TOTAL Billings In Transit $
------------------------------------------------------------------------------
Deduct: Credit Memos In Transit (list total by date & TR#):
TOTAL Credit Memos In Transit $( )
------------------------------------------------------------------------------
Deduct: A/R Cash Receipts In Transit (list by date & TR#):
TOTAL A/R Cash Receipts In Transit $( )
------------------------------------------------------------------------------
Other Adjustments (explain & list by date & TR#)
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
TOTAL Other Adjustments + or (-) $
------------------------------------------------------------------------------
TOTAL PER ATTACHED A/R AGING DATED: _____/_____/_____ $
------------------------------------------------------------------------------
------------------------------------------------------------------------------
COMPANY NAME: RASTEROPS SILICON VALLEY BANK:
------------------------------------------------------------------------------
__________________
AUTHORIZED SIGNATURE: __________________ RECEIVED BY: _____________
DATE: __________________ DATE: _____________
<PAGE>
SILICON VALLEY BANK
DAILY TRANSACTION REPORT #: ________
------------------------------------------------------------------------------
------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE COLLATERAL ACTIVITY**:
------------------------------------------------------------------------------
------------------------------------------------------------------------------
**EXCLUDES DISTRIBUTOR ACCOUNTS RECEIVABLES
BEGINNING ACCOUNTS RECEIVABLE BALANCE AS OF: _____/_____/____ $
-----------
-----------
FROM SCHEDULE A:
a) Add: Invoices $
b) Debit Memos $
c) Deduct: Credit Memos $( )
NET SALES (per invoice/credit memo register)-
(total of a thru c) $
------------------------------------------------------------------------------
FROM SCHEDULE B:
d) Deduct: A/R Cash Receipts $( )
e) Cash Discounts $( )
f) Adjustments + or
(-) (explain): $
----------------------------------------------
----------------------------------------------
TOTAL DEDUCTIONS TO A/R (per cash receipts journal)-
(total of d thru f) $( )
------------------------------------------------------------------------------
g) OTHER ADJUSTMENTS and/or JOURNAL ENTRIES (explain):
h) Write-offs $( )
----------------------------------------------
i) $
----------------------------------------------
$
----------------------------------------------
TOTAL ADJUSTMENTS + or (-)
(total of g thru i) $
------------------------------------------------------------------------------
NEW ACCOUNTS RECEIVABLE BALANCE PER THIS REPORT: $
-----------
-----------
Less: Total Ineligible Accounts Receivables: $( )
-----------
TOTAL ELIGIBLE ACCOUNTS RECEIVABLE: $
-----------
A) A/R FUNDS AVAILABLE** @: 65% (OR LINE LIMITS $5,000,000) $
------------------------------------------------------------------------------
------------------------------------------------------------------------------
DISTRIBUTOR COLLATERAL ACTIVITY*:
------------------------------------------------------------------------------
------------------------------------------------------------------------------
*INGRAM, TECH DATA, MERISEL & INTELLIGENT ELECTRONICS ONLY
BEGINNING DISTRIBUTOR ACCOUNTS RECEIVABLE BALANCE AS OF:
____/____/____/ $
-----------
-----------
a) Add: Ivoices $
b) Deduct: A/R Cash Receipts $( )
c) Adjustments + or (-) (explain): $
S
-----------
ENDING DISTRIBUTOR ACCOUNTS RECEIVABLE
BALANCE PER THIS REPORT: $
-----------
-----------
Less: Total Ineligible Distributor Receivables: $
-----------
TOTAL ELIGIBLE DISTRIBUTOR ACCOUNTS RECEIVABLE: $
-----------
B) DISTRIBUTOR A/R FUNDS AVAILABLE @:
40% (OR LINE LIMIT $5,000,000) $
------------------------------------------------------------------------------
------------------------------------------------------------------------------
C) TOTAL FUNDS AVAILABLE @:
(A) + (B) OR LINE LIMIT $5,000,000
-----------
D) LESS: OUTSTANDING UNDER LETTER OF CREDIT SUB-LIMIT $( )
-----------
E) LESS: OUTSTANDING UNDER FOREIGN EXCHANGE SUB-LIMIT $( )
-----------
F) ADJUSTED FUNDS AVAILABLE @:
LINE (C) - LINE (B) - LINE (C) OR $5,000,000 $
------------------------------------------------------------------------------
------------------------------------------------------------------------------
LOAN ACTIVITY
------------------------------------------------------------------------------
------------------------------------------------------------------------------
CURRENT LOAN BALANCE: $
-----------
-----------
Less: Collections included w/ this report
(From Schedule B)
-----------
(from Cash Collateral Account #03516989-70)
Add: Advance requested this report $
-----------
(to General Account #03308231-70)
G) NEW LOAN BALANCE PER THIS REPORT: $
-----------
-----------
NET FUNDS AVAILABLE / (OVERADVANCE):
LINE (F) - LINE (G) PER THIS REPORT $
-----------
-----------
COMPANY NAME: RASTEROPS SILICON VALLEY BANK:_____________
------------------------------------------------------------------------------
__________________
AUTHORIZED SIGNATURE: __________________ RECEIVED BY: _____________
DATE: __________________ DATE: _____________
<PAGE>
SILICON VALLEY BANK
SCHEDULE A - ACCOUNTS RECEIVABLES ASSIGNMENTS
REPORT #: _____________
We hereby assign the following invoices, credit memos and debit memos to Silicon
Valley Bank:
<TABLE>
<CAPTION>
INVOICE DATE INVOICE# INVOICE AMT. CUSTOMER NAME
<S> <C> <C> <C>
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
------------ ------------ ------------ -------------------------
</TABLE>
-------------------------------------------------------------------------------
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Total Invoices:
-------------------------------------------------------------------------------
Total Debit Memos:
-------------------------------------------------------------------------------
Total Credit Memos:
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
NET ASSIGNMENTS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
COMPANY NAME: RASTEROPS SILICON VALLEY BANK:
-------------------------------------------------------------------------------
__________________
AUTHORIZED SIGNATURE: __________________ RECEIVED BY: ______________
DATE: __________________ DATE: ______________
<PAGE>
SILICON VALLEY BANK
SCHEDULE B-A/R COLLECTIONS
REPORT #: _____________
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
INVOICE AMOUNT NET OVER /
DATE CUSTOMER NAME: NUMBER CREDITED TO A/R CASH SHORT / DISC. MISC. CASH
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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TOTALS
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</TABLE>
COMPANY NAME: RASTEROPS SILICON VALLEY BANK:_____________
__________________
AUTHORIZED SIGNATURE: __________________ RECEIVED BY: _____________
DATE: __________________ DATE: _____________
<PAGE>
SILICON VALLEY BANK
SCHEDULE C - INELIGIBLE ADJUSTMENTS*
(A) INELIGIBLE** AMOUNT AS OF:___________ $
------------
1. Amounts over 90 days past invoice date ------------
2. Balance of 50% over 90 day accounts ------------
3. 25% Concentration Limitation ------------
4. Credit Balances > 90 days ------------
5. Foreign Accounts*** ------------
6. Governmental Accounts ------------
7. Contra Accounts ------------
8. Promotion or Demo Accounts ------------
9. Intercompany/Employee Accounts ------------
10. Other (please explain on reverse) ------------
(B) TOTAL INELIGIBLE ADJUSTMENTS: $
------------
REVISED INELIGIBLE (LINE (A) +/- LINE (B)) $ -----------
-----------
*Excludes Distributor Accounts Receivable.
**Receivables generated by the sale of Sony inventory are ineligible so long as
SVB is in a subordinate position to IBM.
***Dai Nippon, Avid Tech-Ireland and Marebini are eligible foreign accounts.
COMPANY NAME: RASTEROPS SILICON VALLEY BANK:_____________
__________________
AUTHORIZED SIGNATURE: __________________ RECEIVED BY: _____________
DATE: __________________ DATE: ______________
<PAGE>
SILICON VALLEY BANK
SCHEDULE C - INELIGIBLE ADJUSTMENTS*
DISTRIBUTOR ACCOUNTS RECEIVABLE ONLY*
(A) INELIGIBLE AMOUNT AS OF:___________ $
------------
1. Amounts Over 90 Days Past Invoice Date ------------
2. Balance of 50% Over 90 Day Accounts ------------
3. Credit Balances Past 90 Days ------------
4. 25% Concentration Limitation ------------
5. Contra Accounts ------------
6. Promotion or Demo Accounts ------------
7. Other (please explain on reverse) ------------
(B) TOTAL INELIGIBLE ADJUSTMENTS: $ ------------
REVISED INELIGIBLE (LINE (A) +/- LINE (B)) $ -----------
-----------
*Ingram, Tech Data, Merisel & Intelligent Electronics
COMPANY NAME: RASTEROPS SILICON VALLEY BANK:_____________
__________________
AUTHORIZED SIGNATURE: __________________ RECEIVED BY: _____________
DATE: __________________ DATE: _____________
<PAGE>
SCHEDULE 6.3 (b)
BORROWING BASE CERTIFICATE
Borrowers: RasterOps Lender: Silicon Valley Bank
2500 Walsh Avenue 3000 Lakeside Drive
Santa Clara, CA 95051 Santa Clara, CA 95054
Truevision, Inc.
7340 Shadeland Stn.
Indianapolis, IN 46256
-------------------------------------------------------------------------------
Committed Line: $5,000,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable $ ------------
2. Additions (please explain on reverse) $ ------------
3. TOTAL ACCOUNTS RECEIVABLE $ ------------
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Accounts over 90 days due $ ------------
5. Balance of 50% over 90 day accounts $ ------------
6. Concentration Limits $ ------------
7. Foreign Accounts $ ------------
8. Governmental Accounts $ ------------
9. Contra Accounts $ ------------
10. Accounts generated from the sale of
Sony Inventory $ ------------
11 Accounts generated from the sale of
Panasonic Inventory $ ------------
12. Promotion or Demo Accounts $ ------------
13. All Intercompany/Affiliate/
Employee Accounts $ ------------
14. Stock Balancing Returns in Excess
of New Purchases $ ------------
15. Other (please explain on reverse) $ ------------
16. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $ ------------
17. Domestic Distributor Accounts ("DDA's") $ ------------
18 Eligible Accounts, Excluding DDA's
(No. 3 minus No. 16 minus No. 17) $ ------------
19 LOAN VALUE OF NON-DDA's (65% of No. 18) $ ------------
20. LOAN VALUE OF DDA's (40% of No. 17) $ ------------
BALANCES
21. Maximum Loan Amount $ ------------
22. Total Funds Available (Lesser of No. 21 or
(No. 19 plus No. 20)) $ ------------
23. Present balance owing on Line of Credit $ ------------
25. RESERVE POSITIVE (No. 22 - No. 23) $ ------------
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THE FOREGOING IS TRUE, COMPLETE
AND CORRECT, AND THAT THE INFORMATION REFLECTED IN THIS BORROWING BASE
CERTIFICATE COMPLIES WITH THE REPRESENTATIONS AND WARRENTIES SET FORTH IN THE
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BETWEEN SILICON
VALLEY BANK AND RASTEROPS AND TRUEVISION. COMMENTS:
RASTEROPS
BY:____________________________
Authorized Signer
-----------------------
BANK USE ONLY
---- --- ----
Rec'd By:
--------------
Auth. Signer
Date:
------------------
Verified:
--------------
Auth. Signer
Date:
-----------------
------------------------
<PAGE>
SCHEDULE
6.3(c)
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3000 Lakeside Drive
Santa Clara, CA 95054
Attn:
-------------
FROM: RASTEROPS
2500 Walsh Avenue
Santa Clara, CA 95051
The undersigned authorized officer of RASTEROPS hereby certifies, for
itself and as agent for TRUEVISION, INC. (Truevision, Inc. and RasterOps being
referred to hereafter collectively as "Borrowers") that in accordance with the
terms and conditions of the Second Amended and Restated Loan and Security
Agreement between Borrowers and Bank (the "Agreement"), (i) each Borrower is in
complete compliance for the period ending __________ of and with all required
conditions and terms except as noted below and (ii) all representations and
warranties of each Borrower stated in the Agreement are true, accurate and
complete in all material respects as of the date hereof. Attached herewith are
the required documents supporting the above certification. The Officer further
certifies that these are prepared in accordance with Generally Accepted
Accounting Principals (GAAP) and are consistent from one period to the next
except as explained in an accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANTS REQUIRED COMPLIES
------------------- -------- --------
Daily Sales and collections Daily Yes No
A/R & A/P Agings Within 15 days of month end Yes No
Borrowing Base Certificate Within 15 days of month end Yes No
Distributor Sell Throughs Within 15 days of month end Yes No
Return Sales Within 15 days of month end Yes No
Monthly financial statements Within 30 days of month end Yes No
Compliance Certificate Within 30 days of month end Yes No
Annual (CPA Audited) Within 90 days of FYE Yes No
A/R Audit Initial and Quarterly Yes No
Quarterly 10-Q Within 5 days of SEC filing Yes No
Annual 10-K Within 5 days of SEC filing Yes No
FINANCIAL COVENANTS REQUIRED ACTUAL COMPLIES
------------------- --------- ------- --------
Maintain on a quarterly basis:
Minimum Quick Ratio 0.75 to 1.0 ______:1.0 Yes No
Minimum TNW $11,250,000 + $ ________ Yes No
80% of net
quarterly profits
Maximum Debt/TNW 1.70 to 1.0 ______:1.0 Yes No
Profitability Maximum __________ Yes No
Losses
Q2 12/30/94
($7,000,000)
Q3 4/1/95
($200,000)
Q4 7/1/95
("O")
Profitable
Thereafter
<PAGE>
COMMENTS REGARDING EXCEPTIONS:
Sincerely,
RASTEROPS
----------------------------------------
SIGNATURE
----------------------------------------
TITLE
----------------------------------------
DATE
<PAGE>
[LOGO] SILICON VALLEY BANK
AMENDMENT TO LOAN DOCUMENTS
BORROWER: RASTEROPS, INC.
TRUEVISION, INC.
DATE: JUNE 13, 1995
THIS AMENDMENT TO LOAN DOCUMENTS is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (jointly and severally, the
"Borrower"), with reference to the various loan and security agreements and
other documents, instruments and agreements between them (as amended,
collectively, the "Existing Loan Documents").
The Parties agree to amend the Existing Loan Documents, as follows:
1. PRESENT LOAN BALANCE. Borrower acknowledges that the present
unpaid principal balance of the Borrower's indebtedness, liabilities and
obligations to Silicon under the Existing Loan Documents, including interest
accrued through June 14, 1995 is $2,821,049.09 (the "Present Loan Balance"), and
that said sum is due and owing without any defense, offset, or counterclaim of
any kind.
2. AMENDMENT TO EXISTING LOAN DOCUMENTS. The Existing Loan Documents
are hereby amended in their entirety to read as set forth in the Loan and
Security Agreement being executed concurrently (collectively, the "New Loan
Documents"). The Borrower acknowledges that the Present Loan Balance shall be
the opening balance of the Loans pursuant to the New Loan Documents as of the
date hereof, and shall, for all purposes, be deemed to be Loans made by Silicon
to the Borrower pursuant to the New Loan Documents. In addition the letter of
credit currently outstanding, in the amount of $500,000 shall for all purposes
be deemed to be a Letter of Credit outstanding under the New Loan Documents.
Notwithstanding the execution of the New Loan Documents, the following Existing
Loan Documents shall continue in full force and effect and shall continue to
secure all present and future indebtedness, liabilities, guarantees and other
Obligations (as defined in the New Loan Documents): All standard documents of
Silicon entered into by the Borrower in connection with Foreign Exchange
Contracts or Letters of Credit; and all agreements relating to the establishment
of lockboxes and other blocked account agreements; and all UCC-1 financing
statements and other documents filed with governmental offices which perfect
liens or security interests in favor of Silicon; and all collateral assignments,
mortgages and other security agreements relating to copyrights, patents,
trademarks and other intellectual property.
3. INTELLECTUAL PROPERTY AGREEMENTS. Borrower agrees that any
provision in any collateral assignment, mortgage or other security agreement
relating to copyrights, patents, trademarks and other intellectual property
(collectively, the "Intellectual Property Agreements"), which provides that
Silicon may not enforce its security interest in any patents, trademarks,
copyrights or other intellectual property, or limits Silicon's security interest
therein, is hereby
-1-
<PAGE>
deleted. Borrower shall execute and deliver to Silicon, on its request, such
further amendments to the Intellectual Property Agreements as Silicon shall,
from time to time, specify, in order to carry into effect the foregoing
provision, but this Section 3 and the other provisions of this Agreement shall
be fully effective even if no such further amendments are executed.
4. GENERAL PROVISIONS. This Amendment and the New Loan Documents set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Borrower represents and warrants to Silicon that all of
their subsidiaries and affiliates are concurrently executing the Consent set
forth below.
BORROWER: SILICON:
RASTEROPS, INC. SILICON VALLEY BANK
BY /s/(illegible) BY/s/(illegible)
------------------------------- ----------------------------
PRESIDENT OR VICE PRESIDENT TITLE SR. VICE PRESIDENT
BY /s/(illegible)
------------------------------
SECRETARY OR ASS'T SECRETARY
TRUEVISION, INC.
BY /s/(illegible)
------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/(illegible)
------------------------------
SECRETARY OR ASS'T SECRETARY
-2-
<PAGE>
GUARANTORS' CONSENT
The undersigned, guarantors, acknowledge that their consent to the
foregoing Agreement is not required, but the undersigned nevertheless do hereby
consent to the foregoing Agreement and to the documents and agreements referred
to therein and to all future modifications and amendments thereto, and any
termination thereof, and to any and all other present and future documents and
agreements between or among the foregoing parties. Nothing herein shall in any
way limit any of the terms or provisions of the Guaranties of the undersigned,
all of which are hereby ratified and affirmed. This Consent may be executed in
counterparts. The signature of the undersigned shall be fully effective even if
other persons named below fail to sign this Consent. Nothing herein shall imply
any obligation on the part of any party to obtain the consent of the undersigned
to any future transaction, whether or not similar to the foregoing.
Rasterops Japan, Inc. Raster Image Processing Systems
By /s/(inellible) By /s/(inellible)
---------------------------- -----------------------------
Title CFO Title CFO
------------------------- ------------------------
Rasterops B.V. Rasterops France, Sarl
By /s/(inellible) By /s/(inellible)
---------------------------- -----------------------------
Title CFO Title CFO
------------------------- ------------------------
Rasterops U.K., Ltd. Rasterops Sarl
By /s/(inellible) By /s/(inellible)
---------------------------- -----------------------------
Title CFO Title CFO
------------------------- ------------------------
Rasterops GMBH Rasterops Foreign Sales Corporation
By /s/(inellible) By /s/(inellible)
---------------------------- -----------------------------
Title CFO Title CFO
------------------------- ------------------------
-3-
<PAGE>
SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
BORROWER: RASTEROPS
TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA
DATE: JUNE 13, 1995
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is
2880 Lakeside Drive, Suite 253, Santa Clara, California 95054-2895 and the
borrower(s) named above (jointly and severally, the "Borrower"), whose chief
executive office is located at the above address ("Borrower's Address"). The
Schedule to this Agreement (the "Schedule") shall for all purposes be deemed
to be a part of this Agreement, and the same is an integral part of this
Agreement. (Definitions of certain terms used in this Agreement are set forth
in Section 8 below.)
1. LOANS.
1.1 LOANS. Silicon will make loans to Borrower (the "Loans"), in amounts
determined by Silicon in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Silicon may, in its discretion, charge interest to
Borrower's Deposit Accounts maintained with Silicon. Regardless of the amount
of Obligations that may be outstanding from time to time, Borrower shall pay
Silicon minimum monthly interest during the term of this Agreement in the amount
set forth on the Schedule (the "Minimum Monthly Interest").
1.3 OVERADVANCES. If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand. Without limiting Borrower's obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to
pay Silicon interest on the outstanding amount of any Overadvance, on demand,
at a rate equal to the interest rate which would otherwise be applicable to
the Overadvance, plus an additional 2% per annum.
1.4 FEES. Borrower shall pay Silicon the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Silicon and are
not refundable.
1.5 LETTERS OF CREDIT. At the request of Borrower, Silicon may, in its
sole discretion, issue or arrange for the issuance of letters of credit for the
account of Borrower, in each case in form and substance satisfactory to Silicon
in its sole discretion (collectively, "Letters of Credit"). The aggregate face
amount of all outstanding Letters of Credit from time to time shall not exceed
the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be
reserved against Loans which would otherwise be available hereunder. Borrower
shall pay all bank charges (including charges of Silicon) for the issuance of
Letters of Credit, together with such additional fee as Silicon's letter of
credit department shall charge in connection with the issuance of the Letters of
Credit. Any payment by Silicon under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made. Each Letter
of Credit shall have an expiry date no later than thirty days prior to the
Maturity Date. Borrower hereby agrees to indemnify, save, and hold Silicon
harmless from any loss, cost, expense, or liability, including payments made by
Silicon, expenses, and reasonable attorneys' fees incurred by Silicon arising
out of or in connection with any Letters of Credit. Borrower agrees to be bound
by the regulations and interpretations of the issuer of any Letters of Credit
-1-
<PAGE>
guarantied by Silicon and opened for Borrower's account or by Silicon's
interpretations of any Letter of Credit issued by Silicon for Borrower's
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of Credit or
any modifications, amendments, or supplements thereto. Borrower understands
that Letters of Credit may require Silicon to indemnify the issuing bank for
certain costs or liabilities arising out of claims by Borrower against such
issuing bank. Borrower hereby agrees to indemnify and hold Silicon
harmless with respect to any loss, cost, expense, or liability incurred by
Silicon under any Letter of Credit as a result of Silicon's indemnification of
any such issuing bank. The provisions of this Loan Agreement, as it pertains to
Letters of Credit, and any other present or future documents or agreements
between Borrower and Silicon relating to Letters of Credit are cumulative.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of
the Obligations when due, Borrower hereby grants to Silicon a security interest
in all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, and all money, and all property now or at
any time in the future in Silicon's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Silicon may now or in the future be
granted a lien or security interest, is referred to herein, collectively, as the
"Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Silicon to enter into this Agreement and to make Loans,
Borrower represents and warrants to Silicon as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is
and will continue to be, duly organized validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower.
The execution, delivery and performance by Borrower of this Agreement, and all
other documents contemplated hereby (i) have been duly and validly authorized,
(ii) are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any any material
agreement or instrument which is binding upon Borrower or its property, and (iv)
do not constitute grounds for acceleration of any material indebtedness or
obligation under any material agreement or instrument which is binding upon
Borrower or its property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In
addition, Borrower has places of business and Collateral is located only at the
locations set forth on the Schedule. Borrower will give Silicon at least 30
days prior written notice before opening any additional place of business,
changing its chief executive office, or moving any of the Collateral to a
location other than Borrower's Address or one of the locations set forth on the
Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Silicon now has,
and will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Silicon and the Collateral against all claims
of others. None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture.
Borrower is not and will not become a lessee under any real property lease
pursuant to which the lessor may obtain any rights in any of the Collateral and
no such lease now prohibits, restrains, impairs or will prohibit, restrain or
impair Borrower's right to remove any Collateral from the leased premises.
Whenever any Collateral is located upon premises in which any third party has an
interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien
or otherwise), Borrower shall, whenever requested by Silicon, use its best
efforts to cause such third party to execute and deliver to Silicon, in form
acceptable to Silicon, such waivers and subordinations as Silicon shall specify,
so as to ensure that Silicon's rights in the Collateral are, and will continue
to be, superior to the rights of any such third party. Borrower will keep in
full force and effect, and will comply with all the terms of, any lease of real
property where any of the Collateral now or in the future may be located.
-2-
<PAGE>
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to Silicon have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and accurately reflect the financial condition of
Borrower, at the times and for the periods therein stated. Between the last
date covered by any such statement provided to Silicon and the date hereof,
there has been no material adverse change in the financial condition or business
of Borrower. Borrower is now and will continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and Borrower has timely paid, and will
timely pay, all foreign, federal, state and local taxes, assessments, deposits
and contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Silicon in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, including, but not limited to, those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, and all environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Silicon in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Silicon as follows: Each Receivable with respect to
which Loans are requested by Borrower shall, on the date each Loan is requested
and made, (i) represent an undisputed bona fide existing unconditional
obligation of the Account Debtor created by the sale, delivery, and acceptance
of goods or the rendition of services in the ordinary course of Borrower's
business, and (ii) meet the Minimum Eligibility Requirements set forth in
Section 8 below.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Silicon as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all signatories and endorsers have the capacity to contract. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and indorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Silicon transaction reports and loan requests, schedules and
assignments of all Receivables, and schedules of collections, all on Silicon's
standard forms; provided, however, that Borrower's failure to execute and
deliver the same shall not affect or limit Silicon's security interest and other
rights in all of Borrower's Receivables,
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nor shall Silicon's failure to advance or lend against a specific Receivable
affect or limit Silicon's security interest and other rights therein. Loan
requests received after 2:30 PM will not be considered by Silicon until the next
Business Day. Together with each such schedule and assignment, or later if
requested by Silicon, Borrower shall furnish Silicon with copies (or, at
Silicon's request, originals) of all contracts, orders, invoices, and other
similar documents, and all original shipping instructions, delivery receipts,
bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Receivables, and Borrower warrants the
genuineness of all of the foregoing. Borrower shall also furnish to Silicon an
aged accounts receivable trial balance in such form and at such intervals as
Silicon shall request. In addition, Borrower shall deliver to Silicon the
originals of all instruments, chattel paper, security agreements, guarantees and
other documents and property evidencing or securing any Receivables, immediately
upon receipt thereof and in the same form as received, with all necessary
indorsements, all of which shall be with recourse. Borrower shall also provide
Silicon with copies of all credit memos within two days after the date issued.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect
all Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Silicon, and Borrower shall immediately deliver all such payments and proceeds
to Silicon in their original form, duly endorsed in blank, to be applied to the
Obligations in such order as Silicon shall determine. Silicon may, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Silicon may specify,
pursuant to a blocked account agreement in such form as Silicon may specify.
Silicon or its designee may, at any time, notify Account Debtors that the
Receivables have been assigned to Silicon.
4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of
any Collateral shall be delivered, in kind, by Borrower to Silicon in the
original form in which received by Borrower not later than the following
Business Day after receipt by Borrower, to be applied to the Obligations in such
order as Silicon shall determine; provided that, if no Default or Event of
Default has occurred, Borrower shall not be obligated to remit to Silicon the
proceeds of the sale of worn out or obsolete equipment disposed of by Borrower
in good faith in an arm's length transaction for an aggregate purchase price of
$25,000 or less (for all such transactions in any fiscal year). Borrower agrees
that it will not commingle proceeds of Collateral with any of Borrower's other
funds or property, but will hold such proceeds separate and apart from such
other funds and property and in an express trust for Silicon. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
4.6 DISPUTES. Borrower shall notify Silicon promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit. Silicon may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable credit judgment and, in all cases, Silicon shall
credit Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is continuing,
if any Account Debtor returns any Inventory to Borrower in the ordinary course
of its business, Borrower shall promptly determine the reason for such return
and promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Silicon). In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) hold the
returned Inventory in trust for Silicon, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as Silicon's property, and (iv) immediately notify Silicon of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.
4.8 VERIFICATION. Silicon may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters relating
to the Receivables, by means of mail, telephone or otherwise, either in the name
of Borrower or Silicon or such other name as Silicon may choose.
4.9 NO LIABILITY. Silicon shall not under any circumstances be
responsible or liable for any shortage or discrepancy in, damage to, or loss or
destruction of, any goods, the sale or other disposition of which gives rise to
a Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Silicon be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Silicon from liability for
its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably accept-
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able to Silicon, in such form and amounts as Silicon may reasonably require, and
Borrower shall provide evidence of such insurance to Silicon, so that Silicon is
satisfied that such insurance is, at all times, in full force and effect. All
such insurance policies shall name Silicon as an additional loss payee, and
shall contain a lenders loss payee endorsement in form reasonably acceptable to
Silicon. Upon receipt of the proceeds of any such insurance, Silicon shall
apply such proceeds in reduction of the Obligations as Silicon shall determine
in its sole discretion, except that, provided no Default or Event of Default has
occurred and is continuing, Silicon shall release to Borrower insurance proceeds
with respect to Equipment totaling less than $100,000, which shall be utilized
by Borrower for the replacement of the Equipment with respect to which the
insurance proceeds were paid. Silicon may require reasonable assurance that the
insurance proceeds so released will be so used. If Borrower fails to provide or
pay for any insurance, Silicon may, but is not obligated to, obtain the same at
Borrower's expense. Borrower shall promptly deliver to Silicon copies of all
reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Silicon with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Silicon shall from time to time reasonably
specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
one Business Day's notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy Borrower's books and
records. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon shall have the
right to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $500 per person per day (or such higher amount as shall represent
Silicon's then current standard charge for the same), plus reasonable out of
pocket expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first obtaining Silicon's
written consent, which may be conditioned upon such accounting firm, service
bureau or other third party agreeing to give Silicon the same rights with
respect to access to books and records and related rights as Silicon has under
this Loan Agreement. Borrower waives the benefit of any accountant-client
privilege or other evidentiary privilege precluding or limiting the disclosure,
divulgence or delivery of any of its books and records (except that Borrower
does not waive any attorney-client privilege).
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) merge or consolidate with another corporation or entity; (ii)
acquire any assets, except in the ordinary course of business; (iii) enter into
any other transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral, except for the sale of finished Inventory in the
ordinary course of Borrower's business, and except for the sale of obsolete or
unneeded Equipment in the ordinary course of business; (v) store any Inventory
or other Collateral with any warehouseman or other third party; (vi) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis; (vii) make any loans of any money or other assets; (viii) incur any
debts, outside the ordinary course of business, which would have a material,
adverse effect on Borrower or on the prospect of repayment of the Obligations;
(ix) guarantee or otherwise become liable with respect to the obligations of
another party or entity; (x) pay or declare any dividends on Borrower's stock
(except for dividends payable solely in stock of Borrower); (xi) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's stock;
(xii) make any change in Borrower's capital structure which would have a
material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or (xiii) pay total compensation, including salaries, fees,
bonuses, commissions, and all other payments, whether directly or indirectly, in
money or otherwise, to Borrower's executives, officers and directors (or any
relative thereof) in an amount in excess of the amount set forth on the
Schedule; or (xiv) dissolve or elect to dissolve. Transactions permitted by the
foregoing provisions of this Section are only permitted if no Default or Event
of Default would occur as a result of such transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Silicon, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Silicon may deem them reasonably necessary in order
to prosecute or defend any such suit or proceeding.
5.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that the
Maturity date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, unless one party gives written notice to the other, not less than
sixty days prior to the next Maturity Date, that such party elects to terminate
this Agreement effective on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three Business Days after
written notice
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of termination is given to Silicon; or (ii) by Silicon at any time after the
occurrence of an Event of Default, without notice, effective immediately.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Silicon, Silicon may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right
or remedy of Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Silicon shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Silicon's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower
shall give Silicon immediate written notice thereof: (a) Any warranty,
representation, statement, report or certificate made or delivered to Silicon
by Borrower or any of Borrower's officers, employees or agents, now or in the
future, shall be untrue or misleading in a material respect; or (b) Borrower
shall fail to pay when due any Loan or any interest thereon or any other
monetary Obligation; or (c) the total Loans and other Obligations outstanding
at any time shall exceed the Credit Limit; or (d) Borrower shall fail to
comply with any of the financial covenants set forth in the Schedule or shall
fail to perform any other non-monetary Obligation which by its nature cannot
be cured; or (e) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within 5 Business Days after the date
due; or (f) Any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral
which is not cured within 10 days after the occurrence of the same; or (g)
any default or event of default occurs under any obligation secured by a
Permitted Lien, which is not cured within any applicable cure period or
waived in writing by the holder of the Permitted Lien; or (h) Borrower
breaches any material contract or obligation, which has or may reasonably be
expected to have a material adverse effect on Borrower's business or
financial condition; or (i) Dissolution, termination of existence, insolvency
or business failure of Borrower; or appointment of a receiver, trustee or
custodian, for all or any part of the property of, assignment for the benefit
of creditors by, or the commencement of any proceeding by Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (j) the commencement of any proceeding against Borrower
or any guarantor of any of the Obligations under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in
effect, which is not cured by the dismissal thereof within 30 days after the
date commenced; or (k) revocation or termination of, or limitation or denial
of liability upon, any guaranty of the Obligations or any attempt to do any
of the foregoing, or commencement of proceedings by any guarantor of any of
the Obligations under any bankruptcy or insolvency law; or (l) revocation or
termination of, or limitation or denial of liability upon, any pledge of any
certificate of deposit, securities or other property or asset of any kind
pledged by any third party to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or
against any such third party under any bankruptcy or insolvency law; or (m)
Borrower makes any payment on account of any indebtedness or obligation which
has been subordinated to the Obligations other than as permitted in the
applicable subordination agreement, or if any Person who has subordinated
such indebtedness or obligations terminates or in any way limits his
subordination agreement; or (n) there shall be a change in the record or
beneficial ownership of an aggregate of more than 20% of the outstanding
shares of stock of Borrower, in one or more transactions, compared to the
ownership of outstanding shares of stock of Borrower in effect on the date
hereof, without the prior written consent of Silicon; or (o) Borrower shall
generally not pay its debts as they become due, or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its
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creditors, or make or suffer any transfer of any of its property which may be
fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (p)
there shall be a material adverse change in Borrower's business or financial
condition; or (q) Silicon, acting in good faith and in a commercially
reasonable manner, deems itself insecure because of the occurrence of an
event prior to the effective date hereof of which Silicon had no knowledge on
the effective date or because of the occurrence of an event on or subsequent
to the effective date. Silicon may cease making any Loans hereunder during
any of the above cure periods, and thereafter if an Event of Default has
occurred.
7.2 REMEDIES. Upon the occurrence of any Event of Default, and at any
time thereafter, Silicon, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by Borrower), may do any one
or more of the following: (a) Cease making Loans or otherwise extending
credit to Borrower under this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation; (c) Take possession of any or all of the Collateral wherever it
may be found, and for that purpose Borrower hereby authorizes Silicon without
judicial process to enter onto any of Borrower's premises without
interference to search for, take possession of, keep, store, or remove any of
the Collateral, and remain on the premises or cause a custodian to remain on
the premises in exclusive control thereof, without charge for so long as
Silicon deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; provided, however,
that should Silicon seek to take possession of any of the Collateral by Court
process, Borrower hereby irrevocably waives: (i) any bond and any surety or
security relating thereto required by any statute, court rule or otherwise as
an incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii)
any requirement that Silicon retain possession of, and not dispose of, any
such Collateral until after trial or final judgment; (d) Require Borrower to
assemble any or all of the Collateral and make it available to Silicon at
places designated by Silicon which are reasonably convenient to Silicon and
Borrower, and to remove the Collateral to such locations as Silicon may deem
advisable; (e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Silicon shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Silicon obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private
sales, in lots or in bulk, for cash, exchange or other property, or on
credit, and to adjourn any such sale from time to time without notice other
than oral announcement at the time scheduled for sale. Silicon shall have
the right to conduct such disposition on Borrower's premises without charge,
for such time or times as Silicon deems reasonable, or on Silicon's premises,
or elsewhere and the Collateral need not be located at the place of
disposition. Silicon may directly or through any affiliated company purchase
or lease any Collateral at any such public disposition, and if permissible
under applicable law, at any private disposition. Any sale or other
disposition of Collateral shall not relieve Borrower of any liability
Borrower may have if any Collateral is defective as to title or physical
condition or otherwise at the time of sale; (g) Demand payment of, and
collect any Receivables and General Intangibles comprising Collateral and, in
connection therewith, Borrower irrevocably authorizes Silicon to endorse or
sign Borrower's name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and
remove therefrom payments made with respect to any item of the Collateral or
proceeds thereof, and, in Silicon's sole discretion, to grant extensions of
time to pay, compromise claims and settle Receivables and the like for less
than face value; (h) Offset against any sums in any of Borrower's general,
special or other Deposit Accounts with Silicon; and (i) Demand and receive
possession of any of Borrower's federal and state income tax returns and the
books and records utilized in the preparation thereof or referring thereto.
All reasonable attorneys' fees, expenses, costs, liabilities and obligations
incurred by Silicon with respect to the foregoing shall be added to and
become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of
the Obligations. Without limiting any of Silicon's rights and remedies, from
and after the occurrence of any Event of Default, the interest rate
applicable to the Obligations shall be increased by an additional four
percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general, non-
specific terms; (iii) The sale is conducted at a place designated by Silicon,
with or without the Collateral being present; (iv) The sale commences at any
time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in cash
or by cashier's check or wire transfer is required; (vi) With respect to any
sale of any of the Collateral, Silicon may (but is not obligated to) direct any
prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. Silicon shall be free to employ other methods
of noticing and selling the Collateral, in its discretion, if they are
commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default,
without limiting Silicon's other rights and remedies, Borrower grants to Silicon
an irrevocable power of attorney coupled with an interest, authorizing and
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permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to
Borrower, and at Borrower's expense, to do any or all of the following, in
Borrower's name or otherwise, but Silicon agrees to exercise the following
powers in a commercially reasonable manner: (a) Execute on behalf of Borrower
any documents that Silicon may, in its sole discretion, deem advisable in order
to perfect and maintain Silicon's security interest in the Collateral, or in
order to exercise a right of Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute
on behalf of Borrower, any invoices relating to any Receivable, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or
other lien, or assignment or satisfaction of mechanic's, materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Silicon's
possession; (e) Endorse all checks and other forms of remittances received by
Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (g)
Grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give Silicon the same rights of access and other rights with respect
thereto as Silicon has under this Agreement; and (k) Take any action or pay any
sum required of Borrower pursuant to this Agreement and any other present or
future agreements. Any and all reasonable sums paid and any and all reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall Silicon's rights under the foregoing power of attorney or any of Silicon's
other rights under this Agreement be deemed to indicate that Silicon is in
control of the business, management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by Silicon first to the reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon in the exercise of its rights under this Agreement, second to the
interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as Silicon shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its
sole discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, Silicon shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of purchase price or deferring
the reduction of the Obligations until the actual receipt by Silicon of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, Silicon shall have all the other rights and remedies accorded
a secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"BUSINESS DAY" means a day on which Silicon is open for business.
"CODE" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 above.
"DEFAULT" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"ELIGIBLE INVENTORY" means Inventory which Silicon, in its sole judgment,
deems eligible for borrowing, based on such considerations as Silicon may from
time to time deem appropriate. Without limiting the fact that the determination
of which Inventory is eligible for borrowing is a matter of Silicon's
discretion, Inventory which does not meet the following requirements will not be
deemed to be
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Eligible Inventory: Inventory which (i) consists of * finished goods, in good,
new and salable condition which is not perishable, not obsolete or
unmerchantable, and is not comprised of work in process, packaging materials or
supplies; (iii) meets all applicable governmental standards; (iv) has been
manufactured in compliance with the Fair Labor Standards Act; (v) conforms in
all respects to the warranties and representations set forth in this Agreement;
(vi) is at all times subject to Silicon's duly perfected, first priority
security interest; and (vii) is situated at a one of the locations set forth on
the Schedule.
*RAW MATERIALS OR
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course
of Borrower's business from the sale of goods or rendition of services, which
Silicon, in its sole judgment, shall deem eligible for borrowing, based on
such considerations as Silicon may from time to time deem appropriate.
Without limiting the fact that the determination of which Receivables are
eligible for borrowing is a matter of Silicon's discretion, the following
(the "MINIMUM ELIGIBILITY REQUIREMENTS") are the minimum requirements for a
Receivable to be an Eligible Receivable: (i) the Receivable must not be
outstanding for more than 90 days from its invoice date, (ii) the Receivable
must not represent progress billings, or be due under a fulfillment or
requirements contract with the Account Debtor, (iii) the Receivable must not
be subject to any contingencies (including Receivables arising from sales on
consignment, guaranteed sale or other terms pursuant to which payment by the
Account Debtor may be conditional), (iv) the Receivable must not be owing
from an Account Debtor with whom the Borrower has any dispute (whether or not
relating to the particular Receivable), (v) the Receivable must not be owing
from an Affiliate of Borrower, (vi) the Receivable must not be owing from an
Account Debtor which is subject to any insolvency or bankruptcy proceeding,
or whose financial condition is not acceptable to Silicon, or which, fails or
goes out of a material portion of its business, (vii) the Receivable must not
be owing from the United States or any department, agency or instrumentality
thereof (unless there has been compliance, to Silicon's satisfaction, with
the United States Assignment of Claims Act), (viii) the Receivable must not
be owing from an Account Debtor located outside the United States or Canada
(unless * pre-approved by Silicon in its discretion in writing, or backed by
a letter of credit satisfactory to Silicon, or FCIA insured satisfactory to
Silicon), (ix) the Receivable must not be owing from an Account Debtor to
whom Borrower is or may be liable for goods purchased from such Account
Debtor or otherwise. Receivables owing from one Account Debtor will not be
deemed Eligible Receivables to the extent they exceed 25% of the total
eligible Receivables outstanding. In addition, if more than 50% of the
Receivables owing from an Account Debtor ** are outstanding more than 90 days
from their invoice date (without regard to unapplied credits) or are
otherwise not eligible Receivables, then all Receivables owing from that
Account Debtor will be deemed ineligible for borrowing. Silicon may, from
time to time, in its discretion, revise the Minimum Eligibility Requirements,
upon written notice to the Borrower.
*THE ACCOUNT DEBTOR IS DAI NIPPON SCREEN MANUFACTURING CO. LTD., OR AVID
TACHNOLOGY-IRELAND, OR MARUBENI INT'L ELECTRONICS, OR IS OTHERWISE
**WHICH IS NOT A DISTRIBUTOR, OR MORE THAN 10% OF THE RECEIVABLES OWING
FROM AN ACCOUNT DEBTOR WHICH IS A DISTRIBUTOR,
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of this
Agreement.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other
business records, Deposit Accounts, inventions, designs, drawings,
blueprints, patents, patent applications, trademarks and the goodwill of the
business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for
any cause or claim (whether in contract, tort or otherwise), and all
judgments now or hereafter arising therefrom, all claims of Borrower against
Silicon, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, proprietary
information, purchase orders, and all insurance policies and claims
(including without limitation life insurance, key man insurance, credit
insurance, liability insurance, property insurance and other insurance), tax
refunds and claims, computer programs, discs, tapes and tape files, claims
under guaranties, security interests or other security held by or granted to
Borrower, all rights to indemnification and all other intangible property of
every kind and nature (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.
-9-
<PAGE>
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Silicon in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other present or future instrument or agreement between Borrower and
Silicon.
"PERMITTED LIENS" means the following: (i) purchase money security
interests in specific items of Equipment; (ii) leases of specific items of
Equipment; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by Silicon, which consent shall not
be unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
OTHER TERMS. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with generally accepted accounting principles, consistently applied. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations,
all checks, wire transfers and other items of payment received by Silicon
(including proceeds of Receivables and payment of the Obligations in full)
shall be deemed applied by Silicon on account of the Obligations three
Business Days after receipt by Silicon of immediately available funds.
Silicon shall not, however, be required to credit Borrower's account for the
amount of any item of payment which is unsatisfactory to Silicon in its sole
discretion, and Silicon may charge Borrower's loan account for the amount of
any item of payment which is returned to Silicon unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the
Obligations may be applied, and in Silicon's sole discretion reversed and re-
applied, to the Obligations, in such order and manner as Silicon shall determine
in its sole discretion.
9.3 CHARGES TO ACCOUNTS. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.
9.4 MONTHLY ACCOUNTINGS. Silicon shall provide Borrower monthly with
an account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless
Borrower notifies Silicon in writing to the contrary within thirty days after
each account is rendered, describing the nature of any alleged errors or
admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be
in writing and shall be given either personally or by reputable private
delivery service or by regular first-class mail, or certified mail return
receipt requested, addressed to Silicon or Borrower at the addresses shown in
the heading to this Agreement, or at any other address designated in writing
by one party to the other party. Notices to Silicon shall be directed to the
Commercial Finance Division, to the attention of the Division Manager or the
Division Credit Manager. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered, or at the expiration
-10-
<PAGE>
of one Business Day following delivery to the private delivery service, or two
Business Days following the deposit thereof in the United States mail, with
postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Silicon and supersede
al prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. THERE
ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES
WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS
SIGNED BY THE PARTIES IN CONNECTION HEREWITH.
9.8 WAIVERS. The failure of Silicon at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Silicon shall not waive
or diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Silicon, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon, but nothing herein shall relieve Silicon from
liability for its own gross negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Silicon.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Silicon for
all reasonable attorneys' fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by Silicon,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys' fees and costs Silicon incurs in order to do the following:
prepare and negotiate this Agreement and the documents relating to this
Agreement; obtain legal advice in connection with this Agreement or Borrower;
enforce, or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, Account Debtors; commence, intervene in, or defend any
action or proceeding; initiate any complaint to be relieved of the automatic
stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce Silicon's security
interest in, the Collateral; and otherwise represent Silicon in any
litigation relating to Borrower. IN SATISFYING BORROWER'S OBLIGATION
HEREUNDER TO REIMBURSE SILICON FOR ATTORNEYS FEES, BORROWER MAY, FOR
CONVENIENCE, ISSUE CHECKS DIRECTLY TO SILICON'S ATTORNEYS, LEVY, SMALL &
LALLAS, BUT BORROWER ACKNOWLEDGES AND AGREES THAT LEVY, SMALL & LALLAS IS
REPRESENTING ONLY SILICON AND NOT BORROWER IN CONNECTION WITH THIS AGREEMENT.
If either Silicon or Borrower files any lawsuit against the other predicated
on a breach of this Agreement, the prevailing party in such action shall be
entitled to recover its reasonable costs and attorneys' fees, including (but
not limited to) reasonable attorneys' fees and costs incurred in the
enforcement of, execution upon or defense of any order, decree, award or
judgment. All attorneys' fees and costs to which Silicon may be entitled
pursuant to this Paragraph shall immediately become part of Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Silicon; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Silicon, and any prohibited
assignment shall be void. No consent by Silicon to any assignment shall release
Borrower from its liability for the Obligations.
9.14 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against Silicon, its directors, officers, employees, agents, accountants or
attorneys, based upon,
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<PAGE>
arising from, or relating to this Loan Agreement, or any other present or future
document or agreement, or any other transaction contemplated hereby or thereby
or relating hereto or thereto, or any other matter, cause or thing whatsoever,
occurred, done, omitted or suffered to be done by Silicon, its directors,
officers, employees, agents, accountants or attorneys, shall be barred unless
asserted by Borrower by the commencement of an action or proceeding in a court
of competent jurisdiction by the filing of a complaint within one year after the
first act, occurrence or omission upon which such claim or cause of action, or
any part thereof, is based, and the service of a summons and complaint on an
officer of Silicon, or on any other person authorized to accept service on
behalf of Silicon, within thirty (30) days thereafter. Borrower agrees that
such one-year period is a reasonable and sufficient time for Borrower to
investigate and act upon any such claim or cause of action. The one-year period
provided herein shall not be waived, tolled, or extended except by the written
consent of Silicon in its sole discretion. This provision shall survive any
termination of this Loan Agreement or any other present or future agreement.
9.16 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or Borrower under any rule
of construction or otherwise.
9.17 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts
and transactions hereunder and all rights and obligations of Silicon and
Borrower shall be governed by the laws of the State of California. As a
material part of the consideration to Silicon to enter into this Agreement,
Borrower (i) agrees that all actions and proceedings relating directly or
indirectly to this Agreement shall, at Silicon's option, be litigated in
courts located within California, and that the exclusive venue therefor shall
be Santa Clara County; (ii) consents to the jurisdiction and venue of any
such court and consents to service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and
(iii) waives any and all rights Borrower may have to object to the
jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
9.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND SILICON EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN
ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
RASTEROPS, INC.
BY /s/ illegible
--------------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ illegible
--------------------------------------
SECRETARY OR ASS'T SECRETARY
TRUEVISION, INC.
BY /s/ illegible
--------------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ illegible
--------------------------------------
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY /s/ RICHARD J. ?
--------------------------------------
TITLE /s/ SR. VICE PRESIDENT
-----------------------------------
42,914
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<PAGE>
SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: RASTEROPS
TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA
DATE: JUNE 13, 1995
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrower of even date.
-------------------------------------------------------------------------------
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of a total of
$7,000,000 at any one time outstanding, or the sum or (a)
and (b) below:
(a) 75% of the amount of Borrower's Eligible
Receivables (as defined in Section 8 above), plus
(b) an amount not to exceed the lesser of:
(1) 20% of the value of Borrower's Eligible
Inventory (as defined in Section 8 above),
calculated at the lower of cost or market value
and determined on a first-in, first-out basis, or
(2) $1,250,000.
Loans to each Borrower will be made separately, based on
the Eligible Receivables and Eligible Inventory of each
Borrower. Prior to the making of any Loans with respect
to Inventory, Borrower shall provide to Silicon an
appriasal of its inventory by Koll-Dovetech, which shall
be satisfactory to Silicon in its discretion.
LETTER OF CREDIT SUBLIMIT
(Section 1.5): $5,000,000; provided that the total amount of Letters of
Credit at any time outstanding and the total amount of
any Exchange Contracts outstanding may not exceed
$5,000,000 in the aggregate.
FOREIGN EXCHANGE
CONTRACT SUBLIMIT Up to $5,000,000 of the Credit Limit may be utilized for
spot and future foreign exchange contracts (the "Exchange
Contracts"); provided that the total amount of Letters of
Credit at any time outstanding and the total amount of
any Exchange Contracts outstanding may not exceed
$5,000,000 in the aggregate. The Credit
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<PAGE>
Limit available at any time shall be reduced by the following amounts (the
"Foreign Exchange Reserve") on each day (the "Determination Date"): (i) on
all outstanding Exchange Contracts on which delivery is to be effected or
settlement allowed more than two business days from the Determination Date,
10% of the gross amount of the Exchange Contracts; plus (ii) on all
outstanding Exchange Contracts on which delivery is to be effected or
settlement allowed within two business days after the Determination Date,
100% of the gross amount of the Exchange Contracts. In lieu of the Foreign
Exchange Reserve for 100% of the gross amount of any Exchange Contract, the
Borrower may request that Silicon debit the Borrower's bank account with
Silicon for such amount, provided Borrower has immediately available funds in
such amount in its bank account.
Silicon may, in its discretion, terminate the Exchange Contracts at any time
(a) that an Event of Default occurs or (b) that there is not sufficient
availability under the Credit Limit and Borrower does not have available
funds in its bank account to satisfy the Foreign Exchange Reserve. If either
Silicon or Borrower terminates the Exchange Contracts, and without limitation
of the FX Indemnity Provisions (as referred to below), Borrower agrees to
reimburse Silicon for any and all fees, costs and expenses relating thereto
or arising in connection therewith.
Borrower shall not permit the total gross amount of all Exchange Contracts on
which delivery is to be effected and settlement allowed in any two business
day period to be more than $2,000,000, nor shall Borrower permit the total
gross amount of all Exchange Contracts to which Borrower is a party,
outstanding at any one time, to exceed $5,000,000.
The Borrower shall execute all standard form applications and agreements of
Silicon in connection with the Exchange Contracts, and without limiting any
of the terms of such applications and agreements, the Borrower will pay all
standard fees and charges of Silicon in connection with the Exchange
Contracts.
Without limiting any of the other terms of this Loan Agreement or any such
standard form applications and agreements of Silicon, Borrower agrees to
indemnify Silicon and hold it harmless, from and against any and all claims,
debts, liabilities, demands, obligations, actions, costs and expenses
(including, without limitation, attorneys' fees of counsel of Silicon's
choice), of every nature and description, which it may sustain or incur,
based upon, arising out of, or in any way relating to any of the Exchange
Contracts or any transactions relating thereto or contemplated thereby
(collectively referred to as the "FX Indemnity Provisions").
The Exchange Contracts shall have maturity dates no later than the Maturity
Date.
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<PAGE>
2. INTEREST.
INTEREST RATE (Section 1.2):
A rate equal to the "Prime Rate" in effect from
time to time, plus 2.75% per annum. Interest shall
be calculated on the basis of a 360-day year for
the actual number of days elapsed. "Prime Rate"
means the rate announced from time to time by
Silicon as its "prime rate;" it is a base rate
upon which other rates charged by Silicon are
based, and it is not necessarily the best rate
available at Silicon. The interest rate applicable
to the Obligations shall change on each date there
is a change in the Prime Rate.
MINIMUM MONTHLY
INTEREST (Section 1.2): Not applicable.
--------------------------------------------------------------------------------
3. FEES (Section 1.4):
Loan Fee: $20,000, payable concurrently herewith.
Collateral Monitoring
Fee: Not applicable
--------------------------------------------------------------------------------
4. MATURITY DATE
(Section 6. 1): One year from the date of this Agreement, subject
to automatic renewal as provided in Section 6.1
above, and early termination as provided in Section
6.2 above.
--------------------------------------------------------------------------------
5. FINANCIAL COVENANTS
(Section 5.1): Borrower shall comply with all of the following
covenants. Compliance shall be determined as of
the end of each month, except as otherwise
specifically provided below. Compliance shall be
determined with respect to RasterOps, on a
consolidated basis.
DEBT TO TANGIBLE
NET WORTH RATIO: Borrower shall maintain a ratio of total
liabilities to Tangible Net Worth of not more than
3.0 to 1.
MINIMUM TANGIBLE
NET WORTH: Borrower shall maintain a Tangible Net Worth of not
less than the "Minimum Tangible Debt Worth", which
shall mean: $8,000,000, PLUS (i) an amount equal to
50% of the value of any consideration received
after the date hereof for any stock or other
securities issued by the Borrower, plus (ii) 50% of
the amount of any increase in Borrower's Tangible
Net Worth which occurs as a result of a settlement
of the lawsuit entitled " SEE BELOW * " or any
related litigation (including without limitation
increases which occur as a result of the release of
reserves maintained by Borrower in connection with
the same).
* lawsuit "MARKLEEBETH CORP. ET AL.
-3- vs. KIETH SORENSON RASTEROPS ET AL."
<PAGE>
DEFINITIONS. For purposes of the foregoing financial covenants,
the following terms shall have the following
meanings:
"Liabilities" shall have the meaning ascribed to
that term by generally accepted accounting
principles.
"Tangible Net Worth" shall mean the excess of total
assets over total liabilities, determined in
accordance with generally accepted accounting
principles, with the following adjustments:
(A) there shall be excluded from assets: (i)
notes, accounts receivable and other
obligations owing to the Borrower from its
officers or other Affiliates, and (ii) all
assets which would be classified as intangible
assets under generally accepted accounting
principles, including without limitation
goodwill, licenses, patents, trademarks, trade
names, copyrights, capitalized software and
organizational costs, licenses and franchises
(B) there shall be excluded from liabilities:
all indebtedness which is subordinated to the
Obligations under a subordination agreement in
form specified by Silicon or by language in the
instrument evidencing the indebtedness which is
acceptable to Silicon in its discretion.
--------------------------------------------------------------------------------
6. REPORTING. (Section 5.3):
Borrower shall provide Silicon with the
following:
1. Monthly Receivable agings, aged by invoice
date, within ten days after the end of each
month.
2. Monthly accounts payable agings, aged by
invoice date, and outstanding or held check
registers within ten days after the end of
each month.
3. Monthly perpetual inventory reports for the
Inventory, on a category by category basis,
valued on a first-in, first-out basis at the
lower of cost or market (in accordance with
generally accepted accounting principles) or
such other inventory reports as are
reasonably requested by Silicon, all within
ten days after the end of each month.
4. Monthly unaudited financial statements, as
soon as available, and in any event within
thirty days after the end of each month.
5. Monthly Compliance Certificates, within
thirty days after the end of each month,
in such form as Silicon shall reasonably
specify, signed by the Chief Financial
Officer of Borrower, certifying that as of
the end of such month Borrower was in full
compliance with all of the terms and
conditions of this Agreement, and setting
forth calculations showing compliance with
the financial covenants set forth in this
Agreement and such other information as
Silicon shall reasonably request.
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<PAGE>
MANUFACTURING LICENSE AGREEMENT
This Agreement is entered into as of December 30, 1994, between Truevision,
Inc. ("Truevision"), an Indiana corporation, and Avid Technology, Inc. ("Avid"),
a Delaware corporation.
RECITALS
The parties wish to enter into an agreement pursuant to which Avid shall
have the right to manufacture and distribute computer circuit boards and other
products from time to time the rights to which are owned or licensed by
Truevision. The parties therefore agree as follows:
SECTION 1. MANUFACTURING LICENSE.
(a) LICENSE GRANT. Truevision hereby grants to Avid a manufacturing
and distribution license for all products which Truevision
supplies to Avid for Avid's use in incorporating such
products into Avid's products whether pursuant to the
Development, Manufacturing And Supply Agreement dated
December 7, 1993 between Truevision and Avid, as amended and
in effect from time to time, or otherwise from time to time,
including, without limitation, the NuVista+, the HUB1 and
HUB2 versions of Targa 2000N, Targa 2000E and Targa 2000P,
LSI Compression Module and Composite A/V Module (a.k.a. CAV
Top) (collectively, the "Products"). Avid's rights will also
include Avid's unencumbered right to purchase Truevision's
proprietary parts directly from Truevision's suppliers for
those Products being manufactured by Avid. All rights and
licenses granted under or pursuant to this Agreement by
Truevision to Avid are, and shall otherwise deemed to be, for
purposes of Section 365(n) of the U.S. Bankruptcy Code,
licenses of rights to "intellectual property" as defined
under Section 101 of the Bankruptcy Code. The parties agree
that Avid, as a licensee of such rights under this Agreement,
shall retain and may fully exercise all of its rights and
elections under the Bankruptcy Code.
(b) DOCUMENTATION. Truevision shall deliver to Avid on execution of this
Agreement and as required by Avid from time to time copies of
any and all designs, documentation, source code and know-how
relating to Products and any modifications (including without
limitation, Design Modifications as described below) and
enhancements thereto necessary or desirable for the purpose
of manufacturing the Product which Truevision owns or
otherwise has the right to furnish to Avid, together with any
valid Engineering Change Orders as they may exist from time
to time (the "Manufacturing Documentation"), all for the
limited purpose of allowing Avid to exercise its rights under
this Agreement and to ensure that Products are manufactured
by Avid and by Truevision using the same Manufacturing
Documentation. Truevision and Avid shall cooperate in
assigning appropriate serial numbers to Products allowing
identification of the place of manufacture.
<PAGE>
c) TECHNICAL SUPPORT. On request by Avid, Truevision shall furnish to Avid (or
its manufacturing subcontractor) a reasonable amount of
technical support (not to exceed two person-weeks) in
establishing manufacturing operations at a location within
the United States. Thereafter, Truevision shall furnish
technical manufacturing and other Product-related support at
its usual and customary rates.
(d) PCI PRODUCTS. Truevision agrees to negotiate with Avid in good faith to
develop specifications for and include hereunder as Products
circuit boards for use in connection with Apple PCI bus
architecture based systems. The parties further agree to
negotiate in good faith to have an Avid first customer ship
date for such Products not later than June 1, 1995.
(e) PERMITTED DESIGN MODIFICATIONS.
(i) All Design Modifications shall be categorized into one of
three types which are (1) Truevision Routine Changes, (2) Truevision
Emergency Changes, and (3) Avid Requested Changes.
(ii) Truevision Emergency Changes shall be all changes in design
initiated by Avid or Truevision to (1) avoid intellectual property
infringement, (2) allow the Products to meet design specifications in the
event they do not then meet such specifications, (3) avoid the use of
parts that are no longer reliably available for purchase from third party
vendors, or (4) address product safety issues.
(iii) Truevision Routine Changes shall be all changes in design
initiated by Truevision that are not Truevision Emergency Changes that do
not change the form, fit, or function of the then existing Product design
and specifications.
(iv) Avid Requested Changes shall be all changes in design
initiated by Avid.
(v) In the instance of Truevision's Routine Changes, Truevision
shall be obligated to provide Avid with sufficient notice to allow Avid to
exhaust any reasonable amount of parts on hand that would be obsolete
under the new design, and to support manufacturing of the preexisting
design until Avid exhausts their reasonable supply of any discontinued
parts.
(vi) In the instance of Truevision's Emergency Changes,
Truevision shall give Avid as much notice as is reasonably possible and
shall not be obligated to support manufacturing of the preexisting design
beyond a reasonable time period.
(vii) In the instance of Avid's Requested Changes, such changes
may be implemented in Truevision's sole discretion. Except, if Avid
agrees to reimburse Truevision for the reasonable costs (including
opportunity costs) of providing such design changes in the form of a pre-
approved amount of non recurring engineering charges to complete such
design changes, Truevision shall negotiate in good faith with Avid to
establish a mutually agreeable schedule for implementation of such
changes.
<PAGE>
(viii) Regardless of the source or form of any requested
engineering changes, any changes made by Truevision to the Products shall
be the property of Truevision, excepting that (i) if a request is made by
Avid, AND (ii) the request includes the incorporation of a design or part
that is the intellectual property of Avid, AND (iii) that fact is
explicitly made known at the time of the initial request or otherwise
agreed to, THEN that portion of that design or the design of that part
shall remain the exclusive property of Avid and Truevision shall be
granted a royalty free license to use and incorporate such design and/or
part into the Products, but only for sale and repair support to Avid.
(f) ADDITIONAL RESPONSIBILITIES OF AVID.
(i) Avid shall only manufacture Products hereunder that are
incorporated by Avid into or for use on computer systems or kits for use
on computer systems which Avid sells and/or licenses, whether directly,
through distributors or otherwise, in a manner which shall add substantial
value to such Products in the form of hardware, software, service support
and/or training, which value added shall significantly augment the
functions, capabilities, and marketability of the Products.
(ii) Avid shall be responsible for securing any required U.S.
export licenses relating to Products.
(g) LICENSES SUBJECT TO PAYMENT OF ROYALTIES. The licenses granted to Avid by
Truevision under this Agreement shall be subject to Avid's payment of
royalties due under this Agreement.
SECTION 2. ROYALTY PAYMENT.
(a) PAYMENT.
(i) Avid shall pay a royalty for Products manufactured by Avid
pursuant to this Agreement within 30 days of the end of each calendar
quarter in which Avid accepts completed Products from its manufacturing
subcontractor(s) or Avid completes manufacturing of Products, as the case
may be. The royalty payable shall be calculated as set forth on Schedule
A to this Agreement.
(ii) If Truevision fails to deliver a confirmed order for Products
to Avid on or before the specified delivery date, and Avid manufactures
the ordered Products, the delayed order shall be counted as if it were
delivered and invoiced by Truevision on time for purposes of computing the
royalty due under the Royalty Percentage Table set forth on Schedule A to
this Agreement.
<PAGE>
(iii) Notwithstanding the immediately preceding subparagraph (ii),
if the order Truevision failed to deliver on or before the specified
delivery date was scheduled for delivery less than Ninety (90) days after
the date the order was placed, then the amount of the delayed order shall
not be counted as if it were delivered and invoiced by Truevision on time
for purposes of computing the royalty due under the Royalty Percentage
Table so long as Truevision used its reasonable best efforts to meet the
less-than-90-day delivery schedule. Any order delayed in delivery shall
count for the purposes of computing the royalty due under the Royalty
Percentage Table when delivered to Avid and invoiced by Truevision.
(b) AUDIT. Truevision shall have the right to have a firm of nationally-
recognized independent certified public accountants audit Avid's relevant
books and records, and those of Avid's third party manufacturing
subcontractors, at Truevision's expense, no more often than twice per year
and on at least five business days' prior written notice to determine
whether Avid's royalty payments (if any) comply with this Section. IN the
event that the audit indicates that the payments by Avid to Truevision
have been Ten Percent (10%) or more lower than the correct amounts
payable, then Avid shall pay the costs associated with the audit together
with interest on the unpaid amounts at an interest rate of One Percent
(1%) per month on the amount due but not paid.
(c) BEST PRICE. Truevision represents and covenants that the royalty amounts
payable hereunder will be no greater than the royalty amounts it is
charging and will charge other customers for substantially similar
products in similar quantities.
(d) COST REDUCTION. Each of Truevision and Avid agrees to work with each other
in good faith to reduce the manufacturing costs of the Products, such
cooperation shall include but not be limited to using the combined
purchasing volumes and relationships where appropriate.
(e) PREPAYMENT. Upon execution of this Agreement, Avid shall pay to
Truevision the sum of One Million Two Hundred Thousand Dollars
($1,200,000). Such amount shall be credited on a monthly basis to royalty
payments due under this Agreement by Avid in amounts not to exceed Thirty
Five Thousand Dollars ($35,000) in May of 1995 and One Hundred Sixty Seven
Thousand Dollars ($167,000) per month thereafter until the entire
prepayment is credited.
SECTION 3. [INTENTIONALLY OMITTED]
SECTION 4. [INTENTIONALLY OMITTED]
SECTION 5. TERM.
The term of this Agreement shall commence on the date of this Agreement
first above written and shall end on the third anniversary thereof.
Thereafter, this Agreement shall automatically be renewed for successive
one year periods, unless either party shall have given written notice to
the other at least one month prior to the date at which this Agreement
would otherwise have been automatically renewed, in which case this
Agreement shall terminate on such automatic renewal date, unless earlier
terminated as provided herein.
<PAGE>
SECTION 6. WARRANTIES.
(a) Truevision warrants and covenants that it has the right to grant to
Avid the rights purported to be granted hereby and that the Manufacturing
Documentation will allow a person of reasonable skill in the industry to
manufacture the Products free of defects in material, workmanship and
design and which will function substantially in accordance with and will
conform to the applicable specifications and shall otherwise be suitable
for the purposes for which they are intended (the "Product Warranty").
(b) Truevision also warrants that the Products and each component
thereof, and the manufacture, use, sale, and other distribution thereof
does not and shall not infringe any patent, copyright, mask work,
trademark, trade secret or other proprietary right of any third party.
(c) Truevision shall extend no warranty of non-infringement under this
Section 6 to the extent: (1) infringement is attributable to Truevision's
incorporation of Avid-supplied designs into the Products and (2) such
claim or suit would have been avoided but for the combination, operation,
or use of the Products with devices, parts, or software not supplied by
Truevision or its subcontractors.
(d) After one year from the date of delivery of any Product
manufactured by Truevision and sold to Avid, or for any Product
manufactured by Avid regardless of when manufactured, Truevision agrees to
provide repair services for the Products. Such repair service during the
term of this agreement shall be provided at Truevision's then current out
of warranty repair rates, which shall not exceed the prices Avid would pay
for a new Product of that type. Upon expiration of the agreement and for
a term of 5 years thereafter, Truevision shall provide repair or
replacement service for the Products to Avid at Truevision's then
prevailing prices for such service, subject to availability of parts
required to effect the repair of the defective product.
SECTION 7. INDEMNIFICATION.
(a) Truevision shall indemnify, hold harmless and defend Avid from and
against any and all liability, loss, cost, damage, expense, or claim
(including reasonable attorneys fees) incurred by or made against Avid
in connection with claims that [the Products or components thereof or the
manufacture, use, sale or distribution thereof infringes any patent,
copyright, mask work, trademark, trade secret or other proprietary right
of any third party, provided that Truevision is notified in writing of
such claim within a reasonable period after Avid becomes aware of the
same.
<PAGE>
(b) In the event that, because of a claim of infringement as described
above which is not excluded by the operation of subsection (c) below, the
manufacture, use, sale or distribution of any Product or component thereof
furnished hereunder is or is threatened to be enjoined, Truevision shall
(in addition to its obligations set forth above in the immediately
preceding paragraph) at its expense and at the option of Avid, either (i)
procure for Avid and its customers and distributors and their customers
the right to continue such use, manufacture, distribution or sale; or (ii)
redesign such Product or component thereof with a non-infringing Product
or component that contains substantially the same functionality; or (iii)
modify the design of such Product or component thereof so that it becomes
non-infringing yet contains substantially the same functionality.
(c) Truevision shall have no liability under this Section 7 for any
claim or suit to the extent: (1) infringement is attributable to
Truevision's incorporation of Avid-supplied designs into the Products
and (2) such claim or suit would have been avoided but for the
combination, operation, or use of the Products with devices, parts,
or software not supplied by Truevision or its subcontractors.
SECTION 8. NON-DISCLOSURE.
Each party hereto acknowledges that the transactions contemplated by this
Agreement will require an exchange of confidential information, including,
without limitation trade secrets, proprietary technological information and
customer lists (collectively, "Confidential Information"). With respect to such
Confidential Information Truevision and Avid agree as follows:
(a) Each party shall hold in confidence all Confidential Information
of the disclosing party and shall not disclose to any other person or use
such Confidential Information for any purpose other than to prepare a
necessary response or to perform work for the disclosing party as may be
subsequently necessary. Avid may disclose confidential information of
Truevision to subcontractors of Avid in order to manufacture Products for
Avid pursuant to the manufacturing rights granted under this Agreement
provided that Avid obtain an agreement from such third parties to maintain
the confidentiality of the information.
(b) The obligations of Subparagraph (a) above shall not apply to
information which is proved using tangible evidence to:
(i) be or have become available to the public from a source
other than the receiving party;
(ii) be or have been released in writing by the disclosing party
as being no longer subject to this Agreement;
(iii) be or have been lawfully obtained by the receiving party
from a third party not subject to any nondisclosure
obligation;
(iv) have become lawfully known to the receiving party prior
to such disclosure; or
(v) have been developed by the receiving party completely
independently of disclosure from the disclosing party.
Each party acknowledges that a violation of this Section would constitute
irreparable damage to the disclosing party and that any remedy at law would be
inadequate and thereby consents to the entry of injunctive relief against such
violation.
<PAGE>
(c) The parties acknowledge that the receiving party shall obtain no
rights of any kind in connection with trade secrets revealed to it and
that any additional know-how, process, or improvements based upon the
trade secrets of the disclosing party shall be subject to ownership and
other rights of the disclosing party, except as may be provided in this
Agreement.
(d) Upon the written request of the disclosing party, the receiving
party shall promptly return any and all materials furnished to it
containing trade secrets. Without the express permission of the
disclosing party, the receiving party agrees not to make or authorize the
making of any copies of such information.
SECTION 9. MARKS, ETC....
(a) Truevision grants Avid permission to utilize the appropriate
trademarks, trade names, insignia, symbols, identification and logotypes
and other trade names and trademarks of Truevision ("Marks") in Avid
advertising and promotion of Products provided such use conforms to
Truevision's standards and guidelines, set forth in writing from time to
time, with respect to but not limited to style, appearance and manner of
use of Marks, including Truevision's standards and guidelines concerning
acknowledgment of ownership of the Marks. Avid shall not do business
under any of the Marks or derivative or variation thereof. The Marks may
only be used by Avid to advertise and promote the Products themselves.
(b) Nothing in this Agreement will create in Avid any rights in the
Marks of Truevision.
SECTION 10. TERMINATION.
(a) Either party may terminate this Agreement by immediate written
notice if the other party breaches any provision of this Agreement and
does not remedy such breach within thirty (30) days after written notice
thereof is given provided that no 30 day cure period shall be required if
the same provision shall have been breached more than twice in any 12
month period.
(b) Either party may terminate this Agreement forthwith by written
notice in the event that the other party: (a) intentionally makes (or is
discovered to have made) any material false representations, reports, or
claims in connection with the business relationship of the parties; (b)
engages in (or is discovered to have engaged in) fraud, criminal or
negligent conduct in connection with the business relationship of the
parties; or (c) becomes insolvent, or becomes involved in any liquidation
or termination of business, adjudication as bankrupt, assignment for the
benefit of creditors, invoking of the provisions of any law for the relief
of debtors, or the filing, against a party in any similar proceedings.
(c) Notwithstanding any other terms or provisions of this Agreement or
other arrangements agreed to by the parties, termination of this Agreement
shall automatically accelerate the due date of all royalties due in
respect of Products such that they shall become immediately due and
payable in the case of bankruptcy.
<PAGE>
(d) The occurrence of either of the following and failure by Truevision
to cure the same after thirty (30) days written notice, constitutes a
breach and is cause for termination by Avid at its option of this
Agreement; provided, that such 30 day cure period shall not be required
and Avid may terminate on immediate written notice if the same provision
shall have been breached more than twice in any 12 month period:
(i) Truevision fails to perform any material obligation under
this Agreement or any representation or warranty of
Truevision shall have been found to be false or misleading.
(ii) Truevision becomes insolvent, files a petition in
bankruptcy, or has filed against it a petition in
bankruptcy and such petition has not been dismissed within
sixty (60) days of such filing, makes an assignment for the
benefit of creditors, or is the subject of receivership or
similar proceedings.
(e) The occurrence of any of the following and failure by Avid to cure
the same after thirty (30) days written notice, constitutes a breach and
is cause for termination by Truevision of this Agreement pursuant hereto;
provided, that such 30 day cure period shall not be required and
Truevision may terminate on immediate written notice if the same provision
shall have been breached more than twice in any 12 month period:
(i) Avid fails to perform any material obligation under this
Agreement or any representation of Avid shall have been
found to be false or misleading.
(ii) Avid becomes insolvent, files a petition in bankruptcy, or
has filed against it a petition in bankruptcy and such
petition has not been dismissed within sixty (60) days of
such filing, makes an assignment for the benefit of
creditors, or is the subject of receivership or similar
proceedings.
(iii) Avid fails to make royalty payments as agreed upon and
provided for in this Agreement.
SECTION 11. MISCELLANEOUS PROVISIONS.
(a) Any announcements or similar publicity with respect to this
Agreement or the transactions contemplated herein shall be only at such
time and in such manner and shall consist of such contents as both parties
shall mutually determine.
(b) Truevision and Avid agree that their relationship is not that of
joint ventures, principal and agent, or franchiser and franchisee.
Truevision and Avid are independent contractors acting for their own
accounts and neither is authorized to make any commitment or
representation, express or implied, on the other's behalf unless
authorized in writing.
<PAGE>
(c) The waiver by either party of any breach of this Agreement by the
other party in a particular instance shall not operate as a waiver of
subsequent breaches of the same or a different kind. Either party's
exercise or failure to exercise any rights under this Agreement in a
particular instance shall not operate as a waiver of said party's right to
exercise the same or different rights in subsequent instances.
(d) The paragraph headings contained herein are for convenience only
and are not intended to affect the meaning or interpretation of this
Agreement.
(e) All notices and demands of any kind, that either Truevision or Avid
may be required or desire to serve upon the other party under the terms of
this Agreement, shall be in writing and shall be served by personal
delivery or by U.S. first class mail at the following respective
addresses:
Truevision, Inc. Avid Technology, Inc.
2500 Walsh Avenue Metropolitan Technology Park
Santa Clara, CA 95051 One Park West
Attn: Chief Executive Officer Tewksbury, MA 01876
Attn: Director of Purchasing
with a copy to:
RasterOps
2500 Walsh Avenue
Santa Clara, CA 95051
Attn: General Counsel
Service shall be deemed complete upon such delivery. The above addresses
may be changed at any time by giving written notice.
(f) Neither party shall be responsible for failure to perform hereunder
due to causes beyond its reasonable control, including, but not limited to
government requirements, work stoppages, fires, civil disobedience,
embargo, war, riots, rebellions, earthquakes, strikes, floods, water and
the elements, inability to secure products (despite best efforts to do so),
raw materials, or transport, acts of God and similar occurrences.
Performance shall be resumed as soon as reasonably practicable after the
cessation of such cause.
(g) In case any one or more of the provisions contained herein shall, for
any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, but this Agreement shall be construed as if
such invalid, illegal or unenforceable provisions had never been contained
herein unless the deletion of such provision or provisions would result in
such a material change as to cause completion of the transactions
contemplated herein to be unreasonable.
<PAGE>
(h) This agreement, together with any other documents and exhibits
incorporated herein by reference, constitutes the entire agreement between
the parties hereto pertaining to the subject matter hereof. Any and all
written or oral agreements heretofore existing between parties pertaining
to the subject matter of this Agreement are expressly canceled.
(i) This Agreement may be executed in one or more counterparts, and all
such counterparts will constitute one and the same document.
(j) Truevision and Avid have previously entered into a Development,
Manufacturing And Supply Agreement dated December 7, 1993 as amended for
the manufacture and supply of Products. In the event there is a conflict
between the terms of this Agreement and the Development, Manufacturing And
Supply Agreement dated December 7, 1993, the terms of this Agreement shall
prevail. To the extent that this Agreement has conflicting provisions,
this Agreement shall be deemed a modification in writing between the
parties regarding such provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their
respective officers thereunto duly authorized as of the date first above
written.
TRUEVISION, INC. AVID TECHNOLOGY, INC.
By /s/ Louis J. Doctor By /s/ Dennis E. Ortelli
--------------------------------- ---------------------------------
Name: Louis J. Doctor Name: Dennis E. Ortelli
Title: President and Chief Title: Director of Purchasing
Executive Officer
RasterOps, as the sole owner of Truevision, guarantees the full and prompt
performance of all Truevision's obligations under this Agreement.
RasterOps
By: /s/ Louis J. Doctor
-------------------------
Name: Louis J. Doctor
Title: President and Chief Executive Officer
<PAGE>
SCHEDULE A
% Mark-up End of Ql End OF Q2 End of Q3 End OF Q4
From 1996 1996 1996 1996
Avid's Cost Run Rate Run Rate Run Rate Run Rate
57 $0 $0 $0 $0
56 $290,178 $312,500 $334,821 $357,143
55 $580,357 $625,000 $669,643 $714,285
54 $870,535 $937,500 $1,004,464 $1,071,428
53 $1,160,714 $1,249,999 $1,339,285 $1,428,571
52 $1,450,892 $1,562,499 $1,674,106 $1,785,713
51 $1,741,071 $1,874,999 $2,008,928 $2,142,856
50 $2,031,249 $2,187,499 $2,343,749 $2,499,999
49 $2,321,427 $2,499,999 $2,678,570 $2,857,141
48 $2,611,606 $2,812,499 $3,013,391 $3,214,284
47 $2,901,784 $3,124,998 $3,348,213 $3,571,427
46 $3,191,963 $3,437,498 $3,683,034 $3,928,569
45 $3,482,141 $3,749,998 $4,017,855 $4,285,712
44 $3,772,319 $4,062,498 $4,352,676 $4,642,855
43 $4,062,500 $4,375,000 $4,687,500 $5,000,000
42 $4,468,750 $4,812,500 $5,156,250 $5,500,000
41 $4,875,000 $5,250,000 $5,625,000 $6,000,000
40 $5,281,250 $5,687,500 $6,093,750 $6,500,000
39 $5,687,500 $6,125,000 $6,562,500 $7,000,000
38 $6,093,750 $6,562,500 $7,031,250 $7,500,000
37 $6,500,000 $7,000,000 $7,500,000 $8,000,000
36 $6,906,250 $7,437,500 $7,968,750 $8,500,000
35 $7,312,500 $7,875,000 $8,437,500 $9,000,000
34 $7,718,750 $8,312,500 $8,906,250 $9,500,000
33 $8,125,000 $8,750,000 $9,375,000 $10,000,000
32 $8,395,833 $9,041,667 $9,687,500 $10,333,333
31 $8,666,667 $9,333,333 $10,000,000 $10,666,667
30 $8,937,500 $9,625,000 $10,312,500 $11,000,000
29 $9,208,333 $9,916,667 $10,625,000 $11,333,333
28 $9,479,167 $10,208,333 $10,937,500 $11,666,667
27 $9,750,000 $10,500,000 $11,250,000 $12,000,000
26 $10,020,833 $10,791,667 $11,562,500 $12,333,333
25 $10,291,667 $11,083,333 $11,875,000 $12,666,667
24 $10,562,500 $11,375,000 $12,187,500 $13,000,000
23 $10,833,333 $11,666,667 $12,500,000 $13,333,333
22 $11,736,111 $12,638,889 $13,541,666 $14,444,444
21 $12,638,888 $13,611,110 $14,583,333 $15,555,555
20 $13,541,666 $14,583,332 $15,624,999 $16,666,665
19 $14,444,443 $15,555,554 $16,666,665 $17,777,776
18 $15,347,220 $16,527,776 $17,708,331 $18,888,887
17 $16,249,998 $17,499,998 $18,749,998 $19,999,997
<PAGE>
SCHEDULE A (cont.)
% Mark-up End of Ql End of Q2 End of Q3 End of Q4
From 1997 1997 1997 1997
Avid's Cost Run Rate Run Rate Run Rate Run Rate
57 $0 $0 $0 $0
56 $379,464 $401,786 $424,107 $446,428
55 $758,928 $803,571 $848,214 $892,857
54 $1,138,392 $1,205,357 $1,272,321 $1,339,285
53 $1,517,856 $1,607,142 $1,696,428 $1,785,713
52 $1,897,320 $2,008,928 $2,120,535 $2,232,142
51 $2,276,785 $2,410,713 $2,544,642 $2,678,570
50 $2,656,249 $2,812,499 $2,968,748 $3,124,998
49 $3,035,713 $3,214,284 $3,392,855 $3,571,427
48 $3,415,177 $3,616,070 $3,816,962 $4,017,855
47 $3,794,641 $4,017,855 $4,241,069 $4,464,283
46 $4,174,105 $4,419,641 $4,665,176 $4,910,712
45 $4,553,569 $4,821,426 $5,089,283 $5,357,140
44 $4,933,033 $5,223,212 $5,513,390 $5,803,568
43 $5,312,500 $5,625,000 $5,937,500 $6,250,000
42 $5,843,750 $6,187,500 $6,531,250 $6,875,000
41 $6,375,000 $6,750,000 $7,125,000 $7,500,000
40 $6,906,250 $7,312,500 $7,718,750 $8,125,000
39 $7,437,500 $7,875,000 $8,312,500 $8,750,000
38 $7,968,750 $8,437,500 $8,906,250 $9,375,000
37 $8,500,000 $9,000,000 $9,500,000 $10,000,000
36 $9,031,250 $9,562,500 $10,093,750 $10,625,000
35 $9,562,500 $10,125,000 $10,687,500 $11,250,000
34 $10,093,750 $10,687,500 $11,281,250 $11,875,000
33 $10,625,000 $11,250,000 $11,875,000 $12,500,000
32 $10,979,167 $11,625,000 $12,270,833 $12,916,667
31 $11,333,333 $12,000,000 $12,666,667 $13,333,333
30 $11,687,500 $12,375,000 $13,062,500 $13,750,000
29 $12,041,667 $12,750,000 $13,458,333 $14,166,667
28 $12,395,833 $13,125,000 $13,854,167 $14,583,333
27 $12,750,000 $13,500,000 $14,250,000 $15,000,000
26 $13,104,167 $13,875,000 $14,645,833 $15,416,667
25 $13,458,333 $14,250,000 $15,041,667 $15,833,333
24 $13,812,500 $14,625,000 $15,437,500 $16,250,000
23 $14,166,667 $15,000,000 $15,833,333 $16,666,667
22 $15,347,222 $16,250,000 $17,152,777 $18,055,555
21 $16,527,777 $17,499,999 $18,472,221 $19,444,443
20 $17,708,332 $18,749,999 $19,791,665 $20,833,332
19 $18,888,887 $19,999,998 $21,111,109 $22,222,220
18 $20,069,442 $21,249,998 $22,430,553 $23,611,108
17 $21,249,997 $22,499,997 $23,749,997 $24,999,997
<PAGE>
SCHEDULE A (cont.)
Avid shall pay a royalty on each unit of Product manufactured by Avid in
accordance with this Agreement. The royalty shall be calculated based on a
markup from Avid's Manufacturing Cost. Avid's Manufacturing Cost shall include
direct manufacturing labor, and material costs of Avid or its third party
manufacturer as applicable. In addition, if a third party manufacturer is used,
the reasonable and customary markup of such third party manufacturer as Avid
normally pays such third party shall also be included in Avid's Manufacturing
Cost. Avid warrants that when calculating Avid's Manufacturing Cost when a third
party manufacturer is used, the cost shall reflect Avid's cost of fully
assembled, completed, tested, packed out Products that are fully marked up by
such third party to reflect their overhead, material burden, and profit margin
in an arms length business transaction.
For Products manufactured by or for Avid during calendar year 1995, the Mark Up
percentage shall be fixed at 23%. Thereafter, at the end of each calendar
quarter, Avid's purchases from Truevision (as measured by Truevision's invoicing
of products to Avid or as otherwise calculated under this Agreement) during the
just completed and the prior three calendar quarters shall be aggregated and the
total referenced in the appropriate column from the table above to determine the
Mark Up percentage applicable to that calendar quarter.
The applicable Mark Up percentage multiplied by Avid's Manufacturing Cost for
each Product shall be the per unit royalty payable for the applicable Product
during that quarter. Only one royalty payment per unit of Product shall be due.
<PAGE>
[RasterOps letterhead]
October 26, 1994
Mr. Louis J. Doctor
The Arbor Group, Inc.
2180 Sand Hill Road, Suite 120
Menlo Park, CA 94025
Dear Lou:
On behalf of the RasterOps Board of Directors, I am pleased to
offer you a position with RasterOps (the "Company") as its
President and Chief Executive Officer, effective October 10, 1994.
You will receive a monthly salary of $14,166.67, which will be
paid in accordance with the Company's normal payroll procedures.
As a Company employee, you are also eligible to receive certain
employee benefits, which currently include term life insurance,
health insurance and vacation.
You will also be granted an option to purchase 400,000 shares of
the Company's Common Stock at a price per share equal to the
closing price on October 7, 1994. The option shall vest as
follows: vesting shall commence effective October 1, 1994; 25% of
the shares subject to the option shall vest on January 1, 1995;
and 8,334 shares shall vest each month thereafter, such that all
400,000 shares subject to the option shall be vested in full four
years from the commencement of vesting. The agreement pursuant to
which the option is granted shall include provisions providing for
acceleration of vesting in the event of a change in control.
For purposes of federal immigration law, you will be required to
provide to the Company documentary evidence of your identity and
eligibility for employment in the United States. Such
documentation must be provided to us within three (3) business
days of the date of this letter, or our employment relationship
with you may be terminated.
I have enclosed our standard Proprietary Information Agreement.
If you accept this offer, please return to me a signed copy of
that Agreement.
In the event of any dispute or claim relating to or arising out of
our employment relationship, you and the Company agree that all
such disputes shall be fully and finally resolved by binding
arbitration conducted by the American Arbitration Association in
Santa Clara County, California, However, we agree that this
arbitration provision shall not apply to any disputes or claims
relating to or arising out of the misuse or misappropriation of
the Company's trade secrets or proprietary information.
<PAGE>
Mr. Louis J. Doctor
October 26, 1994
Page Two
You should also be aware that your employment with the Company is
for no specified period and constitutes at will employment. As a
result, you are free to resign at any time, for any reason or for
no reason. Similarly, the Company is free to conclude its
employment relationship with you at any time, with or without
cause.
To indicate your acceptance of the Company's offer, please sign
and date this letter in the space provided below and return it to
me. A duplicate original is enclosed for your records. This
letter, along with the agreement relating to proprietary rights
between you and the Company, set forth the terms of your
employment with the Company and supersede any prior
representations or agreements, whether written or oral. This
letter may not be modified or amended except by a written
agreement, signed by the Company and by you.
We look forward to working with you.
Sincerely,
RASTEROPS
/s/Daniel Thompkins
-------------------
Daniel Tompkins, Jr.
Director
Member, Compensation Committee
ACCEPTED AND AGREE TO this
27 day of October, 1994.
/s/Louis J. Doctor
-------------------
Louis J. Doctor
Enclosures: Duplicate Original Letter
Proprietary Information Agreement
cc: Walter Bregman
Greg Priest, Wilson, Sonsini, Goodrich & Rosati
<PAGE>
SUBSIDIARIES
Truevision, Inc.
RasterOps GMBH
RasterOps Japan, Inc.
RasterOps, B.V.
RasterOps France, SARL
RasterOps, SARL
RasterOps U.K. Ltd.
RasterOps Foreign Sales Coporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-01-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUL-01-1995
<CASH> 10,377
<SECURITIES> 0
<RECEIVABLES> 10,726
<ALLOWANCES> 897
<INVENTORY> 10,613
<CURRENT-ASSETS> 36,370
<PP&E> 14,095
<DEPRECIATION> (11,427)
<TOTAL-ASSETS> 40,726
<CURRENT-LIABILITIES> 22,155
<BONDS> 0
<COMMON> 47,657
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 40,726
<SALES> 66,318
<TOTAL-REVENUES> 66,318
<CGS> 51,623
<TOTAL-COSTS> 82,644
<OTHER-EXPENSES> 3,751
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 238
<INCOME-PRETAX> (20,231)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,231)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,231)
<EPS-PRIMARY> (2.12)
<EPS-DILUTED> (2.12)
</TABLE>
