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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 June 29, 1996 Commission file number 000-18404
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TRUEVISION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 77-0161747
(State of Incorporation) (I.R.S. Employer Identification No.)
2500 WALSH AVENUE, SANTA CLARA, 95051
CALIFORNIA
(Address of principal executive offices) (Zip Code)
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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, $0.001 PAR VALUE
(TITLE OF CLASS)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __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, 1996:
49,579,990
Number of shares of Common Stock outstanding as of September 6, 1996:
12,675,740
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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 the Annual Meeting of Stockholders to be
held on October 24, 1996, referred to herein as the "Proxy Statement," are
incorporated as provided above in Part III.
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PART I
This Annual Report on Form 10-K contains forward-looking statements which
are subject to certain risks and uncertainties. Actual results may differ
materially from those described herein, depending on such factors as are
described herein, including without limitation those described under "Certain
Factors That May Affect The Company's Future Results Of Operations" and
elsewhere in this Form 10-K.
ITEM 1. BUSINESS
Truevision, Inc. ("Truevision" or the "Company") designs, develops,
manufactures and markets professional quality digital video products for Apple-
and IBM-compatible personal computers.
BACKGROUND
The digital video industry is a large and diverse market encompassing such
broad applications as the production of commercials for broadcast on television,
post production of other broadcast video content, animation, corporate videos,
film, medical imaging and many other applications where video needs to be
manipulated and/or edited prior to its final use. Developments over the past
several years have enabled personal computer users in the broadcast, video
production, animation, film, medical and industrial video industries to create,
develop, view and 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 expensive analog equipment that were not economical for many
applications.
STRATEGY
Until recently, digital video production systems have been significantly
slower than analog video production systems, and the picture quality has been
inadequate for many high-end applications. Those digital video production
systems that have been of sufficient speed and quality have been offered by
closed system providers that offer customers a complete turnkey system that is
not easily extensible with third-party hardware and software. The Company
believes that recent improvements in digital video technology is permitting the
introduction of open system products with increased speed and higher picture
quality. Open system solutions are based upon different portions of the complete
system being provided by different vendors. Dealers and sophisticated customers
can integrate various pieces of hardware and software to create a complete
system at a fraction of the cost of those provided by closed system vendors. The
migration from closed turnkey systems to open system configurations is similar
in nature to what occurred in the desktop publishing market in the 1980's. This
migration led to a rapid expansion of that market, as the reduced cost of
hardware and software allowed more users to enter the market for such products.
As the speed and quality of industry standard open system building blocks in the
form of hardware and software for the processing, storage and manipulation of
digital video continue to improve, the Company believes that there is an
emerging market opportunity to transition users of analog video production
systems to digital video systems. Truevision's strategy is to work closely with
third-party software and storage vendors and to take advantage of this emerging
opportunity through the Company's array of open system digital video products to
deliver a wide range of products at various price points to meet the needs of
video editing professionals and consumers.
Due primarily to the pressures that are inherent in the open systems
approach, Truevision anticipates that personal computer users will continue to
demand increasing
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performance and features from their computer peripherals at decreasing costs.
Truevision also expects that the trend to make computers smaller in size will
continue, which will require peripherals to become smaller. Through its in-house
circuit design capabilities, Truevision continues to emphasize the development
of new proprietary high-performance VLSI chips, which reduce on-board space and
power requirements, lower manufacturing costs and create product
differentiation.
Truevision products are driven primarily by Truevision's proprietary
software, portions of which reside as firmware on its circuit boards and
portions of which are provided on floppy disks. Truevision's 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.
Truevision will continue to work closely with other industry leaders to
improve their product offerings to end-user customers. The Company's primary
original equipment manufacturers ("OEMs"), such as Acuson Corporation, Avid
Technology, Inc. ("Avid"), Cognex, Datacard Corporation, Digital Graphix Inc.,
Matsushita Electric Industrial Co. Ltd. -- Video Systems Division
("Matsushita"), Microtime, Inc., Montage Group Ltd., NeTpower Inc., Scitex
Digital Video, Inc. ("Scitex") and Sony Corporation ("Sony"), continue to
incorporate the Company's multimedia and video technology into some of their
products.
PRODUCTS
Truevision's 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.
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The major Truevision products and product lines consist of the following:
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PRODUCT FAMILY PRODUCT DESCRIPTION MARKET SEGMENT SERVED
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TARGA-Registered Trademark-2000 An integrated digital production engine designed to meet the On-air broadcast
TARGA-Registered Trademark-1000 needs of the digital video production industry by providing Post-production video
professional quality capture, playback and non-linear Desktop post-production
editing capabilities with JPEG compression and CD quality Desktop video production
stereo audio. The TARGA 2000 and TARGA 1000 capture and play Animation
back full-motion, full resolution digital video (including
composite, S-Video and component formats) on various
computer bus standards (including PCI, NuBus and EISA). The
RTX version of the TARGA 2000 provides hardware assistance
for the rendering of effects in edited video to allow for
real time application of digital video edits and
transitions.
BRAVADO-Registered Trademark- A low cost, PCI bus, video capture and compression board Event videographer
designed to meet the needs of professionals and consumers Internet video
with limited budgets to capture and edit audio (using a Off line video production
third party audio card) and video at S-Video quality on
Apple-and IBM-compatible personal computers.
TARGA-Registered Trademark-+ An industry standard video capture and playback board that On-air broadcast
provides professional quality video capabilities for Industrial imaging
personal computers. The TARGA+ offers the ability to combine Video/graphics overlay
live video input, graphics and text and to output the result Video image capture
with broadcast quality. Animation
VISTA A programmable, 32-bit/pixel video graphics board for Apple- On-air broadcast
ATVista-Registered Trademark- and IBM- compatible personal computers that can integrate Post-production video
NuVista-Registered Trademark- video with computer graphics or the output of graphics with Animation
videotape. Presentation CAD
Industrial imaging
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In addition to these products, Truevision manufactures and sells a number of
specially designed OEM products for individual applications.
The most recent additions to the Truevision product line, the TARGA 2000 and
TARGA 1000 families, are based on the Company's proprietary DVR-TM-
architecture. The DVR architecture consists of a chipset that provides for (i)
analog video input in various
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video formats, (ii) an analog to digital converter to render the video in
digitized form, (iii) digital video compression, (iv) on-board memory to speed
processing of the video, and (v) a proprietary central hub to control the entire
process and to provide for processing of various operations upon multiple
digital video streams. 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 their systems more economically and easily. In this respect,
the Company has recently developed and continues to develop versions of its
TARGA 2000 board for the PCI bus, that enhances processing speed and quality of
video output.
MARKETING AND SALES
Truevision's products are sold to end users through regional, national, and
international distributors, OEMs, mail order and other authorized resellers, and
value added resellers ("VARs"). Selling prices are generally based on a discount
from the Company's published suggested retail price list and can include from
time to time sales performance incentive funds, and dealer and end user rebates.
Truevision grants limited rights of return based on negotiations with individual
customers, and generally such rights are based on volume purchases. Sales
returns are reserved for at the time of sale based on historical sales returns.
In addition, in the normal course of business, Truevision also will have
warranty returns for product failure. Truevision provides warranties for its
products for periods of 90 days to one year. Warranty returns are reserved for
at the time of sale based on historical warranty returns, which have not been
significant since Truevision's inception. There can be no assurance that the
Company will not experience significant warranty returns in the future, or that
such reserves will be adequate.
Substantially all of Truevision's domestic sales are indirect and not made
directly to the entity that will use the product. The field sales force,
consisting of Company sales office personnel and manufacturers' representative
firms, is responsible for selling Truevision's products to resellers,
distributors and chains, and provides marketing training and technical support.
Truevision generates substantially all of its international sales through a
network of distributors, OEMs and VARs located in Europe, the Pacific Rim and
South America, as well as in other areas of the world. Total international net
sales represented approximately 25.2%, 29.6% and 30.7% of net sales for fiscal
1996, 1995 and 1994, respectively.
Truevision 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."
Truevision's international sales relate to the sale of commodities that are not
required to be licensed by the Office of Export Administration of the U.S.
Department of Commerce, although there can be no assurance that the Company will
not be required to obtain export licenses in the future.
In fiscal 1996 one customer accounted for 35.9% of the Company's net sales.
No other customers accounted for more than 10% of the Company's net sales.
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Truevision's customers (other than OEM customers) generally do not place
scheduled orders in advance 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. Truevision's results of operations may fluctuate from
quarter to quarter due to changes in backlog and to other factors such as
announcements by Truevision, its competitors or the manufacturers of platforms
with which Truevision's products are used. For a more complete discussion, see
"Certain Factors That May Affect the Company's Future Results of Operations --
Significant Volatility in Operating Results."
MANUFACTURING
Truevision's manufacturing operations consist primarily of component
sourcing and testing, kitting, quality assurance, final testing and packaging
(with board assembly and initial testing accomplished by an outside contract
manufacturer). In addition, Truevision has some products manufactured by a
contract manufacturer on a turnkey basis where the contractor is responsible for
the majority of the material sourcing, manufacturing, test and packout, and only
finished goods in final packaging ready for shipment are received by Truevision.
Substantially all of Truevision's parts are procured from outside suppliers. For
the assembly of its products, Truevision relies primarily on one turnkey
manufacturer and two subcontractors who use components purchased, tested and
kitted by Truevision. Truevision has developed a comprehensive quality assurance
program with its subcontractors, and each product undergoes thorough quality
inspection and testing at the final assembly stage.
The vast majority of the components used in Truevision's products are
available from multiple sources. However, as is common in the electronics
industry, Truevision has in the past paid premium prices to obtain certain of
these multiple source 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 Truevision's
products. Some components used in Truevision's products are available only from
sole suppliers, such as certain ASICs that are available only from LSI Logic
Corporation ("LSI"), Zoran Corporation, Applied Micro Circuits Corporation and
Toshiba America Electronic Components, Inc. ("Toshiba"), among others.
Truevision 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 a pace that varies greatly and is hard
to predict, which at times creates supplier capacity shortages. This and other
factors can cause lead times to be lengthened, making it more difficult for
Truevision to meet changes in customer demand or engineering specifications in a
timely manner. Truevision 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 Truevision's business, financial condition and 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."
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TECHNOLOGY AND PRODUCT DEVELOPMENT
In order to maintain its competitive position in existing and emerging
markets, Truevision believes that it must continue to introduce products that
offer high price-performance solutions to its customers. Truevision has
traditionally supported both the Apple- and IBM-compatible personal computer
marketplaces with digital video products. This is expected to continue to be the
case in the coming year and is facilitated by the almost universal adoption of
the PCI expansion bus by both Apple- and IBM-compatible personal computer
vendors. Although many of the hardware differences between the two platforms are
disappearing, there are still important software differences, and Truevision
expects to continue to maintain qualified software engineering staffs for both
Apple- and IBM-compatible personal computer systems.
Truevision 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 Truevision
efforts to develop state-of-the-art imaging solutions. Many of these ASICs serve
as building blocks for multiple products, thereby reducing design time and
enhancing Truevision's ability to develop products faster.
As part of its technology development efforts, Truevision has formed several
OEM partnerships and software development partnerships with industry leaders in
the video production marketplace. Truevision has entered into a funded
development program with Matsushita to develop a version of the TARGA 2000 that
incorporates a compression chipset based on the emerging industry standard DV
and DVC Pro compression standard. In addition, as a part of its open systems
strategy, Truevision has developed relationships with software vendors such
Adobe Systems Incorporated, Avid, D Vision Systems, Inc., in:sync corporation,
Kinetix (the multimedia business unit of Autodesk, Inc.), Macromedia, Inc.,
Scitex, Microsoft Corporation (SoftImage) and others to provide end users with a
vast array of digital video editing and animation software applications to
enhance users' productivity.
Truevision 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 basis. Truevision's 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 1996, 1995 and 1994 were
approximately $7.2 million, $6.8 million and $7.8 million, respectively.
Truevision did not capitalize any software development costs as no significant
costs during those periods were incurred after technology feasibility was
established.
At June 29, 1996, Truevision employed 43 people in research and development.
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COMPETITION
The markets for Truevision products are extremely competitive, and
Truevision expects the competition to continue to increase. Data Translation
Inc., Radius Inc., VideoLogic Inc., Matrox Inc., Miro Computer Products, Digital
Processing Systems, Inc. and Fast Electronics GmbH are its principal
competitors.
Many of Truevision's current and prospective competitors have significantly
greater financial, technical, manufacturing and marketing resources than
Truevision, and may produce additional products competitive with those of
Truevision. There can be no assurance that Truevision could compete effectively
with such products. Truevision 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 Truevision and its competitors, product
performance and price, distribution and customer support. There can be no
assurance that Truevision will be able to compete successfully with respect to
these factors. Moreover, to the extent that competitive pressures require price
reductions more rapidly than Truevision is able to cut its costs, profitability
may be adversely affected. Truevision expects gross margins to continue to be
affected by price pressures in fiscal 1997. 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, Truevision was granted U.S. patent No. 5,229,852 for "Real
Time Video Converter Providing Special Effects." This technology is used in
Truevision video-in-a-window products and incorporates such special effects as
scaling and clipping. On February 22, 1994, Truevision 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, Truevision was granted U.S. patent No.
5,327,243 for "Real Time Video Converter." In addition, Truevision also has two
patent applications pending in the United States and fourteen patent
applications, some of which are based on the same parent application, pending in
various foreign jurisdictions including several European countries, the European
Economic Community, Canada and Japan.
Truevision 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 Truevision's ability to compete may be affected by its ability
to protect its intellectual property, Truevision 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 Truevision 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."
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EMPLOYEES
At June 29, 1996, Truevision had 180 employees, of whom 43 were engaged in
research and development, 55 in manufacturing, and 82 in sales, general and
administration. Truevision's 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. Truevision's
employees are not represented by any collective bargaining organization, and
Truevision has never experienced a work stoppage. Truevision 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."
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS
SUBSTANTIAL RECENT OPERATING LOSSES. From fiscal 1992 to 1993, the
Company's net sales declined by $21.7 million, or 18%; from fiscal 1993 to 1994,
the Company's net sales declined by $20.8 million, or 21%; and from fiscal 1994
to 1995, the Company's net sales declined by $12.9 million or 16%. In addition,
the Company experienced significant operating losses during such periods. There
can be no assurance that net sales will not decline in the future, or that the
Company will not experience significant operating losses in the future. Since
inception and as of June 29, 1996, the Company had an accumulated deficit of
$25.4 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 both as a total amount and in relation to revenue levels, and in
particular, increased relative levels of research and development expenses in
future periods. There can be no assurance that such research and development and
other efforts will result in successful product introductions or enable the
Company to maintain or increase net sales, and there can be no assurance that
the Company will operate profitably.
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 of 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 the Company's
business, financial condition and results of operations for one or more product
cycles.
The volume and timing of orders received during a quarter are difficult to
forecast. Truevision's customers (other than OEM customers) generally do not
place scheduled orders in advance and, as a result, backlog at the beginning of
each quarter represents
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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.
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, release of new products which
introduce manufacturing delays, and the timing of orders received from certain
customers, the Company has in the past recorded a substantial portion of its net
sales 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 net sales in
a given quarter may disproportionately impact the Company's business, financial
condition and results of operations due to an inability to adjust expenses or
inventory during the quarter to match the level of sales for the quarter. Excess
inventory could also result in cash flow difficulties as well as expenses
associated with inventory write-offs.
DEPENDENCE ON AVID AND OTHER KEY CUSTOMERS. 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. In
addition, these key customers could design their own products competitive with
those of the Company. Any cancellation of, or reduction or delay in, orders from
these key customers could have a material adverse effect on the Company's
business, financial condition and results of operations. In fiscal 1996 and
1995, Avid accounted for 35.9% and 15.7%, respectively, of the Company's net
sales. Also, the Company's agreement with Avid provides that Avid has the right
to manufacture certain Truevision products rather than purchasing them from the
Company and Avid will be required to pay related royalties. In the fourth
quarter of fiscal 1996, Avid exercised that right with respect to the current
products of the Company that are used by Avid. Because Avid and the Company
negotiated a fully paid license for Avid to manufacture the current products
used by Avid, which are not the Company's most advanced product offering, the
Company does not expect to receive any further revenues or royalties resulting
from Avid's manufacture and use of such products. This will have a negative
impact on the Company's net sales in future periods.
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 and are subject to
substantial lead times, and other components (particularly certain ASICs) are
also available only from single sources such as LSI and Toshiba. 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
the receipt of 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
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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, financial condition 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, financial
condition 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,
in addition to one contract manufacturer who purchases components, manufactures
products, conducts all testing and delivers fully packaged finished products.
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, and there
can be no assurance that such problems will not recur in the future. The process
of qualifying additional subcontractors is 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
business, financial condition and results of operations until such time as
alternate sources of such services are established and the quality of such
services reaches an acceptable level.
RISKS ASSOCIATED WITH MANUFACTURING OPERATIONS. Truevision products are
primarily complex, board-level products, which require sophisticated
manufacturing technologies and operations. Furthermore, the Company has recently
introduced several new, complex, board-level products. The manufacture of
increasingly complex products places a substantial strain on the Company's
contract manufacturing operations, and the Company has in the past experienced
delays in product shipments 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, financial condition and results of operations.
DISCONTINUANCE OF RASTEROPS GRAPHICS PRODUCTS; INCREASING DEPENDENCE ON
TRUEVISION VIDEO PRODUCTS. In the past, the Company derived a significant
portion of its net sales from sales of the RasterOps color graphics products,
including monitors for the Apple Macintosh computer platform. For fiscal 1994,
1995 and 1996, sales of the RasterOps product line accounted for $46.1 million
(or 58.2%), $21.0 million (or 31.7%), and $0.9 million (or 1.2%), respectively,
of the Company's net sales. In particular, sales of the Company's RasterOps
monitor products contributed $30.4 million, $13.7 million and $0.0 million to
the Company's net sales in fiscal 1994, 1995 and 1996, respectively. This shift
in contribution resulted in part from a reduction in demand for RasterOps
products due primarily to intensified competition, particularly late in the
first quarter of fiscal 1995, and Apple Computer Inc.'s ("Apple") integration of
graphics acceleration features
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into its Macintosh computers. In addition, the RasterOps monitor business was
receiving increased competition with the entry of large competitors such as
Apple and Sony into the market for computer monitors. As a result of the
increased competition and declining profit margins for the RasterOps product
line, the Company decided to eliminate all RasterOps products (including its
monitor products) and to shift its focus from the RasterOps product line to the
Truevision product line. The accumulated charges associated with the Company's
restructuring aggregated $10.1 million in fiscal 1995 and 1994. In light of the
decline in sales of the RasterOps product line, the Company's future operating
results will substantially depend on sales of the Truevision product line. There
can be no assurance that the Company will be successful in maintaining or
increasing sales of the Truevision product line.
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 that applications
requiring development of new video content, if any, will develop or of the rate,
if at all, at which digital, open system, desktop solutions for video authoring
will achieve market acceptance. Additionally, there can be no assurance that
third-party software application developers, which are necessary to implement
the Company's open systems approach, will be successful in developing and
bringing to market applications that will gain market acceptance. If the market
for digital desktop video authoring products were to fail to develop, or were to
develop more slowly than anticipated, the Company's business, financial
condition and results of operations could be materially adversely affected.
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
plans 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 time and 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 business, financial condition and
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.
11
<PAGE>
FUTURE CAPITAL NEEDS UNCERTAIN. The Company's future capital requirements
will depend upon many factors, including the extent and timing of the
introduction 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 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, but may not be sufficient to allow for
unrestricted growth. 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, it is likely that
the Company will seek additional funding during the next twelve months to
finance working capital. There can be no assurance that additional financing
will be available to the Company on acceptable terms, or at all, when required.
Shortages of working capital may cause delays in the Company's ability to timely
obtain adequate supplies of components or subcontracted 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, financial condition and
results of operations. Moreover, if additional financing was not available, the
Company could be required to restrict, reduce, or suspend its operations, seek a
merger partner or sell securities on terms that are highly dilutive or otherwise
disadvantageous to the Company's current stockholders. In this respect, the
Company elected in both the fourth quarter of fiscal 1995 and the first quarter
of fiscal 1996 to raise capital through private placements of equity securities
at prices less than fair market value on the date of the issuance. If adequate
financing sources are insufficient or not available, the Company's business,
financial condition and results of operations could be materially adversely
affected.
The Company 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 borrowing to percentages of accounts receivable and
inventories. The more significant financial covenants of the current line of
credit are quick ratio, tangible net worth, debt to tangible net worth and
profitability covenants. The Company has in the past been in violation of
certain of the covenants, with respect to which waivers had been obtained. Since
the end of June 1995, the Company has not been in violation of any of its
financial 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 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
well established, have substantial name recognition and have greater financial,
technological, production and sales and marketing resources than the Company. In
addition to products currently in production by such competitors, the
12
<PAGE>
Company expects that additional competitive products will be developed and that
new companies will enter its market, 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. The Company's future success substantially
depends on the efforts of certain of its officers and key technical and other
employees. The loss of any one of these officers or employees could have a
material adverse effect on the Company's business, financial condition 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.
SHORT PRODUCT LIFE CYCLES. The market in which the Company operates is
increasingly characterized by frequent new product introductions, which results
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 on a timely basis
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. For example,
to the extent that the Company is unsuccessful in managing product transitions,
its business, financial condition and operating results could be materially
adversely affected.
13
<PAGE>
DEPENDENCE ON SOFTWARE DEVELOPERS. The Company's open system strategy
places greater reliance by the Company on the development efforts of software
developers such as Adobe, Avid, D Vision, in:sync, Kinetix (Autodesk),
Macromedia, Scitex, SoftImage (Microsoft) and others. Other than its ability to
provide development assistance and marketing and other support, the Company has
little or no control of the time of introduction of these developers software
applications or their feature sets. To enable the Company to compete
successfully with providers of complete systems such as Avid, Data Translation
and Scitex, among others, it is imperative that independent software
applications of sufficient quality are available at a competitive price, both of
which are out of the Company's ability to control. The Company believes that
market pressures will force application vendors to offer ever increasing feature
sets and performance at ever decreasing prices; however there can be no
assurance that this would ever happen or that it would happen in a timely enough
manner to avoid having an material adverse impact on the Company's net sales and
results of operations.
RELATIONSHIP WITH SYSTEM SOFTWARE VENDORS. The success of the Company's
open systems, desktop strategy is substantially dependent on its ability to
maintain product compatibility and informal relationships with system software
vendors such as Apple and Microsoft. If the Company's relationship with either
Apple or Microsoft 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 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
14
<PAGE>
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 that 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
with respect to its RasterOps branded products and expects that integration and
incorporation will continue to occur with respect to the functionality provided
by the Truevision 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.
INTERNATIONAL OPERATIONS. For fiscal 1996, 1995 and 1994, international
sales represented 25.2%, 29.6% and 30.7%, respectively, of the Company's net
sales. 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 PRICES. The market price of the Company's Common Stock
has been volatile and trading volumes at times have been relatively low. Factors
such as variations in the Company's net sales, operating results and cash flows,
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 and general economic conditions may adversely
affect the market price of the Company's Common Stock.
15
<PAGE>
ITEM 2. PROPERTY
Truevision's 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
2001 and 1998, respectively. This space is used for product development,
manufacturing, sales, marketing and administration. Truevision leases sales
offices outside the United States in France and the United Kingdom. Truevision
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
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 Truevision 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 Truevision 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 1995, the
parties entered into a memorandum of understanding regarding settlement of both
actions which called for payments totaling $6.6 million, including legal costs,
which was paid in early August 1995. On August 28, 1995, the federal court
approved the settlement agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of fiscal 1996 to a vote
of the Company's security holders.
16
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE CURRENT TITLE AND POSITION
- ---------------------- --- ----------------------------------------------------------
<S> <C> <C>
Louis J. Doctor 38 President and Chief Executive Officer
R. John Curson 53 Senior Vice President, Chief Financial Officer and
Secretary
Carl C. Calabria 37 Senior Vice President, Engineering
Robert J. O'Brien 46 Senior Vice President, Worldwide Sales
William M. Carter 47 Vice President, Operations
Harvey A. Chesler 38 Vice President and Corporate Controller
Rondal J. Moore 38 Vice President and General Counsel
</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 and since May
1994 he was President of the Arbor Group, which offered corporate clients a full
range of strategic services in the technology arena. 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 December
1992 to December 1993. Additionally, Mr. Curson has held positions such as Chief
Financial Officer for Martec Corporation and Chief Financial Officer for Dysan
International. He also held Vice President of Finance positions at 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., which was merged with the Company in August
1992. 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 he was Senior Vice
President, Sales and Marketing for ULSI Systems, Inc. from January 1992 to
December 1994.
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<PAGE>
Additionally, Mr. O'Brien was Vice President of Sales and Marketing for InfoChip
Systems, Inc. from January 1990 to January 1992 and Vice President/General
Manager for Western Digital Corporation from 1985 to 1990. He also held National
Sales Manager positions for Tecmar Corporation, SoftSmith and The GAP Stores.
Mr. William M. Carter has been Vice President, Operations since joining the
Company in April 1995. Prior to joining the Company he founded Photon Machines,
a designer of Video/Graphics computer chips and systems, in June 1991 and served
as Photon's President and Chief Executive Officer from June 1991 to December
1993. Prior to founding Photon, Mr. Carter was a co-founder of Radius Inc., a
manufacturer of large screen monitors and graphics peripherals for Apple- and
IBM-compatible personal computers. Mr. Carter served as Vice President of
Operations from July 1986 to January 1990 and also as Corporate Secretary and a
member of the Board of Directors from September 1988 to January 1990. Mr. Carter
was also a member of the original Apple Macintosh development team from November
1981 to July 1983. He was the chief architect of the original MAC factory as
Head of Production Engineering.
Mr. Harvey A. Chesler has been Vice President and Corporate Controller for
the Company since February 1996. Mr. Chesler had been Corporate Controller since
joining the Company in July 1994. Prior to joining the Company he 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 S & M Marketing, a transportation
company, and as a Supply Officer in the United States Navy.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
COMMON STOCK MARKET PRICE:
<TABLE>
<CAPTION>
QUARTER ENDED 1996 JUNE 29 MARCH 30 DECEMBER 30 SEPTEMBER 30
- -------------------- -------- --------- ------------ -------------
<S> <C> <C> <C> <C>
High................ $ 9 1/2 $ 7 1/2 $ 8 1/8 $ 10
Low................. $ 6 1/8 $ 5 $ 4 15/16 $ 6
<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
</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. As of
September 6, 1996, the Company had approximately 256 stockholders of record. The
price for the common stock as of the close of business on September 6, 1996 was
$5.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
JUNE 29, JULY 1, JUNE 30, JUNE 30, JUNE 30,
YEAR ENDED 1996 1995 1994 1993 1992
- ------------------------------------ --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
OPERATIONS
Net sales........................... $ 71,536 $ 66,318 $ 79,175 $ 100,023 $ 121,699
Restructuring and other costs....... -- $ 3,654 $ 6,694 $ 9,590 --
Litigation settlement expense....... -- $ 3,675 -- -- --
Income (loss) before income taxes... $ 3,736 $ (20,231) $ (20,865) $ (16,730) $ 8,359
Net income (loss)................... $ 3,626 $ (20,231) $ (20,865) $ (12,163) $ 5,157
Net income (loss) per share......... $ 0.27 $ (2.12) $ (2.20) $ (1.49) $ 0.64
Average common shares and
equivalents........................ 13,535 9,565 9,466 8,189 8,115
YEAR END STATUS
Total assets........................ $ 39,928 $ 40,726 $ 44,701 $ 66,704 $ 74,590
Long-term obligations............... $ 151 $ 44 $ 247 $ 747 $ 1,250
Stockholders' equity................ $ 27,103 $ 18,527 $ 30,231 $ 50,193 $ 50,779
Working capital..................... $ 22,419 $ 14,215 $ 23,671 $ 42,487 $ 42,571
Current ratio....................... 2.8 1.6 2.7 3.7 2.9
</TABLE>
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<PAGE>
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 statement of operations as a percentage of net sales for each of
the three fiscal years in the period ended June 29, 1996, and the year-to-year
percentage change in the dollar amounts of certain items in fiscal 1996 and 1995
(in thousands, except per share and ratio data):
<TABLE>
<CAPTION>
JUNE 29, JULY 1, JUNE 30,
PERCENTAGE OF NET SALES 1996 1995 1994
- ---------------------------------------------------------------------- ----------- --------- -----------
<S> <C> <C> <C>
Net sales............................................................. 100.0% 100.0% 100.0%
Cost of sales......................................................... 60.6 77.8 76.2
----- --------- -----
Gross profit.......................................................... 39.4 22.2 23.8
Operating expenses:
Research and development............................................ 10.1 10.3 9.9
Selling, general and administrative................................. 23.4 31.0 31.9
Restructuring and other costs....................................... -- 5.5 8.5
----- --------- -----
Income (loss) from operations......................................... 5.9 (24.6) (26.5)
Litigation, interest and other income (expense), net.................. 0.7 (5.9) 0.1
----- --------- -----
Income before provision for income taxes.............................. 5.2 (30.5) (26.4)
Provision for income taxes............................................ 0.1 -- --
----- --------- -----
Net income (loss)..................................................... 5.1% (30.5)% (26.4)%
----- --------- -----
----- --------- -----
</TABLE>
<TABLE>
<CAPTION>
1996 CHANGE 1995 CHANGE 1994
------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Net Sales................................. $71,536 8% $ 66,318 (16)% $ 79,175
Gross profit.............................. $28,213 92% $ 14,695 (22)% $ 18,882
Operating expenses........................ $24,008 (23)% $ 31,021 (22)% $ 39,825
Net income (loss)......................... $ 3,626 118% $(20,231) 3% $(20,865)
Net income (loss) per share............... $ 0.27 113% $ (2.12) 4% $ (2.20)
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES. Net sales were $71.5 million for fiscal 1996, an increase of
$5.2 million, or 7.9%, from fiscal 1995. International net sales represented
25.2% of net sales for fiscal 1996, compared to 29.6% for fiscal 1995. The
results for fiscal 1996 are comprised of net sales of $70.6 million from the
Truevision product line and $0.9 million from the RasterOps product line. This
compares with $45.3 million (an increase of 55.9% in fiscal 1996 compared with
fiscal 1995) of Truevision revenues and $21.0 million of RasterOps revenues in
fiscal 1995. The product mix change was due to a shift in the Company's product
focus. During the latter part of the first quarter of fiscal 1995 the Company
began to separate 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 consisted of Macintosh and PC
graphics acceleration cards and monitors. At that time, the Company elected to
terminate its entire PC
20
<PAGE>
graphics product line, reduce its dependency upon monitor sales and focus on its
higher-margin Truevision (desktop digital video) product line. During fiscal
1996 the Company exited the monitor and graphics product lines completely.
The following table compares Truevision and RasterOps product line net sales
for fiscal 1996 and 1995 (in millions, except ratio data):
<TABLE>
<CAPTION>
YEAR-YEAR
% % %
PRODUCT LINE 1996 SALES 1995 SALES CHANGE
- ------------------------------------------ ----- ------ ----- ------ -------
<S> <C> <C> <C> <C> <C>
Truevision:
Retail/Distribution..................... $35.3 49.4% $26.2 39.5%
OEM..................................... 35.3 49.4 19.1 28.8
----- ------ ----- ------
70.6 98.8 45.3 68.3 55.9%
----- ------ ----- ------
RasterOps................................. 0.9 1.2 21.0 31.7 (95.7)%
----- ------ ----- ------
Total net sales........................... $71.5 100.0% $66.3 100.0% 7.8%
----- ------ ----- ------
----- ------ ----- ------
</TABLE>
Sales of the Truevision product line to the retail/distribution channel
during fiscal 1996 were $35.3 million, or 49.4% of net sales, compared to $26.2
million, or 39.5%, for fiscal 1995. The increase in the retail business was
attributable primarily to an increase in units sold of the TARGA 2000 product
family.
During fiscal 1995, the Company negotiated a three-year OEM agreement with
Avid, which accounted for 35.9% of net sales for fiscal 1996, compared to 15.7%
for fiscal 1995. The Company's agreement with Avid provides Avid the right to
manufacture certain Truevision products rather than purchasing them from the
Company and Avid will be required to pay related royalties. In the fourth
quarter of fiscal 1996, Avid exercised that right with respect to the current
products of the Company that are used by Avid. Because Avid and the Company
negotiated a fully paid license for Avid to manufacture the current products
used by Avid, which are not the Company's most advanced product offering, the
Company does not expect to receive any further revenues or royalties resulting
from Avid's manufacture and use of such products. This will have a negative
impact on the Company's net sales in future periods. However, the Company
believes it should be able to offset this loss of revenue through growth in
other OEMs and its retail/distribution channel.
Net sales for fiscal 1996 and 1995 included $2.4 million and $0.9 million,
respectively, of revenues from license fees under product license agreements
(including the $1.45 million Avid product license buyout in fiscal 1996
discussed above) and engineering services revenue from a product design and
development agreement.
GROSS PROFIT. The Company had a gross profit of $28.2 million, or 39.4% of
net sales, during fiscal 1996 compared to a gross profit of $14.7 million, or
22.2% of net sales, during fiscal 1995. The Company's gross margins have
improved as the Company shifted its focus to developing, manufacturing and
selling more high-margin desktop video products and at the same time exiting the
low-margin monitor business. The Company also realized cost reductions in its
components costs in fiscal 1996. There can be no assurance that the cost of
components will decrease further or even remain at the current level in the
future or that the Company will be able to improve or maintain its
21
<PAGE>
margins. During the first quarter of fiscal 1995, the Company recorded
additional inventory reserves of $6.0 million (excluding the $1.9 million of
included in restructuring costs) to reduce inventory to its estimated net
realizable value to reflect management's current plans and market expectations.
RESEARCH AND DEVELOPMENT EXPENSES. For fiscal 1996 and 1995, research and
development expenses were approximately 10% of net sales. In the absence of
unusual circumstances or events, the Company expects that research and
development spending as a percentage of net sales will remain relatively
constant through fiscal 1997.
The Company believes that continued investment in research and development
is critical to its future growth and competitive position in its market for
video products and is directly related to timely development of new and enhanced
products. The Company, therefore, may incur 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 Truevision to
maintain or increase sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expense decreased $3.8 million, or 18.4%, to $16.8 million for
fiscal 1996 compared to $20.5 million for fiscal 1995. As a percentage of net
sales, selling, general and administrative expense decreased to 23.4% in fiscal
1996 compared with 31.0% for fiscal 1995. The decrease was primarily due to
expenses in fiscal 1995 related to: (1) increased reserves for bad debts
attributable to two of the Company's foreign distributors; (2) lease
terminations; and (3) legal fees, which did not recur in fiscal 1996. In the
absence of unusual circumstances or events, the Company expects that selling,
general and administrative spending as a percentage of net sales will remain
relatively constant through fiscal 1997.
OTHER INCOME (EXPENSE), NET. Other expense for fiscal 1996 is comprised
primarily of residual expenses associated with the old RasterOps product line.
The majority of these expenses were completed in the fourth quarter of fiscal
1996.
INCOME TAXES. A provision for income taxes of $110,000 was recorded for
fiscal 1996, which represents federal and state alternative minimum taxes. No
provision for income taxes was recorded for fiscal 1995 as the Company incurred
a net operating loss for the year. At June 29, 1996, the Company has a gross
deferred tax asset aggregating $17.5 million relating to the tax benefit for net
operating loss and credit carryovers. Management believes that sufficient
uncertainty exists regarding the reliability of the gross deferred tax asset
that a valuation allowance of $16.0 million was recorded. The ultimate
realization of the net deferred tax asset is dependent upon the Company
generating approximately $3.8 million of future taxable income.
SPECIAL CHARGES -- FISCAL 1995. During the first quarter of fiscal 1995,
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
fiscal 1995 the reserve was utilized, yielding no margin on sales of related
products. No material amounts of this inventory
22
<PAGE>
remained as of June 29, 1996. Due to the discontinuance of these products, in
fiscal 1995 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 the Company's
worldwide operations, including lease termination for offices located in
California, Germany, France, the United Kingdom and Japan, and employee
severance. These lease terminations reduced facilities and amortization expenses
by $267,000 and $317,000 during fiscal 1996 and 1995, respectively.
The reserve for employee severance has been fully utilized. The Company had
completed its restructuring activities and had no remaining restructuring
reserve balance as of June 29, 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES. Net sales were $66.3 million for fiscal 1995, a decrease of
$12.9 million, or 16.3%, compared to net sales of $79.2 million for fiscal 1994.
International net sales represented 29.6% of net sales compared to 30.7% in
fiscal 1994. The decrease in net sales was 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 as discussed above.
The following table compares Truevision and RasterOps product line net sales
by product line for fiscal 1995 and 1994 (in millions, except ratio data):
<TABLE>
<CAPTION>
YEAR-YEAR
PRODUCT LINE 1995 % SALES 1994 % SALES % CHANGE
- ----------------------------------------------- --------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Truevision..................................... $ 45.3 68.3% $ 33.1 41.8% 36.9%
RasterOps...................................... 21.0 31.7 46.1 58.2 (54.4)%
--------- ----- --------- -----
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 on building its OEM
customer base. Sales to OEM's during fiscal 1995 were $19.1 million, or 28.8% of
net sales, compared to $12.7 million, or 16.0% of net sales, for fiscal 1994.
During fiscal 1995, the Company negotiated a three-year agreement with Avid,
which accounted for 15.7% of the Company's net sales for fiscal 1995.
GROSS PROFIT. The Company had a gross profit of $14.7 million, or 22.2% of
net sales, during fiscal 1995 compared to a gross profit of $18.9 million, or
23.8% of net sales, during fiscal 1994. 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 inventory of its Macintosh graphics
acceleration and monitor products to its net realizable value as the Company was
experiencing a significant reduction in customer demand for these products. The
Company believes the demand reduction in
23
<PAGE>
graphics products was due primarily to intensified competition, particularly
late in the first quarter, and Apple'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 improved steadily 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 fiscal 1995 and 1994, research and
development expenses were approximately 10% of net sales. Spending decreased
$1.0 million compared to 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 third quarter of fiscal 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percent of net sales,
selling, general and administrative expenses were 31.0% and 31.9% in fiscal 1995
and 1994, respectively. The decrease of $4.8 million in fiscal 1995 compared to
fiscal 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 provision for income taxes was recorded for fiscal 1995
and 1994 as the Company incurred net operating losses for each of those years.
As of July 1, 1995, the Company no longer had 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 a amount relative to its current year's pretax loss.
SPECIAL CHARGES -- FISCAL 1995. Late in the first quarter of fiscal 1995,
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 was as follows:
a) reserve of $1.9 million to reduce the related inventory to net
realizable value, and during fiscal 1995 the reserve was utilized,
yielding no margin on sales of related products. No material amounts of
this inventory remained as of June 29, 1996;
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, Germany,
24
<PAGE>
France, the United Kingdom and Japan and employee severance. These lease
terminations reduced facilities and amortization expenses by $267,000
and $317,000 during fiscal 1996 and 1995, respectively; and
d) $155,000 of other costs.
The Company had completed its restructuring activities and has no remaining
restructuring reserve balance as of June 29, 1996.
As part of the $6.6 million settlement agreement, which was approved by the
federal court on August 28, 1995 of the Company's class action lawsuit, the
Company recorded litigation expense of $3.7 million in fiscal 1995, which is net
of proceeds received after July 1, 1995 from the Company's Director's and
Officer's liability insurance carrier.
SPECIAL CHARGES -- FISCAL 1994. During the first quarter of fiscal 1994,
the Company recorded a charge for restructuring and litigation of $6.5 million
utilizing $4.9 million during fiscal 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 the first quarter of fiscal 1994, 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. No material amounts
of this inventory remained as of June 29, 1996;
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
1995 and 1994 by $156,000 and $254,000, respectively;
c) severance and related costs associated with the integration of 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. Subsequent to the first quarter of fiscal 1994, the Company
incurred additional legal costs of $234,000 related to its class action
lawsuit.
LIQUIDITY AND CAPITAL RESOURCES
At June 29, 1996, the Company had cash and cash equivalents of $6.1 million,
a decrease of $4.3 million from the $10.4 million at July 1, 1995. Working
capital increased to $22.4 million at June 29, 1996 from $14.2 million at July
1, 1995. During fiscal 1996, net cash used in operating activities was $8.9
million, compared to $7.1 million during fiscal 1995. The increase in cash used
in operating activities was due primarily to the Company's settlement payment of
$3.6 million made in August 1995 related to the stockholder class action
lawsuit, and an increase of accounts receivable due to increased net sales and
timing of sales in the latter part of the fourth quarter of fiscal 1996.
25
<PAGE>
The Company spent approximately $1.7 million and $0.6 million for new
equipment during fiscal 1996 and 1995, respectively. Additionally, the Company
acquired new equipment under capital leases totaling $0.6 million in fiscal
1996. At June 29, 1996, the Company had no material commitments for the purchase
of capital equipment.
Substantially all of the Company's sales are made directly to regional,
national, and international distributors, OEMs, mail order and other authorized
resellers, and VARs. While the Company 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.
The Company satisfied its operating cash requirements for fiscal 1996
primarily from its beginning balance of $10.4 million in cash and cash
equivalents, funds generated from the issuance of 650,000 shares of the
Company's Common Stock in August 1995, and proceeds from sale under employee
stock purchase plan and stock options exercised. For fiscal 1995, the Company's
cash requirements were satisfied primarily from its beginning balance of $8.3
million, funds generated from the issuance of 2,000,000 shares of the Company's
Common Stock in June 1995 and borrowings of $1.7 million on its line of credit.
The Company has a bank line of credit agreement allowing it to borrow up to $7
million based upon percentages of eligible accounts receivable. As of June 29,
1996, the Company had borrowings of $3.4 million under the bank line of credit
and a guarantee of payment to a certain supplier through issuance of a letter of
credit totaling $1.3 million.
The Company believes that its current cash and cash generated from
operations together with its existing credit facilities will be sufficient to
meet the Company's cash requirements for at least the next twelve months at its
current level of operations, but may not be sufficient to allow for unrestricted
growth.
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 in the equity ownership of the
Company's stockholders.
IMPACT OF CURRENCY AND INFLATION
The Company purchases materials and services in U.S. dollars and sales are
primarily in U.S. dollars. Accordingly, the Company has not been subject to
significant currency fluctuations. There can be no assurance that this trend
will continue in the future. The impact of inflation has not been material on
the Company's operations or liquidity to date.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants................................................. 28
Consolidated Balance Sheets -- June 29, 1996 and July 1, 1995..................... 29
Consolidated Statements of Operations -- Three years ended
June 29, 1996.................................................................... 30
Consolidated Statements of Stockholders' Equity -- Three years ended June 29,
1996............................................................................. 31
Consolidated Statements of Cash Flows -- Three years ended June 29, 1996.......... 32
Notes to Consolidated Financial Statements........................................ 33
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES The following financial statement schedule of
Truevision for the three years ended June 29, 1996 is filed as part of this
Annual Report on Form 10-K and should be read in conjunction with the
Consolidated Financial Statements of Truevision.
<TABLE>
<CAPTION>
SCHEDULE PAGE
- ---------------------------------------------------------------------------------- -----
<S> <C>
II -- Valuation and Qualifying Accounts........................................... 51
</TABLE>
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.
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Truevision, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Truevision, Inc. and its subsidiaries at June 29, 1996 and July 1,
1995, and the results of their operations and their cash flows for each of the
three years in the period ended June 29, 1996, 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
July 30, 1996
28
<PAGE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 6,101 $ 10,377
Accounts receivable, less allowance for doubtful accounts of $598 and
$897................................................................... 17,413 10,726
Inventory (Note 2)...................................................... 9,627 10,613
Prepaid expenses and other assets (Note 8).............................. 1,662 4,295
Deferred income taxes (Note 6).......................................... 60 60
Income taxes receivable................................................. 230 299
---------- ----------
Total current assets.................................................. 35,093 36,370
Property and equipment, net (Note 3).................................... 3,131 2,668
Other assets............................................................ 251 235
Deferred income taxes (Note 6).......................................... 1,453 1,453
---------- ----------
Total assets.......................................................... $ 39,928 $ 40,726
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (Note 5)................................................. $ 3,437 $ 1,684
Accounts payable........................................................ 6,288 9,156
Accrued employee compensation........................................... 541 678
Accrued litigation settlement (Note 8).................................. -- 6,600
Other accrued liabilities............................................... 2,165 3,837
Current portion of long-term obligations (Notes 4 and 11)............... 243 200
---------- ----------
Total current liabilities............................................. 12,674 22,155
Long-term obligations (Note 11)........................................... 151 44
---------- ----------
Total liabilities..................................................... 12,825 22,199
---------- ----------
Commitments and contingencies (Note 11)
Stockholders' equity (Note 7):
Preferred Stock, no par value: 2,000,000 shares authorized; none issued
or outstanding......................................................... -- --
Common Stock, $0.001 par value: 25,000,000 shares authorized; 12,629,000
and 11,587,000 shares issued and outstanding........................... 52,680 47,657
Accumulated deficit..................................................... (25,352) (28,978)
Cumulative translation adjustment....................................... (225) (152)
---------- ----------
Total stockholders' equity................................................ 27,103 18,527
---------- ----------
Total liabilities and stockholders' equity............................ $ 39,928 $ 40,726
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
29
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------
JUNE 29, JULY 1, JUNE 30,
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Net sales..................................................... $ 71,536 $ 66,318 $ 79,175
Cost of sales................................................. 43,323 51,623 60,293
--------- ---------- ----------
Gross profit.................................................. 28,213 14,695 18,882
--------- ---------- ----------
Operating expenses:
Research and development.................................... 7,247 6,831 7,844
Selling, general and administrative......................... 16,761 20,536 25,287
Restructuring and other costs............................... -- 3,654 6,694
--------- ---------- ----------
Total operating expenses.................................... 24,008 31,021 39,825
--------- ---------- ----------
Income (loss) from operations................................. 4,205 (16,326) (20,943)
Other income (expense), net................................... (324) (76) (41)
Interest income............................................... 84 84 255
Interest expense.............................................. (229) (238) (136)
Litigation settlement expense (Note 10)....................... -- (3,675) --
--------- ---------- ----------
Income (loss) before provision for income taxes............... 3,736 (20,231) (20,865)
Provision for income taxes (Note 7)........................... 110 -- --
--------- ---------- ----------
Net income (loss)............................................. $ 3,626 $ (20,231) $ (20,865)
--------- ---------- ----------
--------- ---------- ----------
Net income (loss) per share................................... $ 0.27 $ (2.12) $ (2.20)
--------- ---------- ----------
--------- ---------- ----------
Weighted average common shares and equivalents................ 13,535 9,565 9,466
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
30
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED JUNE 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
-------------------- ACCUMULATED TRANSLATION
SHARES AMOUNT DEFICIT ADJUSTMENT TOTAL
--------- --------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
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
Issuance of Common Stock to
investors, net...................... 650 3,504 -- -- 3,504
Exercise of Common Stock incentive
options............................. 329 1,283 -- -- 1,283
Issuance of Common Stock in
connection with Employee Stock
Purchase Plan....................... 63 236 -- -- 236
Currency translation adjustment...... -- -- -- (73) (73)
Net income........................... -- -- 3,626 -- 3,626
--------- --------- ------------ ----------- ----------
BALANCES AT JUNE 29, 1996............ 12,629 $ 52,680 $ (25,352) $ (225) $ 27,103
--------- --------- ------------ ----------- ----------
--------- --------- ------------ ----------- ----------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
31
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------
JUNE 29, JULY 1, JUNE 30,
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
OPERATING CASH FLOWS:
Net income (loss)............................................... $ 3,626 $ (20,231) $ (20,865)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Provision for doubtful accounts............................... 402 428 539
Depreciation and amortization................................. 1,755 2,598 3,328
Loss on disposal of fixed assets.............................. 108 173 506
Deferred income taxes......................................... -- 480 1,273
Other......................................................... (73) 129 264
Changes in assets and liabilities:
Accounts receivable......................................... (7,089) (132) 5,945
Inventory................................................... 555 5,718 6,832
Prepaid expenses and other assets........................... 2,633 (3,196) 370
Income taxes receivable..................................... 69 349 2,099
Accounts payable............................................ (2,868) (1,173) (717)
Accrued employee compensation............................... (137) (345) (366)
Accrued litigation settlement............................... (6,600) 6,600 --
Other accrued liabilities................................... (1,671) 1,087 478
Accrued restructuring....................................... -- 384 (938)
--------- ---------- ----------
Net cash used in operating activities........................... (8,859) (7,131) (1,252)
--------- ---------- ----------
INVESTING CASH FLOWS:
Acquisitions of property and equipment.......................... (1,268) (564) (1,237)
Acquisitions of other assets.................................... (30) (44) (7)
--------- ---------- ----------
Net cash used in investing activities........................... (1,729) (608) (1,244)
--------- ---------- ----------
FINANCING CASH FLOWS:
Proceeds from line of credit, net............................... 1,753 1,684 --
Repayment of debt obligations................................... (464) (508) (498)
Issuance of Common Stock, net................................... 5,023 8,686 662
--------- ---------- ----------
Net cash provided by financing activities....................... 6,312 9,862 164
--------- ---------- ----------
Net increase (decrease) in cash and cash equivalents............ (4,276) 2,123 (2,332)
Cash and cash equivalents, beginning of year.................... 10,377 8,254 10,586
--------- ---------- ----------
Cash and cash equivalents, end of year.......................... $ 6,101 $ 10,377 $ 8,254
--------- ---------- ----------
--------- ---------- ----------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year:
Interest...................................................... $ 229 $ 238 $ 136
Income taxes.................................................. $ 17 $ 36 $ 95
Noncash investing and financing activities:
Property and equipment acquired under capital leases.......... $ 613 $ -- $ --
Property and equipment transferred from inventory............. $ 431 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS. Truevision designs, develops, manufactures and markets
professional quality digital video products for Apple- and IBM-compatible
personal computers.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION. The consolidated
financial statements of the Company include the financial statements of
Truevision and its wholly-owned subsidiaries, after elimination of intercompany
accounts and transactions. During fiscal 1995, the Company changed to a fiscal
calendar and its reporting year ends on the Saturday closest to June 30.
The Company's preparation of these consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reported periods. The most significant estimates included in these
consolidated financial statements include accounts receivable and sales returns
allowances, inventory valuation and income tax valuation allowances. Actual
results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
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.
REVENUE RECOGNITION. Revenue from product sales is recognized upon
shipment, provided no significant obligations remain and collectibility is
probable. The Company grants limited rights of return based on negotiations with
individual customers, and generally such rights are based on volume purchases.
Reserves for sales returns and warranty obligations are based on historical
information and other related factors, and are provided for at the time revenue
is recognized. Revenues from license fees under product license agreements is
recognized when earned. Revenue from nonrecurring engineering services is
recognized using the percentage of completion method based on costs
incurred-to-date as a percentage to the total estimated cost-at-completion.
RESEARCH AND DEVELOPMENT EXPENSES. The Company charges research and
development expenditures to operations as incurred. Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed," requires capitalization of certain
software development costs after technological feasibility has been established.
Based upon the Company's product
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
development process, technological feasibility of software is established upon
the completion of beta testing. Development costs incurred by the Company
following completion of beta testing and prior to commercial release have been
insignificant, and to date all software development costs have been expensed as
incurred.
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 June 29, 1996 and July 1, 1995, 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 $12,618,000, $3,029,000
and $1,766,000, 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.
NOTE 2. INVENTORY
A summary of inventory follows (in thousands):
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
---------- ---------
<S> <C> <C>
Purchased parts and subassemblies..................... $ 4,194 $ 6,812
Work-in-progress...................................... 1,237 2,153
Finished goods........................................ 4,196 1,648
---------- ---------
Total............................................. $ 9,627 $ 10,613
---------- ---------
---------- ---------
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
---------- ----------
<S> <C> <C>
Computer equipment and machinery...................... $ 12,758 $ 12,785
Furniture and fixtures................................ 819 879
Leasehold improvements................................ 105 431
---------- ----------
Subtotal.............................................. 13,682 14,095
Less: accumulated depreciation........................ (10,551) (11,427)
---------- ----------
Total............................................. $ 3,131 $ 2,668
---------- ----------
---------- ----------
</TABLE>
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. CURRENT PORTION OF LONG-TERM OBLIGATIONS
At June 29, 1996, the Company had three unsecured notes payable in the
aggregate amount of $44,000. The notes are payable in quarterly installments
ranging from $4,500 to $23,000, plus interest at 9%, through September 1996.
NOTE 5. LINE OF CREDIT
Under the terms of a revolving credit agreement with a bank (the "Credit
Agreement") which expires September 30, 1997, the Company may borrow up to 75%
of eligible accounts receivable plus the lesser of 20% of the value of eligible
inventory or $1,500,000, subject to a maximum of $7,000,000. The Credit
Agreement provides for interest based on the bank's prime rate plus 1.375% (or
prime rate plus 2% on all inventory loans). The more significant financial
covenants of the Credit Agreement are quick ratio, tangible net worth, debt to
tangible net worth and profitability covenants. Borrowings under the Credit
Agreement are collateralized by the Company's assets. As of June 29, 1996, the
Company was in compliance with its bank covenants and had $3,437,000 outstanding
and $2,263,000 available under the Credit Agreement. The amount available under
the Credit Agreement at June 29, 1996 has been reduced by a letter of credit
totaling $1,300,000 issued as a guarantee of payment to a certain supplier.
NOTE 6. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 29, JULY 1, JUNE 30,
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Current tax expense:
Federal...................................................... $ 80 $ (209) $ (1,225)
State........................................................ 30 -- (80)
Foreign...................................................... -- 19 32
---------- ---------- ---------
Subtotal................................................... 110 (190) (1,273)
---------- ---------- ---------
Deferred tax expense:
Federal...................................................... -- 190 1,121
State........................................................ -- -- 152
---------- ---------- ---------
Subtotal................................................... -- 190 1,273
---------- ---------- ---------
Total.................................................. $ 110 $ -- $ --
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. INCOME TAXES (CONTINUED)
Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 29, JULY 1, JUNE 30,
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Reserves and nondeductible expenses........................... $ 1,800 $ 1,873 $ 2,882
Credit carryovers............................................. 1,468 1,468 1,268
Net operating loss carryovers................................. 14,200 15,602 6,566
---------- ---------- ---------
Gross deferred tax assets................................... 17,468 18,943 10,716
---------- ---------- ---------
Valuation allowance........................................... (15,955) (17,430) (8,723)
---------- ---------- ---------
Total net deferred tax assets............................. $ 1,513 $ 1,513 $ 1,993
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
Management believes that sufficient uncertainty exists regarding the
realizability of the gross deferred tax asset that a valuation allowance of
$15,955,000 was recorded and is allocated pro rata to federal and state current
and noncurrent deferred tax assets. The ultimate realization of the net deferred
tax asset is dependent upon the Company generating approximately $3,800,000 of
future taxable income, which management believes is attainable.
The Company has approximately $36,000,000 of net operating loss and credit
carryovers that expire beginning in 2000. Net operating losses may be limited
due to changes in ownership under Section 382 of the Internal Revenue Code of
1986, as amended.
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>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate............................................. 34.0% (34.0)% (34.0)%
State income taxes, net of federal tax benefit..................... 6.1 (6.1) (3.9)
Increase/(decrease) in valuation allowance......................... (37.2) 41.6 41.8
Other, net......................................................... -- (1.5) (3.9)
--------- --------- ---------
Total.......................................................... 2.9% 0% 0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 7. STOCKHOLDERS' 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. The warrants
expire on June 19, 1998. Additionally, on August 8, 1995 the
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
Company issued an additional 650,000 shares of its Common Stock in a private
placement to investors for $6.26 per share; the net proceeds from the sale were
$3.5 million. The proceeds were used primarily to fund the settlement of the
Company's stockholder class action lawsuit.
In October 1994, the Company issued a warrant to 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 6,666.67 per month
thereafter. The purchase price of each share issuable upon exercise of the
warrant is $2.75 and, as of June 29, 1996, a total of 213,333 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. The warrant expired on June 7, 1996.
AMENDED 1988 INCENTIVE STOCK PLAN. The Company's Amended 1988 Incentive
Stock Plan (the "Option Plan") was approved by the Board of Directors and
ratified by the stockholders in 1988. Under the Option Plan, shares of Common
Stock have been reserved for issuance to employees and consultants of the
Company, as approved by the Board of Directors. Amendments increasing the number
of shares reserved for issuance under the Option Plan were adopted by the Board
of Directors and ratified by the stockholders in each year thereafter for an
aggregate of 3,041,300 shares reserved for issuance under the Option Plan. 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 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 June 29,
1996, options for a total of 413,853 shares were exercisable under the Option
Plan.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
AMENDED AND RESTATED 1991 DIRECTOR OPTION PLAN. The Company's Amended and
Restated 1991 Director Option Plan (the "Plan") was adopted by the Board of
Directors in July 1991 and was subsequently amended by the Board in October
1991. The Plan 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
were originally reserved for issuance under the Plan. An amendment increasing
the number of shares reserved for issuance under the Plan by an additional
100,000 shares, for an aggregate of 250,000 shares was approved by the Board in
September 1995 and ratified by the stockholders in October 1995. Under the terms
of the Plan, (i) non-employee directors who were members of the Board on July
25, 1991 received an option on such date to purchase 10,000 shares of Common
Stock, which options were to become exercisable at the rate of 25% per year for
four years following July 1, 1991, (ii) each non-employee director who becomes a
member of the Board after July 25, 1991, will receive an option on the date that
such director first becomes a member of the Board to purchase 10,000 shares of
Common Stock, which option shall become exercisable at the rate of 25% per year
for four years following the date of grant and (iii) each non-employee director
who is a member of the Board immediately before the Company's Annual Meeting and
remains a member of the Board immediately after such Annual Meeting, shall
receive on the date of the Annual Meeting, for so long as such non-employee
director remains a member of the Board, an additional option to purchase 2,500
shares of Common Stock subject to 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 June 29, 1996, options to purchase 102,000
shares of Common Stock are outstanding under the Plan, 37,500 of which are
exercisable.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
The activity under the option plans, combined, was as follows:
<TABLE>
<CAPTION>
STOCKS
AVAILABLE STOCK OPTIONS EXERCISE PRICE
FOR GRANT OUTSTANDING PER SHARE
------------ ------------- ---------------
<S> <C> <C> <C>
BALANCES AT JUNE 30, 1993........................... 314,901 1,196,997
Increase in number of shares authorized............. 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
Increase in number of shares authorized............. 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) $ 2.25-$11.25
------------ -------------
BALANCES AT JULY 1, 1995............................ 474,518 1,749,471
Increase in number of shares authorized............. 615,000 --
Options granted..................................... (1,039,250) 1,039,250 $ 4.12-$ 9.25
Options exercised................................... -- (329,706) $ 1.87-$ 7.75
Options canceled.................................... 236,654 (236,654) $ 2.75-$11.25
------------ -------------
BALANCES AT JUNE 29, 1996........................... 286,922 2,222,361
------------ -------------
------------ -------------
SHARES EXERCISABLE AT JUNE 29, 1996................. 451,353
-------------
-------------
</TABLE>
1990 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 stock on the offering date or, if lower, 85% of the fair market value of
the stock on the semi-annual exercise date. A maximum of 500,000 shares are
authorized for subscription over a 20 year period. During years 1996 and 1995,
there were 63,028 and 64,991 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 8. STOCKHOLDER 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 stockholder 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
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCKHOLDER LITIGATION SETTLEMENT (CONTINUED)
settlement of $6,600,000, including legal costs, was accrued as a liability. In
early August 1995, the Company made a payment totaling $3,600,000, 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, liquidating the July 1, 1995
stockholder litigation settlement accrual. On August 28, 1995, the federal court
approved the settlement agreement.
NOTE 9. 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 its net realizable value, and during the year ended July 1, 1995
the reserve was utilized, yielding no margin on sales of related products. No
material amounts of this inventory remained as of June 29, 1996. Due to the
discontinuance of these products, in fiscal 1995 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, Germany, France, the United Kingdom and Japan
and employee severance. These lease terminations reduced facilities and
amortization expenses by $267,000 and $317,000 during fiscal 1996 and 1995,
respectively. The reserve for employee severance has been fully utilized. The
Company has completed its restructuring activities and has no remaining reserve
as of June 29, 1996.
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. No material amounts
of this inventory remained as of June 29, 1996. 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 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.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. 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
SEVERANCE DISCONTINUANCE ASSETS TERMINATIONS COSTS OTHER TOTALS
--------- -------------- ---------- ------------ ---------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 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 at 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 at 7/01/95.................... 8 185 -- 376 -- -- 569
Payments/other........................ (8) (185) -- (376) -- -- (569)
--------- ------- ---------- ------ ---------- ----- -------
Balance at 6/29/96.................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
--------- ------- ---------- ------ ---------- ----- -------
--------- ------- ---------- ------ ---------- ----- -------
</TABLE>
NOTE 10. INDUSTRY, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in one industry segment, which is computer peripherals.
The Company has no significant foreign assets or liabilities. Export sales by
geographic area, as a percentage of net sales, for the years ended June 29,
1996, July 1, 1995 and June 30, 1994 consisted of the following:
<TABLE>
<CAPTION>
JUNE 29, JUNE 30,
1996 JULY 1, 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Europe................................. 15.5% 20.9% 18.3%
Asia/Pacific........................... 8.8 7.7 8.2
Other.................................. 0.9 1.0 4.2
--- --- ---
Total................................ 25.2% 29.6% 30.7%
--- --- ---
--- --- ---
</TABLE>
During fiscal 1995, the Company entered into a three-year OEM 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. In the event that the customer fails to meet its obligations to purchase
product pursuant to the agreement, the Company's obligations under the agreement
would remain in effect but the amount of the manufacturing royalty would
increase based upon a schedule set forth in the agreement. The customer also,
under certain circumstances, has the right to manufacture certain of the
Company's products rather than purchase them from the Company and the customer
will be required to pay related royalties. In the fourth quarter of fiscal 1996,
the customer exercised that right with respect to current
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. INDUSTRY, GEOGRAPHIC AND CUSTOMER INFORMATION (CONTINUED)
products of the Company that are used by the customer. Because the customer and
the Company negotiated a fully paid license in the amount of $1.45 million for
the customer to manufacture the current products used by the customer, which are
not the Company's most advanced product offering, the Company does not expect to
receive any further revenues or royalties resulting from the customer's
manufacture and use of such products. This customer accounted for 35.9% and
15.7% of the Company's net sales during fiscal 1996 and 1995, respectively. No
other customers accounted for more than 10% of the Company's net sales in fiscal
1996 and 1995, and no customer accounted for more than 10% of net sales in
fiscal 1994. During the quarter ended June 29, 1996, the Company's net sales
included revenue of $957,000 from a 14.4% stockholder of the Company.
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company occupies its present principal facilities under non-cancelable
leases expiring in June 1998 and March 2001. The Company is required to pay
taxes, insurance and maintenance expenses for these facilities. 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 June 29, 1996, July 1, 1995 and June 30, 1994 was $1,070,000,
$1,132,000 and $1,797,000, respectively.
Future minimum lease payments at June 29, 1996 under non-cancelable lease
obligations are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR ENDING LEASES LEASES
- -------------------------------------- ------- ---------
<S> <C> <C>
1997.................................. $207 $1,247
1998.................................. 66 1,223
1999.................................. 42 660
2000.................................. 30 660
2001.................................. 14 496
Years thereafter...................... -- --
------- ---------
Total minimum lease payments.......... 359 $4,286
---------
---------
Less: amount representing interest.... 9
-------
Present value of net minimum lease
payments............................. 350
Less: current portion of capital lease
obligations.......................... 199
-------
-------
Capital lease obligations......... $151
-------
-------
</TABLE>
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Capital leases are for manufacturing and office equipment. Capital lease
property included in property, plant and equipment is as follows:
<TABLE>
<CAPTION>
JUNE 29,
1996
--------
<S> <C>
Computer equipment and machinery...... $613
Less: accumulated depreciation........ (68)
--------
Total............................. $545
--------
--------
</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.
43
<PAGE>
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
JUNE 29 MARCH 30 DECEMBER 30 SEPTEMBER 30
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
FISCAL 1996
Net sales...................................... $ 17,493 $ 18,825 $ 18,174 $ 17,044
Gross profit................................... $ 7,611 $ 7,401 $ 6,994 $ 6,207
Income from operations......................... $ 1,459 $ 1,267 $ 1,049 $ 430
Net income..................................... $ 1,349 $ 1,054 $ 852 $ 371
Net income per share........................... $ 0.10 $ 0.08 $ 0.06 $ 0.03
<CAPTION>
JULY 1 APRIL 1 DECEMBER 31 SEPTEMBER 30
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
FISCAL 1995
Net sales...................................... $ 16,284 $ 16,012 $ 17,742 $ 16,280
Gross profit (loss)............................ $ 5,875 $ 5,533 $ 5,785 $ (2,498)
Restructuring, litigation and other costs...... -- $ (3,675) -- $ (3,654)
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)
</TABLE>
During the quarter ended June 29, 1996, the Company's net sales included
revenue of approximately $1.9 million from license fees under product license
agreements (including $1.45 million for the Avid product license buyout) and
engineering services revenue from a product design and design development
agreement.
During the quarter ended September 30, 1994, the Company recorded as a cost
of sales write-down for obsolete and excess inventory of approximately $6.0
million.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
44
<PAGE>
PART III
Certain information required by Part III is omitted from this Annual Report
on Form 10-K in that the registrant will file a definitive proxy statement
pursuant to Regulation 14A with respect to the 1996 Annual Meeting of
Stockholders (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 Annual Report on Form 10-K,
the Company's Proxy Statement is not deemed as filed as part of this report.
45
<PAGE>
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
On August 6, 1996, the registrant filed a report on Form 8-K/A for the
Product Design and Development Agreement dated March 28, 1996 between the
Company and Matsushita Electric Industrial Co. Ltd./Video Systems Division.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan Merger between RasterOps Corporation and Truevision (1)
3.1 Certificate of Incorporation in the State of Delaware (1)
3.2 Bylaws (1)
4.1 See Exhibit 3.1
4.2 Modification Agreement dated October 27, 1988, as amended March 12, 1990 (3)
10.1 Amended 1988 Incentive Stock Plan
10.2 Form of Incentive Stock Option Agreement (4)
10.3 Form of Incentive Stock Option Agreement (provides for payment by promissory note) (4)
10.4 Form of Nonstatutory Stock Option Agreement (4)
10.5 Form of Nonstatutory Stock Option Agreement (provides for payment by promissory note) (4)
10.6 Form of Stock Purchase Agreement (4)
10.7 Form of Stock Purchase Agreement (provides for payment by promissory note) (4)
10.8 Form of Stock Bonus Agreement
10.9 1990 Employee Stock Purchase Plan (4)
10.10 Form of 1990 Employee Stock Purchase Plan Subscription Agreement (4)
10.11 Amended and Restated 1991 Director Option Plan
10.12 Form of Director Option Agreement (5)
10.13 Lease Agreement for the Company's executive offices in Santa Clara, California dated
February 1989, as amended May 1989 (3)
10.14 Second Amendment to the Lease Agreement for the Company's executive offices in Santa
Clara, California dated January 1996
10.15 Lease Agreements for the Company's executive offices in Indianapolis, Indiana, dated June
7, 1991 (7)
10.16 Form of Indemnification Agreement (3)
10.17 Form of Promissory Note with Officers (3)
10.18 Agreement and Plan of Reorganization among RasterOps Corporation, RasterOps Acquisition
Corporation II and Truevision, Inc., dated as of May 21, 1992 (2)
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------------------------------------------------------------------------------------
<S> <C>
10.19 Agreement and Plan of Merger between Truevision, Inc. and RasterOps Acquisition
Corporation II, dated as of May 21, 1992 (2)
10.20 Private Placement Agreement between the Company and Scitex Corporation Ltd., dated as of
June 7, 1993 (6)
10.21 Agreement between the Company and Avid dated December 30, 1994 (8)
10.22 First Addendum to the Agreement between the Company and Avid dated December 30, 1994
10.23 Agreement between the Company and Matsushita (9)
10.24 Loan and Security Agreement between the Company and Silicon Valley Bank dated May 2, 1996
10.25 Form of Employment Agreement between the Company and Lou Doctor (8)
21.1 List of Subsidiaries (8)
24.1 Consent of Independent Accountants (see page 50)
</TABLE>
NOTES TO EXHIBITS
(1) Filed as an exhibit to the Company's report on Form 8-K, filed November 3,
1995, and incorporated herein by reference.
(2) 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.
(3) 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, and
incorporated herein by reference.
(4) Filed as an exhibit to the Company's Registration Statement on Form S-8,
filed February 1, 1991, and incorporated herein by reference.
(5) 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.
(6) Filed as an exhibit to the Company's report on Form 8-K, filed June 8, 1993,
and incorporated herein by reference.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K, for the
fiscal year ended June 30, 1994, and incorporated herein by reference.
(8) Filed as an exhibit to the Company's Annual Report on Form 10-K, for the
fiscal year ended July 1, 1995, and incorporated herein by reference.
(9) Filed as an exhibit to the Company's report on Form 8-K/A, filed August 6,
1996, and incorporated herein by reference.
(D) FINANCIAL STATEMENT SCHEDULES
See Item (a) above.
47
<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 Annual 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 19, 1996.
TRUEVISION, INC.
By: /s/ R. JOHN CURSON
------------------------------------------------------------------------------
R. John Curson
SENIOR VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND SECRETARY
(PRINCIPAL FINANCIAL OFFICER)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Annual Report on Form 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 19, 1996
Walter W. Bregman
/s/ LOUIS J. DOCTOR President, Chief Executive
------------------------------- Officer (Principal Executive September 19, 1996
Louis J. Doctor Officer)
/s/ R. JOHN CURSON Senior Vice President, Chief
------------------------------- Financial Officer and Secretary September 19, 1996
R. John Curson (Principal Financial Officer)
/s/ HARVEY A. CHESLER Vice President and Corporate
------------------------------- Controller (Principal September 19, 1996
Harvey A. Chesler Accounting Officer)
/s/ GORDON E. EUBANKS, JR.
------------------------------- Director September 19, 1996
Gordon E. Eubanks, Jr.
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- -------------------------------- -----------------------
<C> <S> <C>
/s/ WILLIAM H. MCALEER
------------------------------- Director September 19, 1996
William H. McAleer
/s/ KIETH E. SORENSON
------------------------------- Director September 19, 1996
Kieth E. Sorenson
/s/ CONRAD J. WREDBERG
------------------------------- Director September 19, 1996
Conrad J. Wredberg
</TABLE>
49
<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, 33-38886,33-86288 and 33-63135)
and in the Prospectus constituting part of the Registration Statement on Form
S-3 (No. 33-62703) of Truevision, Inc. of our report dated July 30, 1996
appearing on page 28 in this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
San Jose, California
September 18, 1996
50
<PAGE>
TRUEVISION, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 29, 1996, JULY 1, 1995 AND JUNE 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END OF
OF PERIOD EXPENSES (1) ACCOUNTS RESERVES (2) PERIOD
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for sales returns,
doubtful accounts and price
protection:
1996....................... $ 1,291 $ 472 -- $ 745 $ 1,018
1995....................... $ 1,360 $ 381 $ 228 $ 678 $ 1,291
1994....................... $ 4,018 $ 1,276 -- $ 3,934 $ 1,360
Reserves for inventory:
1996....................... $ 1,514 $ 687 -- $ 983 $ 1,218
1995....................... $ 3,713 $ 845 -- $ 3,044 $ 1,514
1994....................... $ 2,289 $ 2,906 -- $ 1,482 $ 3,713
</TABLE>
- ------------------------
(1) With respect to the allowance for receivables, amounts include charges to
net sales for sales returns.
(2) With respect to the allowance for receivables, amounts include charges to
reserves for sales returns. With respect to reserves for inventory, amounts
exclude cost of sales write downs of inventory.
51
<PAGE>
Exhibit 10.1
TRUEVISION, INC.
AMENDED 1988 INCENTIVE STOCK PLAN
(As of September 1996)
1. PURPOSES OF THE PLAN. The purposes of this Incentive Stock Plan
are to attract and retain the best available personnel, to provide additional
incentive to the Employees of Truevision, Inc. (the "Company") and to promote
the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected
in the terms of the written option agreement. The Board also has the
discretion to grant Stock Purchase Rights.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Committee, if one has been appointed,
or the Board of Directors of the Company, if no Committee is appointed.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMITTEE" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan, if one is appointed.
(d) "COMMON STOCK" shall mean the Common Stock of the Company.
(e) "COMPANY" shall mean Truevision, Inc., a Delaware corporation.
(f) "CONSULTANT" shall mean any person who is engaged by the
Company or any Parent or Subsidiary to render consulting services and is
compensated for such consulting services, and any director of the Company
whether compensated for such services or not; provided that the term
Consultant shall not include directors who are not compensated for their
services or are paid only a director's fee by the Company.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean
the absence of any interruption or termination of service as an Employee or
Consultant, as applicable. Continuous Status as an Employee or Consultant
shall not be considered interrupted in the case of sick leave, military
leave, or any other leave of absence approved by the Board; provided that
such leave is for a period of not more than 90 days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
(h) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
1
<PAGE>
(i) "INCENTIVE STOCK OPTION" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(j) "NONSTATUTORY STOCK OPTION" shall mean an Option not intended
to qualify as an Incentive Stock Option.
(k) "OPTION" shall mean a stock option granted pursuant to the
Plan.
(l) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(m) "OPTIONEE" shall mean an Employee or Consultant who receives
an Option.
(n) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "PLAN" shall mean this Amended 1988 Incentive Stock Plan.
(p) "PURCHASER" shall mean an Employee or Consultant who exercises
a Stock Purchase Right.
(q) "SHARE" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(r) "STOCK PURCHASE RIGHT" shall mean a right to purchase Common
Stock pursuant to the Plan or the right to receive a bonus of Common Stock
for past services.
(s) "SUBSIDIARY" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of shares under the Plan is
3,641,300 shares of Common Stock. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, then the
unpurchased Shares which were subject thereto shall, unless the Plan shall
have been terminated, become available for future grant or sale under the
Plan. Notwithstanding any other provision of the Plan, shares issued under
the Plan and later repurchased by the Company shall not become available for
future grant or sale under the Plan.
2
<PAGE>
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board of
Directors of the Company.
(i) The Board of Directors may appoint a
Committee consisting of one or more members of the Board of Directors to
administer the Plan on behalf of the Board of Directors, subject to such
terms and conditions as the Board of Directors may prescribe. In the
discretion of the Board of Directors, a Committee may consist solely of two
or more Outside Directors (as such term is defined below), or solely of two
or more Non-Employee Directors (as such term is defined below). Once
appointed, the Committee shall continue to serve until otherwise directed by
the Board of Directors.
(ii) Subject to the foregoing, from time to
time the Board of Directors may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however
caused, or remove all members of the Committee and thereafter directly
administer the Plan.
(iii) The term "Outside Director," as used in
this Plan, shall mean a director who either (i) is not a current employee of
the Company or an "affiliated corporation" (within the meaning of Treasury
regulations promulgated under Section 162(m) of the Code), is not a former
employee of the Company or an "affiliated corporation" receiving compensation
for prior services (other than benefits under a tax qualified pension plan),
was not an officer of the Company or an "affiliated corporation" at any time,
and is not currently receiving direct or indirect remuneration from the
Company or an "affiliated corporation" for services in any capacity other
than as a director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code. The term "Non-Employee Director," as
used in this Plan, shall mean a director who either (i) is not a current
employee or officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent
or subsidiary for services rendered as a consultant or in any capacity other
than as a director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K ("Regulation S-K") promulgated
pursuant to the Securities Act of 1933 (the "Securities Act"), does not
possess an interest in any other transaction as to which disclosure would be
required under Item 404(a) of Regulation S-K, and is not engaged in a
business relationship as to which disclosure would be required under Item
404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee
director" for purposes of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(b) POWERS OF THE BOARD. Subject to the provisions of the Plan,
the Board shall have the authority, in its discretion: (i) to grant
Incentive Stock Options, Nonstatutory Stock Options or Stock Purchase Rights;
(ii) to determine, upon review of relevant information and in accordance with
Section 7 of the Plan, the fair market value of the Common Stock; (iii) to
determine the exercise price per share of options or Stock Purchase Rights,
to be granted,
3
<PAGE>
which exercise price shall be determined in accordance with Section 7 of the
Plan; (iv) to determine the Employees or Consultants to whom, and the time or
times at which, Options or Stock Purchase Rights shall be granted and the
number of shares to be represented by each Option or Stock Purchase Right;
(v) to interpret the Plan; (vi) to prescribe, amend and rescind rules and
regulations relating to the Plan; (vii) to determine the terms and provisions
of each option and Stock Purchase Right granted (which need not be identical)
and, with the consent of the holder thereof, modify or amend any provisions
(including provisions relating to exercise price) of any Option or Stock
Purchase Right; (viii) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option, consistent with the provisions of
Section 5 of the Plan; (ix) to authorize any person to execute on behalf of
the Company any instrument required to effectuate the grant of an Option or
Stock Purchase Right previously granted by the Board; and (x) to make all
other determinations deemed necessary or advisable for the administration of
the Plan.
(c) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees,
Purchasers and any other holders of any Options or Stock Purchase Rights
granted under the Plan.
5. ELIGIBILITY.
(a) Options and Stock Purchase Rights may be granted to Employees
and Consultants, provided that Incentive Stock Options may only be granted to
Employees. An Employee or Consultant who has been granted an Option or Stock
Purchase Right may, if such Employee or Consultant is otherwise eligible, be
granted additional Option(s) or Stock Purchase Right(s).
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
fair market value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company) exceeds $100,000,
such Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Options shall be taken into
account in the order in which they were granted, and the fair market value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(d) The Plan shall not confer upon any Optionee or holder of a
Stock Purchase Right any right with respect to continuation of employment by
or the rendition of consulting services to the Company, nor shall it
interfere in any way with his or her right or the Company's right to
terminate his or her employment or services at any time, with or without
cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by vote of
the holders of a majority of the
4
<PAGE>
outstanding shares of the Company entitled to vote on the adoption of the
Plan. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.
7. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option or Stock Purchase Right shall be such price
as is determined by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the fair market value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise
price shall be no less than 100% of the fair market value per Share on the
date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the
grant of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
fair market value per Share on the date of the grant.
(B) granted to any person, the per Share exercise
price shall be no less than 85% of the fair market value per Share on the
date of grant.
(iii) In the case of a Stock Purchase Right
granted to any person, the per Share exercise price shall be no less than 85%
of the fair market value per Share on the date of grant.
For purposes of this Section 7(a), in the event that an Option or
Stock Purchase Right is amended to reduce the exercise price, the date of
grant of such Option or Stock Purchase Right shall thereafter be considered
to be the date of such amendment.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid
and asked prices (or the closing price per share if the Common Stock is
listed on the Nasdaq National Market of the Common Stock for the date of
grant, as reported in the Wall Street Journal (or, if not so reported, as
otherwise reported by Nasdaq) or, in the event the Common Stock is listed on
a stock exchange, the fair market value per Share shall be the closing price
on such exchange on the date of grant of the Option or Stock Purchase Right,
as reported in the Wall Street Journal.
5
<PAGE>
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option or Stock Purchase Right, including the method of
payment, shall be determined by the Board and may consist entirely of cash,
check, promissory note, other Shares of Common Stock which (i) either have
been owned by the Optionee for more than six (6) months on the date of
surrender or were not acquired directly or indirectly, from the Company, and
(ii) have a fair market value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised, or
any combination of such methods of payment, or such other consideration and
method of payment for the issuance of Shares to the extent permitted under
Sections 408 and 409 of the California General Corporation Law. In making
its determination as to the type of consideration to accept, the Board shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company (Section 315(b) of the California General Corporation
Law).
8. OPTIONS.
(a) TERM OF OPTION. The term of each Incentive Stock Option shall
be ten (10) years from the date of grant thereof or such shorter term as may
be provided in the Incentive Stock Option Agreement. The term of each Option
that is not an Incentive Stock Option shall be ten (10) years and one (1) day
from the date of grant thereof or such shorter term as may be provided in the
Stock Option Agreement. However, in the case of an Option granted to an
Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, (i) if the Option is an Incentive Stock
Option, the term of the Option shall be five (5) years from the date of grant
thereof or such shorter time as may be provided in the Stock Option
Agreement, or (ii) if the Option is a Nonstatutory Stock Option, the term of
the Option shall be five (5) years and one (1) day from the date of grant
thereof or such other term as may be provided in the Stock Option Agreement.
(b) EXERCISE OF OPTION.
(i) PROCEDURE FOR EXERCISE; RIGHTS AS A
SHAREHOLDER. Any Option granted hereunder shall be exercisable at such times
and under such conditions as determined by the Board, including performance
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 7 of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect
6
<PAGE>
to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
upon exercise of the Option. In the event that the exercise of an Option is
treated in part as the exercise of an Incentive Stock Option and in part as
the exercise of a Nonstatutory Stock Option pursuant to Section 5(b), the
Company shall issue a separate stock certificate evidencing the Shares
treated as acquired upon exercise of an Incentive Stock Option and a separate
stock certificate evidencing the Shares treated as acquired upon exercise of
a Nonstatutory Stock Option and shall identify each such certificate
accordingly in its stock transfer records. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
(ii) TERMINATION OF STATUS AS AN EMPLOYEE OR
CONSULTANT. In the event of termination of an Optionee's Continuous Status
as an Employee or Consultant (as the case may be), such Optionee may, but
only within thirty (30) days (or such other period of time not exceeding
three (3) months in the case of an Incentive Stock Option or six (6) months
in the case of a Nonstatutory Stock Option, as is determined by the Board,
with such determination in the case of an Incentive Stock Option being made
at the time of grant of the option) after the date of such termination (but
in no event later than the date of expiration of the term of such Option as
set forth in the Option Agreement), exercise the Option to the extent that
such Employee or Consultant was entitled to exercise it at the date of such
termination. To the extent that such Employee or Consultant was not entitled
to exercise the Option at the date of such termination, or if such Employee
or Consultant does not exercise such Option (which such Employee or
Consultant was entitled to exercise) within the time specified herein, the
Option shall terminate.
(iii) DISABILITY OF OPTIONEE. Notwithstanding
the provisions of Section 8(b)(ii) above, in the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of such
Employee's or Consultant's total and permanent disability (as defined in
Section 22(e)(3) of the Code), such Employee or Consultant may, but only
within six (6) months (or such other period of time not exceeding twelve (12)
months as is determined by the Board, with such determination in the case of
an Incentive Stock Option being made at the time of grant of the Option) from
the date of such termination (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement),
exercise the Option to the extent such Employee or Consultant was entitled to
exercise it at the date of such termination. To the extent that such Employee
or Consultant was not entitled to exercise the Option at the date of
termination, or if such Employee or Consultant does not exercise such Option
(which such Employee or Consultant was entitled to exercise) within the time
specified herein, the Option shall terminate.
(iv) DEATH OF OPTIONEE. In the event of the
death of an Optionee:
7
<PAGE>
(A) during the term of the Option who is at the
time of his or her death an Employee or Consultant of the Company and who
shall have been in Continuous Status as an Employee or Consultant since the
date of grant of the Option, the Option may be exercised, at any time within
six (6) months (or such other period of time as is determined by the Board at
the time of grant of the Option) following the date of death (but in no event
later than the date of expiration of the term of such Option as set forth in
the Option Agreement), by the Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or
Consultant six (6) months (or such other period of time as is determined by
the Board at the time of grant of the Option) after the date of death; or
(B) within thirty (30) days (or such other period
of time not exceeding three (3) months as is determined by the Board, with
such determination in the case of an Incentive Stock Option being made at the
time of grant of the Option) after the termination of Continuous Status as an
Employee or Consultant, the Option may be exercised, at any time within six
(6) months (or such other period of time as is determined by the Board at the
time of grant of the Option) following the date of death (but in no event
later than the date of expiration of the term of such Option as set forth in
the Option Agreement), by the Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date of termination.
9. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. After the Board of Directors determines
that it will offer an Employee or Consultant a Stock Purchase Right, it shall
deliver to the offeree a stock purchase agreement or stock bonus agreement,
as the case may be, setting forth the terms, conditions and restrictions
relating to the offer, including the number of Shares which such person shall
be entitled to purchase, and the time within which such person must accept
such offer, which shall in no event exceed six (6) months from the date upon
which the Board of Directors or its Committee made the determination to grant
the Stock Purchase Right. The offer shall be accepted by execution of a
stock purchase agreement or stock bonus agreement in the form determined by
the Board of Directors.
(b) ISSUANCE OF SHARES. Forthwith after payment therefor, the
Shares purchased shall be duly issued; provided, however, that the Board may
require that the Purchaser make adequate provision for any Federal and State
withholding obligations of the Company as a condition to the Purchaser
purchasing such Shares.
(c) REPURCHASE OPTION. Unless the Board determines otherwise, the
stock purchase agreement or stock bonus agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the Purchaser's employment with the Company for any reason (including
death or disability). If the Board so determines, the purchase price for
shares repurchased may be paid by cancellation of any indebtedness of the
8
<PAGE>
Purchaser to the Company. The repurchase option shall lapse at such rate as
the Board may determine.
(d) OTHER PROVISIONS. The stock purchase agreement or stock bonus
agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Board of Directors.
10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. The
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee or Purchaser, only by the Optionee or Purchaser.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to
any required action by the shareholders of the Company, the number of shares
of Common Stock covered by each outstanding Option and Stock Purchase Right,
and the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options or Stock Purchase Rights
have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option or Stock Purchase Right, or
repurchase of Shares from a Purchaser upon termination of employment, as well
as the price per share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock of the Company or the payment of a stock
dividend with respect to the Common Stock or any other increase or decrease
in the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made
by the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option or Stock Purchase Right.
In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may,
in the exercise of its sole discretion in such instances, declare that any
Option shall terminate as of a date fixed by the Board and give each Optionee
the right to exercise his or her Option as to all or any part of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable. In the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that such successor corporation refuses
to assume the Option or to substitute an equivalent option, the Board shall,
in lieu of such assumption or substitution,
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provide for the Optionee to have the right to exercise the Option as to all
of the Optioned Stock, including Shares as to which the Option would not
otherwise be exercisable. If the Board makes an Option fully exercisable in
lieu of assumption or substitution in the event of a merger or sale of
assets, the Board shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice,
and the Option will terminate upon the expiration of such period.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option or Stock
Purchase Right shall, for all purposes, be the date on which the Board makes
the determination granting such Option or Stock Purchase Right. Notice of
the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after
the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval
of the shareholders of the Company in the manner described in Section 17 of
the Plan:
(i) any increase in the number of Shares
subject to the Plan, other than in connection with an adjustment under
Section 11 of the Plan;
(ii) any change in the designation of the class
of persons eligible to be granted Options and Stock Purchase Rights; or
(iii) any material increase in the benefits
accruing to participants under the Plan.
(b) SHAREHOLDER APPROVAL. If any amendment under Section 13(a) of
the Plan requires shareholder approval, the Company shall obtain such
shareholder approval as described in Section 17 of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options or Stock Purchase Rights shall remain in
full force and effect as if this Plan had not been amended or terminated,
unless mutually agreed otherwise between the Optionee or Purchaser (as the
case may be) and the Board, which agreement must be in writing and signed by
the Optionee or Purchaser (as the case may be) and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Rights unless the
exercise of such Option or Stock Purchase Rights and the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock
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exchange upon which the Shares may then be listed, and shall be further
subject to he approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an Option or Stock Purchase Rights,
the Company may require the person exercising such Option or Stock Purchase
Rights to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder, shall relieve the Company of any liability in respect of
the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
16. OPTION, STOCK PURCHASE AND STOCK BONUS AGREEMENTS. Options shall
be evidenced by written option agreements in such form as the Board shall
approve. Upon the exercise of Stock Purchase Rights, the Purchaser shall
sign a stock purchase agreement or stock bonus agreement in such form as the
Board shall approve.
17. SHAREHOLDER APPROVAL.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted.
(b) Any required approval of the shareholders of the Company shall
be solicited substantially in accordance with Section 14(a) of the Exchange
Act and the rules and regulations promulgated thereunder.
18. INFORMATION TO OPTIONEES AND PURCHASER. The Company shall provide
to each Optionee and Purchaser, during the period for which such Optionee or
Purchaser has one or more Options or Stock Purchase Rights outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide
such information if the issuance of Options or Stock Purchase Rights under
the Plan is limited to key employees whose duties in connection with the
Company assure their access to equivalent information.
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Exhibit 10.8
[Date]
[Optionee
Address]
VESTING SCHEDULE FOR GRANT
- ---------------------------
VESTING NUMBER WHEN SHARES LAST DATE
DATE SHARES VEST TO EXERCISE
- --------------------------------------------------------------------------------
Period 1 10/03/2001 End of period 10/02/2005
The entire option grant shall vest 100% on the sixth anniversary of the date of
grant of the option. In addition, the grant shall accelerate in vesting upon the
occurrence of any of the following: (i) upon the Company's attainment of pre tax
profits that are at least equal to the board approved pre tax profits for the
fiscal year (beginning with fiscal year 1996) the option shall accelerate
vesting in accordance with the following formula (actual pre tax profits - plan
pre tax profits) divided by plan pre tax profits (which gives percentage of over
achievement) multiplied by 4, or (ii) upon a change of control of the Company a
percentage of the option shall immediately vest in an amount equal to the
percentage of the fiscal year completed as of the date of the change of control.
"Change of Control" means the occurrence of any of the following events:
(a) Any "person" (as such a term is used in Section 13(d) and 14(d) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act")),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) directly or indirectly, of securities of the Company
representing thirty-five percent (35%) or more of the total voting
power represented by the Company's then outstanding voting securities;
or
(b) A change in the composition of the Board of Directors of the Company
occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who are either (i) directors of the
Company as of the date hereof, or (ii) elected, or nominated for
election, to the Board of Directors of the Company with the
affirmative votes of at least a majority of the Incumbent Directors at
the time of such election or nomination (but shall not include an
individual not previously a director whose election or nomination is
in connection with an actual or threatened proxy contest to the
election of directors to the Company); or
(c) A merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
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converted into voting securities of the surviving entity) at least
fifty percent (50%) of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such a merger or consolidation; or
(d) A complete liquidation of the Company; or
(e) An agreement by the Company for the sale or disposition by the Company
of all or substantially all of the Company's assets.
Grace periods for last date to exercise:
Termination 30 Days
Death 6 Months
Disability 6 Months
Retirement 30 Days
Termination for Cause 30 Days
By your signature and Truevision, Inc.'s signature below, you and Truevision
agree that this option is granted under and governed by the terms and conditions
of the Truevision Amended 1988 Incentive Stock Plan, and the Terms and
Conditions of the Stock Option Agreement attached hereto.
Optionee represents that Optionee is familiar with the terms and provisions of
this Grant Agreement and hereby accepts the option subject to all of the terms
and conditions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under this Grant Agreement. PLEASE SIGN BOTH COPIES OF THE ENCLOSED
AGREEMENT AND RETURN TO THE STOCK ADMINISTRATOR, TRUEVISION, 2500 WALSH AVE.,
SANTA CLARA, CA 95051.
- --------------------------------- ------------------
For Truevision, Inc. Date
- --------------------------------- ------------------
Optionee Date
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Exhibit 10.11
TRUEVISION, INC.
AMENDED AND RESTATED 1991 DIRECTOR OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Amended and Restated
1991 Director Option Plan are to attract and retain the best available
personnel for service as Outside Directors of the Company, to provide
additional incentive to the Outside Directors of the Company to serve as
Directors, and to encourage their continued service on the Board.
The Plan was originally adopted by the Board in July 1991 and was
subsequently amended by the Board in October 1991 to allow for the
cancellation of Options previously granted under the Plan and the regranting
of new Options under the Plan which were exercisable for the same number of
Shares as the canceled Options, but which had a lower exercise price than the
canceled Options. The Plan was subsequently amended by the Board in July 1992
to provide for the automatic grant of an Option to purchase two thousand five
hundred (2,500) Shares on the date of the Company's annual meeting of
shareholders (the" Annual Meeting") to each Outside Director who is a member
of the Board immediately before such Annual Meeting and remains a member of
the Board immediately after such Annual Meeting. Such 2,500-Share annual
Option grant is in lieu of the ten thousand (10,000)-Share Option grant which
was to be granted on the fourth anniversary of the initial Option grant
received by the Outside Director (and every fourth anniversary thereafter),
provided the Outside Director remained a Director. The July 1992 amendment
also provided for the cancellation of those Options granted under the Plan in
October 1991 and the regranting of new Options under the Plan which were
exercisable for the same number of Shares as the canceled Options, but which
had a lower exercise price than the canceled Options. In September 1995 the
Plan was again amended by the Board to provide for (i) a one hundred thousand
(100,000)-Share increase in the Pool and (ii) an automatic grant of an Option
exercisable for twenty-five thousand (25,000) Shares to any person who
becomes the Chairman of the Board on or after December 16, 1994.
In late 1995, the Company reincorporated from California to
Delaware, and in connection with such reincorporation the Company's name
changed from RasterOps to Truevision, Inc.
All options granted hereunder shall be "non-statutory stock
options."
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the Common Stock of the Company.
(d) "COMPANY" means Truevision, Inc., a Delaware corporation.
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(e) "CONTINUOUS STATUS AS A DIRECTOR" means the absence of any
interruption or termination of service as a Director.
(f) "DIRECTOR" means a member of the Board.
(g) "EMPLOYEE" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the date of
grant, as reported in the Wall Street Journal or such other source as the
Board deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq
System (but not on the Nasdaq National Market thereof) or regularly quoted by
a recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high
bid and low asked prices for the Common Stock on the date of grant, as
reported in the Wall Street Journal or such other source as the Board deems
reliable, or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith
by the Board.
(j) "OPTION" means a stock option granted pursuant to the Plan.
(k) "OPTIONED STOCK" means the Common Stock subject to an Option.
(1) "OPTIONEE" means an Outside Director who receives an Option.
(m) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(n) "PARENT" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Internal Revenue Code
of 1986.
(o) "PLAN" means this Amended and Restated 1991 Director Option
Plan.
(p) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
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(q) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code
of 1986.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 250,000 Shares (the "Pool") of Common Stock. The Pool
is comprised of (i) 150,000 Shares initially reserved for issuance under the
Plan plus (ii) an additional 100,000 Shares reserved for issuance by the
Board in September 1995. The Shares may be authorized but unissued, or
reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan.
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) ADMINISTRATOR. Except as otherwise required herein, the Plan
shall be administered by the Board.
(b) PROCEDURE FOR GRANTS. The provisions set forth in this
Section 4(b) shall not be amended more than once every six (6) months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder. All grants of
Options hereunder shall be automatic and non-discretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number
of Shares to be covered by options granted to Outside Directors.
(ii) Each person who becomes an Outside Director
shall receive an Option to purchase ten thousand (10,000) Shares as of the
date such Outside Director becomes a member of the Board. Such Option shall
become exercisable in installments cumulatively as to twenty-five percent
(25%) of the Optioned Stock on the first, second, third and fourth
anniversaries of the date of grant, so long as such Outside Director remains
a Director on such anniversary dates. In addition, each Outside Director
shall receive a subsequent Option to purchase two thousand five hundred
(2,500) Shares on the date of the first Annual Meeting which occurs after the
date of such Outside Director's initial ten thousand (10,000)-Share grant and
on the date of each Annual Meeting thereafter so long as such Outside
Director remains a Director after the date of each such Annual Meeting. Such
additional Option shall become exercisable in installments cumulatively as to
twenty-five percent (25%) of the Optioned Stock on each anniversary date of
the date of grant of such additional Options, so that one hundred percent
(100%) of the Optioned Stock shall be exercisable four (4) years after such
date of grant.
(iii) Each Outside Director who becomes the Chairman
of the Board on or after December 16, 1994 shall receive an option to
purchase twenty-five thousand (25,000) Shares on the date of such appointment
as Chairman of the Board. Such option shall become
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exercisable in installments cumulatively as to twenty-five percent (25%) of
the Optioned Stock on each annual anniversary date after the date of grant so
long as such Outside Director remains a Director on such dates, so that one
hundred percent (100%) of the Optioned Stock shall be exercisable four (4)
years after such date of grant. To the extent that a person simultaneously
becomes an Outside Director and Chairman of the Board, then such person shall
receive both the twenty-five thousand (25,000)-Share option set forth in this
subparagraph (iii), and the ten thousand (10,000)-Share option set forth in
subparagraph (ii) above.
(iv) Additional terms of each Option granted
hereunder shall be as follows:
(A) the term of the option shall be ten (10) years.
(B) the Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 8 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the Option.
(v) In the event that any Option granted under the
Plan would cause the number of Shares subject to outstanding Options plus the
number of Shares previously purchased upon exercise of Options to exceed the
Pool, then each such automatic grant shall be for that number of Shares
determined by dividing the total number of Shares remaining available for
grant by the number of Outside Directors entitled to receive an Option on the
automatic grant date. No further grants shall be made until such time, if
any, as additional Shares become available for grant under the Plan through
an increase in the number of Shares which may be issued under the Plan or
through cancellation or expiration of Options previously granted hereunder.
(c) POWERS OF THE BOARD. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its
discretion: (i) to determine, upon review of relevant information and in
accordance with Section 2(i) of the Plan, the Fair Market Value of the Common
Stock; (ii) to interpret the Plan; (iii) to prescribe, amend and rescind
rules and regulations relating to the Plan; (iv) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the
grant of an Option previously granted hereunder; and (v) to make all other
determinations deemed necessary or advisable for the administration of the
Plan.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth
in Section 4(b) hereof. An Outside Director who has been granted an Option
may, if he is otherwise eligible, be granted an additional Option or Options
in accordance with such provisions.
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The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the
Director or the Company may have to terminate his directorship at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 11 of the
Plan.
7. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for Optioned
Stock shall be 100% of the Fair Market Value per Share on the date of grant
of the Option.
(b) FORM OF CONSIDERATION. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Board and may consist entirely of (i)
cash, (ii) check, (iii) any combination of the foregoing methods of payment,
or (iv) such other consideration and method of payment for the issuance of
Shares as approved by the Board of Directors to the extent permitted under
applicable law.
8. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be exercisable
until shareholder approval of the Plan in accordance with Section 16 hereof
has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of
payment allowable under Section 7(b) of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. A certificate for the number of Shares so
acquired shall be issued to the Optionee as soon as practicable after
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
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(b) RULE 16b-3. Options granted hereunder to Outside Directors
shall be administered in accordance with and must comply with the applicable
provisions of Rule 16b-3 promulgated under the Exchange Act or any successor
rule thereto and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption from Section
16 of the Exchange Act with respect to Plan transactions.
(c) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. In the event
an Optionee's Continuous Status as a Director terminates (other than upon the
Optionee's death or total and permanent disability (as defined in Section
22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only
within six (6) months from the date of such termination, and only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option
at the date of such termination, and to the extent that the Optionee does not
exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(d) DISABILITY OF OPTIONEE. In the event Optionee's Continuous
Status as a Director terminates as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code), the Optionee may exercise his
or her Option, but only within twelve (12) months from the date of such
termination, and only to the extent that the Optionee was entitled to
exercise it at the date of such termination (but in no event later than the
expiration of its ten (10) year term). To the extent that the optionee was
not entitled to exercise an Option at the date of termination, or if he or
she does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(e) DEATH OF OPTIONEE. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance may exercise the Option, but only within twelve
(12) months following the date of death, and only to the extent that the
Optionee was entitled to exercise it at the date of death (but in no event
later than the expiration of its ten (10) year term). To the extent that the
Optionee was not entitled to exercise an Option at the date of death, and to
the extent that the Optionee's estate or a person who acquired the right to
exercise such Option does not exercise such Option (to the extent otherwise
so entitled) within the time specified herein, the Option shall terminate.
9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to
any required action by the shareholders of the Company, the number of Shares
covered by each outstanding Option, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per Share covered by each such
out-standing Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or
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reclassification of the Common Stock, or any other increase or decrease in
the aggregate number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of Shares of stock of any class, or securities convertible into Shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, all outstanding Options will terminate immediately prior to the
consummation of such proposed action. The Board shall declare that any Option
shall terminate as of such date and give each Optionee the right to exercise
his Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable.
In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, each outstanding Option shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary
of such successor corporation. However, if such successor corporation or a
parent or subsidiary of such successor corporation does not assume or
substitute an equivalent option, then the Optionee shall have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable. If the Option becomes
fully exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Company shall notify the Optionee that the
Option shall be fully exercisable for a period of fifteen (15) days from the
date of such notice, and the Option will terminate upon the expiration of
such period. For purposes of this paragraph, an Option granted under the Plan
shall be deemed to be assumed if, following the sale of assets or merger, the
Option confers the right to purchase, for each Share of Optioned Stock
subject to the Option immediately prior to the sale of assets or merger, the
consideration (whether stock, cash or other securities or property) received
in the sale of assets or merger by holders of Common Stock for each Share
held on the effective date of the transaction (and if such holders were
offered a choice of consideration, the type of consideration chosen by the
holders if a majority of the outstanding Shares); provided, however, that if
such consideration received in the sale of assets or merger was not solely
Common Stock of the successor corporation or its parent, the Board may, with
the consent of the successor corporation and the participant, provide for the
consideration to be received upon exercise of the Option to be solely Common
Stock of the successor corporation or its parent equal in Fair Market Value
to the per share consideration received by holders of Common Stock in the
sale of assets or merger.
11. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation), the
Company
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shall obtain shareholder approval of any Plan amendment in such a manner and
to such a degree as is required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall,
for all purposes, be the date determined in accordance with Section 4(b)
hereof. Notice of the determination shall be given to each Outside Director
to whom an Option is so granted within a reasonable time after the date of
such grant.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, state securities laws, and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares, if, in the opinion of counsel for the Company, such a representation
is required by any of the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue
or sell such Shares as to which such requisite authority shall not have been
obtained.
14. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option
hereunder. Such shareholder approval shall be obtained in the degree and
manner required under applicable state and federal law.
8
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Exhibit 10.14
[LOGO]
SECOND AMENDMENT TO LEASE
This second amendment to lease ("Second Amendment") is made this 18th day of
January, 1996 by and between Sobrato Development Companies #871, a California
limited partnership having an address at 10600 North De Anza Boulevard., Suite
200, Cupertino, California 95014 ("Landlord") and Truevision (formerly
RasterOps), a Delaware corporation ("Tenant").
WITNESSETH
WHEREAS Landlord and Tenant entered into a lease dated February 7, 1989 and a
lease amendment dated May 9, 1989, (collectively the "Lease") for the premises
located at 2500 Walsh Avenue in Santa Clara, California ("Premises"); and
WHEREAS effective December 15, 1995, Landlord and Tenant wish to modify the
Lease to (i) extend the Lease term pursuant to Tenant's option under Lease
paragraph 37, and (ii) specify the monthly rent due during the Renewal Term;
NOW, THEREFORE, in order to effect the intent of the parties as set forth above
and for good and valuable consideration exchanged between the parties, the Lease
is amended effective December 15, 1995 as follows:
1. The Lease term is extended pursuant to Tenant's option under Lease
paragraph 37, through March 30, 2001. This extension represents exercise of the
first of Tenant's two options as described in Lease paragraph 37.
2. Monthly rent is changed, effective March 1, 1996, to Fifty Five Thousand
Thirty Seven and 50/100 Dollars ($55,037.50). As of October 1, 1998, which date
represents the midway point of the Renewal Term, Monthly Rent shall adjust
pursuant to Lease paragraph 39.
3. All defined terms shall have the same meanings as in the Lease, except as
otherwise stated in this Second Amendment.
4. Except as hereby amended, the Lease and all the terms, covenants and
conditions thereof shall remain unmodified and in full force and effect. In the
event of any conflict or inconsistency between the terms and provisions of this
Second Amendment and the terms and provisions of the Lease, the terms and
provisions of this Second Amendment shall prevail.
IN WITNESS WHEREOF, the parties hereto have set their hands to this Second
Amendment as of the day and date first above written.
LANDLORD TENANT
Sobrato Development Companies #871, Truevision, Inc.,
a California limited partnership a Delaware corporation
By: /s/J.M.A. By: /s/Louis J. Doctor
-------------------------------- ---------------------------
Its: General Partner Its: President/CEO
-------------------------------- ---------------------------
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Exhibit 10.22
FIRST ADDENDUM TO
MANUFACTURING LICENSE AGREEMENT
This Addendum dated as of June 26, 1996 amends the Manufacturing License
Agreement dated December 30, 1994 between Truevision, Inc. ("Truevision") and
Avid Technology, Inc. ("Avid"), (as amended and in effect from time to time, the
"Agreement"). This Addendum relates to the royalty calculations associated with
manufacturing rights for the BIC4 HUB2 version of the PCI base cards and for
single stream C-Cube compression cards each as more fully described in EXHIBIT A
to this Addendum. Avid and Truevision agree as follows:
1. The PCI base cards and the C-Cube compression cards shall constitute
Products for the purposes of the Agreement.
2. The following Section 2(f) is hereby added to the Agreement:
[2] "(f)" ROYALTIES PAYABLE RELATING TO PCI CARD AND C-CUBE COMPRESSION
CARD: Notwithstanding the foregoing, within 30 days of execution by both
parties of this First Addendum to this Agreement, Avid shall pay to
Truevision the sum of $1,450,000 which shall constitute payment in full for
the license to manufacture in perpetuity commencing March 1, 1996 an
unlimited number of units of the PCI Base Card under Section 2(a) of this
Agreement. No other royalty shall be due in respect of units of the PCI base
cards manufactured pursuant hereto. All other Products manufactured by Avid
under this Agreement will continue to bear royalties in accordance with the
other terms of this Agreement.
3. Notwithstanding the last sentence of Section 2(a)(i) of the Agreement, in
the event Avid manufactures and distributes the C-Cube compression card,
Avid shall pay to Truevision a royalty for each such compression card of
twenty five percent (25%) of Avid's Manufacturing Cost, as defined in
Schedule A to the Agreement.
IN WITNESS WHEREOF, the parties have executed this Addendum by their duly
authorized representatives as of the date set forth above.
Truevision, Inc. Avid Technology, Inc.
By: /s/ Louis J. Doctor By: /s/ Dennis E. Ortelli
--------------------------- ---------------------------
Louis J. Doctor Dennis E. Ortelli
President and CEO Director of Purchasing
RasterOps, as the sole owner of Truevision, guarantees the full and prompt
performance of all Truevision's obligations under this Addendum.
RasterOps Corporation
By: /s/ Louis J. Doctor
---------------------------
Louis J. Doctor
President and CEO
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EXHIBIT A
DESCRIPTION OF PCI BASE CARD AND C-CUBE COMPRESSION CARD
PCI Base Card
45 MHz Version
Identified under manufacturing documentation under SKU# 50045 with PCA assembly
number 0007-0065-40
50 MHz Version
Identified under manufacturing documentation under SKU# 50054 with PCA assembly
number 0007-0096-00
C-Cube Card
Identified under manufacturing documentation under SKU# 50064 with PCA assembly
number 0007-0068-30
2
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Exhibit 10.24
[LOGO] SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
BORROWER: TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051
DATE: MAY 2, 1996
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK ("Silicon"), whose address is 3003 Tasman Drive, Santa
Clara, California 95054 and the borrower named above (the "Borrower"), whose
chief executive office is located at the above address ("Borrower's Address").
1. LOANS.
1.1 LOANS. Silicon, in its reasonable discretion, will make loans to the
Borrower (the "Loans") in amounts determined by Silicon in its reasonable
discretion up to the amount (the "Credit Limit") shown on the Schedule to this
Agreement (the "Schedule"), provided no Event of Default and no event which,
with notice or passage of time or both, would constitute an Event of Default has
occurred. The Borrower is responsible for monitoring the total amount of Loans
and other Obligations outstanding from time to time, and Borrower shall not
permit the same, at any time, to exceed the Credit Limit. If at any time the
total of all outstanding Loans and all other Obligations exceeds the Credit
Limit, the Borrower shall immediately pay the amount of the excess to Silicon,
without notice or demand.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear interest
at the rate shown on the Schedule hereto. Interest shall be payable monthly, on
the due date shown on the monthly billing from Silicon to the Borrower. Silicon
may, in its discretion, charge interest to Borrower's deposit accounts
maintained with Silicon.
1.3 FEES. The Borrower shall pay to Silicon a loan origination fee in the
amount shown on the Schedule hereto concurrently herewith. This fee is in
addition to all interest and other sums payable to Silicon and is not
refundable.
1.4 LETTERS OF CREDIT. Silicon, in its reasonable discretion, will, from time
to time during the term of this Agreement, on the request of the Borrower, issue
letters of credit for the account of the Borrower ("Letters of Credit"), in an
aggregate amount at any one time outstanding not to exceed the Letter of Credit
Sublimit shown on the Schedule, provided that, on the date the Letters of Credit
are to be issued, Borrower has available to it Loans in an amount equal to or
greater than the face amount of the Letters of Credit to be issued. Letters of
Credit shall be in form and substance acceptable to Silicon in its sole
discretion, shall be payable in United States dollars and shall have an expiry
date no later than September 30, 1997. Prior to the issuance of any Letters of
Credit, Borrower shall execute and deliver to Silicon applications for letters
of credit, and letter of credit agreements on Silicon's standard forms, and such
other documentation as Silicon shall specify (the "Letter of Credit
Documentation"). Fees for Letters of Credit shall be as provided in the Letter
of Credit Documentation. Borrower shall indemnify, defend and hold Silicon
harmless from any loss, cost, expense or liability, including without limitation
reasonable attorneys fees, arising out of or relating to Letters of Credit. The
Credit Limit and the Loans available to Borrower under this Agreement shall be
reduced by the face amount of Letters of Credit from time to time outstanding.
2. GRANT OF SECURITY INTEREST.
2.1 OBLIGATIONS. The term "Obligations" as used in this Agreement means the
following: the obligation to pay all Loans and all interest thereon when due,
and to pay and perform when due all other present and future indebtedness,
liabilities, obligations, guarantees, covenants, agreements, warranties and
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representations of the Borrower to Silicon, whether joint or several,
monetary or non-monetary, and whether created pursuant to this Agreement or
any other present or future agreement or otherwise. 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. Silicon will notify the Borrower of any
such charges to Borrower's deposit accounts. Such charges shall not be
deemed to be a setoff for any purpose.
2.2 COLLATERAL. As security for all Obligations, the Borrower hereby grants
Silicon a continuing security interest in all of the Borrower's interest in the
types of property described below, whether now owned or hereafter acquired, and
wherever located (collectively, the "Collateral"): (a) All accounts, contract
rights, chattel paper, letters of credit, documents, securities, money, and
instruments, and all other obligations now or in the future owing to the
Borrower; (b) All inventory, goods, merchandise, materials, raw materials, work
in process, finished goods, farm products, advertising, packaging and shipping
materials, supplies, and all other tangible personal property which is held for
sale or lease or furnished under contracts of service or consumed in the
Borrower's business, and all warehouse receipts and other documents; and (c) All
equipment, including without limitation all machinery, fixtures, trade fixtures,
vehicles, furnishings, furniture, materials, tools, machine tools, office
equipment, computers and peripheral devices, appliances, apparatus, parts, dies,
and jigs; (d) All general intangibles including, but not limited to, deposit
accounts, goodwill, names, trade names, trademarks and the goodwill of the
business symbolized thereby, trade secrets, drawings, blueprints, customer
lists, patents, patent applications, copyrights, security deposits, loan
commitment fees, federal, state and local tax refunds and claims, all 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, all rights to purchase or
sell real or personal property, all rights as a licensor or licensee of any
kind, all royalties, licenses, processes, telephone numbers, proprietary
information, purchase orders, and all insurance policies and claims (including
without limitation credit, liability, property and other insurance), and all
other rights, privileges and franchises of every kind; (e) All books and
records, whether stored on computers or otherwise maintained; and (f) All
substitutions, additions and accessions to any of the foregoing, and all
products, proceeds and insurance proceeds of the foregoing, and all guaranties
of and security for the foregoing; and all books and records relating to any of
the foregoing. Silicon's security interest in any present or future technology
(including patents, trade secrets, and other technology) shall be subject to any
licenses or rights now or in the future granted by the Borrower to any third
parties in the ordinary course of Borrower's business; provided that if the
Borrower proposes to sell, license or grant any other rights with respect to any
technology in a transaction that, in substance, conveys a major part of the
economic value of that technology, Silicon shall first be requested to release
its security interest in the same, and Silicon may withhold such release in its
discretion.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
The Borrower represents and warrants to Silicon as follows, and the Borrower
covenants that the following representations will continue to be true, and that
the Borrower will comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. The Borrower, if a corporation, is and
will continue to be, duly authorized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. The 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 the
Borrower. The execution, delivery and performance by the Borrower of this
Agreement, and all other documents contemplated hereby have been duly and
validly authorized, are enforceable against the Borrower in accordance with
their terms, and do not violate any law or any provision of, and are not grounds
for acceleration under, any agreement or instrument which is binding upon the
Borrower. Borrower has no subsidiaries except as set forth on the Schedule.
3.2 NAME; TRADE NAMES AND STYLES. The name of the Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule hereto
are all prior names of the Borrower and all of Borrower's present and prior
trade names. The Borrower shall give Silicon 15 days' prior written notice
before changing its name or doing business under any other name. The Borrower
has complied, and will in the future comply, with all laws relating to the
conduct of business under a fictitious business name.
2
<PAGE>
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is the Borrower's chief executive office. In
addition, the Borrower has places of business and Collateral is located only at
the locations set forth on the Schedule to this Agreement. The Borrower will
give Silicon at least 15 days prior written notice before changing its chief
executive office or locating the Collateral at any other location.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. The 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 the 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 the following
("Permitted Liens"): (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 in its reasonable discretion, which consent shall
not be unreasonably withheld; and (v) security interests being terminated
substantially concurrently with this Agreement. 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 the 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.
Silicon now has, and will continue to have, a perfected and enforceable
security interest in all of the Collateral, subject only to the Permitted
Liens, and the 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.
3.5 MAINTENANCE OF COLLATERAL. The Borrower will maintain the Collateral in
good working condition, and the Borrower will not use the Collateral for any
unlawful purpose. The Borrower will immediately advise Silicon in writing of
any material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. The Borrower has maintained and will maintain at the
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION AND STATEMENTS. 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 the Borrower, at
the times and for the periods therein stated. Since the last date covered by
any such statement, there has been no material adverse change in the financial
condition or business of the Borrower. The Borrower is now and will continue to
be solvent. The Borrower will provide Silicon: (i) within 30 days after the
end of each month, a monthly financial statement prepared by the Borrower,
(ii) within 30 days after the end of each quarter of borrower's fiscal year,
a Compliance Certificate in such form as Silicon shall reasonably specify,
signed by the Chief Financial Officer of the Borrower, certifying that as of the
end of such quarter the 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 on the Schedule and such other
information as Silicon shall reasonably request; and (iii) within 120 days
following the end of the Borrower's fiscal year, complete annual financial
statements, certified by independent certified public accountants acceptable to
Silicon and accompanied by the unqualified report thereon by said independent
certified public accountants.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. The Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and the 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 the Borrower. The Borrower may,
however, defer payment of any contested taxes, provided that the Borrower (i) in
good faith contests the 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. The Borrower
is unaware of any claims or adjustments proposed for any of the Borrower's prior
tax years which could result in additional taxes becoming due and payable by the
3
<PAGE>
Borrower. The 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 the 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 the Borrower, including, without
limitation, any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.
3.9 COMPLIANCE WITH LAW. The 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 the Borrower, including, but not limited to,
those relating to the Borrower's ownership of real or personal property, conduct
and licensing of the Borrower's business, and 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 the Borrower's
knowledge) threatened by or against or affecting the Borrower in any court or
before any governmental agency (or any basis therefor known to the Borrower)
which may result, either separately or in the aggregate, in any material adverse
change in the financial condition or business of the Borrower, or in any
material impairment in the ability of the Borrower to carry on its business in
substantially the same manner as it is now being conducted. The Borrower will
promptly inform Silicon in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted by or against the Borrower
involving amounts in excess of $100,000.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes.
4. ADDITIONAL DUTIES OF THE BORROWER.
4.1 FINANCIAL AND OTHER COVENANTS. The Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule to this Agreement.
4.2 OVERADVANCE; PROCEEDS OF ACCOUNTS. If for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit, without
limiting Silicon's other remedies, and whether or not Silicon declares an
Event of Default, Borrower shall remit to Silicon all checks and other
proceeds of Borrower's accounts and general intangibles, in the same form as
received by Borrower, within one day after Borrower's receipt of the same, to
be applied to the Obligations in such order as Silicon shall determine in its
discretion.
4.3 INSURANCE. The Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require. 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 and absolute discretion, except that,
provided no Event of Default has occurred, Silicon shall release to the Borrower
insurance proceeds with respect to equipment totaling less than $100,000, which
shall be utilized by the 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 the Borrower fails to provide or pay for any insurance, Silicon may, but is
not obligated to, obtain the same at the Borrower's expense. The Borrower shall
promptly deliver to Silicon copies of all reports made to insurance companies.
4.4 REPORTS. The Borrower shall provide Silicon with such written reports with
respect to the Borrower (including without limitation budgets, sales
projections, operating plans and other financial documentation), as Silicon
shall from time to time reasonably specify.
4.5 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At all reasonable times, and
upon one business day notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy the Borrower's
accounting books and records and Borrower's books and records relating to the
Collateral. 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
audits shall be at Silicon's expense, except that the Borrower shall reimburse
Silicon for its reasonable out of pocket costs for semi-annual accounts
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<PAGE>
receivable audits by third parties retained by Silicon, and Silicon may debit
Borrower's deposit accounts with Silicon for the cost of such semi-annual
accounts receivable audits (in which event Silicon shall send notification
thereof to the Borrower). Notwithstanding the foregoing, after the occurrence
of an Event of Default all audits shall be at the Borrower's expense.
4.6 NEGATIVE COVENANTS. Except as may be permitted in the Schedule hereto, the
Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) merge or consolidate with another corporation, except that the
Borrower may merge or consolidate with another corporation if the Borrower is
the surviving corporation in the merger and the aggregate value of the assets
acquired in the merger do not exceed 25% of Borrower's Tangible Net Worth (as
defined in the Schedule) as of the end of the month prior to the effective date
of the merger, and the assets of the corporation acquired in the merger are not
subject to any liens or encumbrances, except Permitted Liens; (ii) acquire any
assets outside the ordinary course of business for an aggregate purchase price
exceeding 25% of Borrower's Tangible Net Worth (as defined in the Schedule) as
of the end of the month prior to the effective date of the acquisition; (iii)
enter into any other transaction outside the ordinary course of business (except
as permitted by the other provisions of this Section); (iv) sell or transfer any
Collateral, except for the sale of finished inventory in the ordinary course of
the Borrower's business, and except for the sale of obsolete or unneeded
equipment in the ordinary course of business; (v) make any loans of any money or
any other assets; (vi) incur any debts, outside the ordinary course of business,
which would have a material, adverse effect on the Borrower or on the prospect
of repayment of the Obligations; (vii) guarantee or otherwise become liable with
respect to the obligations of another party or entity; (viii) pay or declare any
dividends on the Borrower's stock (except for dividends payable solely in stock
of the Borrower); (ix) redeem, retire, purchase or otherwise acquire, directly
or indirectly, any of the Borrower's stock; (x) make any change in the
Borrower's capital structure which has a material adverse effect on the Borrower
or on the prospect of repayment of the Obligations; or (xi) dissolve or elect to
dissolve. Transactions permitted by the foregoing provisions of this Section
are only permitted if no Event of Default and no event which (with notice or
passage of time or both) would constitute an Event of Default would occur as a
result of such transaction.
4.7 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 the Borrower, the Borrower shall, without expense to Silicon, make
available the Borrower and its officers, employees and agents and the 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.
4.8 VERIFICATION. Silicon may, from time to time, following prior notification
to Borrower, verify directly with the respective account debtors the validity,
amount and other matters relating to the Borrower's accounts, by means of mail,
telephone or otherwise, either in the name of the Borrower or Silicon or such
other name as Silicon may reasonably choose, provided that no prior notification
to Borrower shall be required following an Event of Default.
4.9 EXECUTE ADDITIONAL DOCUMENTATION. The Borrower agrees, at its expense, on
request by Silicon, to execute all documents in form satisfactory to Silicon, 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 all of the transactions contemplated by this Agreement.
4.10 COLLECTION OF ACCOUNTS. 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.
5. TERM.
5.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule hereto (the "Maturity Date").
5.2 EARLY TERMINATION. This Agreement may be terminated, without penalty,
prior to the Maturity Date as follows: (i) by the Borrower, effective three
business days after written notice of termination is given to Silicon; or (ii)
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by Silicon at any time after the occurrence of an Event of Default, without
notice, effective immediately.
5.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, the 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 reasonable
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
the 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, Silicon shall promptly deliver to the Borrower termination
statements, requests for reconveyances and such other documents as may be
required to fully terminate any of Silicon's security interests.
6. EVENTS OF DEFAULT AND REMEDIES.
6.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and the Borrower shall
give Silicon immediate written notice thereof: (a) Any warranty,
representation, statement, report or certificate made or delivered to Silicon
by the Borrower or any of the Borrower's officers, employees or agents, now
or in the future, shall be untrue or misleading in any material respect; or
(b) the 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 exceed the Credit Limit; or (d) the
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) the Borrower shall fail to pay or
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 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)
Dissolution, termination of existence, insolvency or business failure of the
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 the 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 (h) the commencement of any proceeding against the 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; (i)
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 (j) 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 (k) the 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 (l) 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 the Borrower, in one or more transactions, compared to the ownership of
outstanding shares of stock of the Borrower in effect on the date hereof,
without the prior written consent of Silicon; or (m) a material adverse
change occurs in the business, operations, or financial or other condition of
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the Borrower, or a material impairment occurs in the prospect of payment of
the Obligations, or there is a material impairment of the value or priority
of Silicon's security interest in the Collateral; or (n) the Borrower shall
generally not pay its debts as they become due; or the Borrower shall
conceal, remove or transfer any part of its property, with intent to hinder,
delay or defraud its creditors, or make or suffer any transfer of any of its
property which may be fraudulent under any bankruptcy, fraudulent conveyance
or similar law. Silicon may cease making any Loans hereunder during any of
the above cure periods, and thereafter if an Event of Default has occurred.
6.2 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 the Borrower), may do any one or
more of the following: (a) Cease making Loans and cease extending letters of
credit or other credit facilities to or for the benefit of the 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 the
Borrower hereby authorizes Silicon without judicial process to enter onto any of
the 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 or all of
the Collateral by Court process, the 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
the 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 the Borrower, and to remove the Collateral to such locations as
Silicon may deem advisable; (e) Require Borrower to deliver to Silicon, in kind,
all checks and other payments received with respect to all accounts and general
intangibles, together with any necessary indorsements, within one day after the
date received by the Borrower; (f) 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 the
Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all other
property without charge; (g) 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 any 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 the 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 the Borrower of any liability the Borrower may have if any
Collateral is defective as to title or physical condition or otherwise at the
time of sale; (h) Demand payment of, and collect any accounts and general
intangibles comprising Collateral and, in connection therewith, the Borrower
irrevocably authorizes Silicon to endorse or sign the Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to the 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 accounts and the like for less than face value; (i) Offset against any
sums in any of Borrower's general, special or other deposit accounts with
Silicon; and (j) Demand and receive possession of any of the 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
five percent per annum.
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6.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. The 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 the
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 the Borrower any and all
information concerning the same. Silicon may employ other methods of noticing
and selling the Collateral, in its discretion, if they are commercially
reasonable.
6.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, the Borrower grants to Silicon
an irrevocable power of attorney coupled with an interest, authorizing and
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
the Borrower, and at the Borrower's expense, to do any or all of the
following, in the Borrower's name or otherwise: (a) Execute on behalf of the
Borrower any documents that Silicon may, in its sole and absolute discretion,
deem advisable in order to perfect and maintain Silicon's security interest
in the Collateral, or in order to exercise a right of the 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 the 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 the Borrower, any invoices relating to any account, 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 the 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 accounts 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 the 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, the 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 the Borrower pursuant to this Agreement and any other present or
future agreements. Silicon shall exercise the foregoing powers in a
commercially reasonable manner. 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 the Borrower.
6.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
of the Collateral shall be applied by Silicon first to the 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
the Borrower or other persons legally entitled thereto; the 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 or other disposition of
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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.
6.6 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 the 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.
7. GENERAL PROVISIONS.
7.1 CREDITING PAYMENTS. Payments shall not be applied to the Obligations
until received by Silicon in immediately available federal funds, and any wire
transfer or other payment so received after 12:00 noon Pacific time shall be
deemed to have been received by Silicon as of the opening of business on the
next business day.
7.2 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by regular first-class mail, or
certified mail return receipt requested, addressed to Silicon or the 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. All notices shall be
deemed to have been given upon delivery in the case of notices personally
delivered to the Borrower or to Silicon, or at the expiration of two business
days following the deposit thereof in the United States mail, with postage
prepaid.
7.3 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.
7.4 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 the Borrower and Silicon and
supersede all 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.
7.5 WAIVERS. The failure of Silicon at any time or times to require the
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between the 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 thereto. None of the provisions of
this Agreement or any other agreement now or in the future executed by the
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 officer of Silicon and delivered to the Borrower.
The 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 the
Borrower is or may in any way be liable, and notice of any action taken by
Silicon, unless expressly required by this Agreement.
7.6 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 the
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.
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7.7 AMENDMENT. The terms and provisions of this Agreement may not be waived or
amended, except in a writing executed by the Borrower and a duly authorized
officer of Silicon.
7.8 TIME OF ESSENCE. Time is of the essence in the performance by the Borrower
of each and every obligation under this Agreement.
7.9 ATTORNEYS FEES AND COSTS. The 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; 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 the 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 the 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 the 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 the 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.
7.10 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 the parties hereto; provided, however, that
the 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 the
Borrower from its liability for the Obligations.
7.11 JOINT AND SEVERAL LIABILITY. If the 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.
7.12 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. The Borrower acknowledges 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. 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
the Borrower under any rule of construction or otherwise.
7.13 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and the
Borrower shall be governed by, and in accordance with, the laws of the State
of California. Any undefined term used in this Agreement that is defined in
the California Uniform Commercial Code shall have the meaning assigned to
that term in the California Uniform Commercial Code. As a material part of
the consideration to Silicon to enter into this Agreement, the Borrower (i)
agrees that all actions and proceedings relating directly or indirectly
hereto 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 the 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.
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7.14 MUTUAL WAIVER OF JURY TRIAL. THE 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 THE BORROWER, OR ANY CONDUCT, ACTS
OR OMISSIONS OF SILICON OR THE BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR THE
BORROWER. THIS WAIVER OF THE RIGHT TO JURY TRIAL APPLIES TO ALL CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, COMMON LAW CLAIMS, STATUTORY CLAIMS
AND ALL OTHER CLAIMS AND CAUSES OF ACTION OF EVERY KIND. EACH PARTY RECOGNIZES
AND AGREES THAT THE FOREGOING JURY TRIAL WAIVER CONSTITUTES A MATERIAL
INDUCEMENT TO THE OTHER PARTY TO ENTER INTO THIS AGREEMENT. EACH PARTY
REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS JURY TRIAL WAIVER WITH ITS
LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING ITS CONSULTATION WITH ITS LEGAL COUNSEL.
BORROWER:
TRUEVISION, INC.
BY /s/ R. John Curson
--------------------------------
PRESIDENT OR VICE PRESIDENT
BY
--------------------------------
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY /s/ Diane Thompson
--------------------------------
TITLE Vice President
-----------------------------
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[LOGO] SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051
DATE: MAY 2, 1996
THIS SCHEDULE is an integral part of the Loan and Security Agreement
between Silicon Valley Bank ("Silicon") and the above-named borrower
("Borrower") of even date.
CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of:
(i) $7,000,000 at any one time outstanding; or
(ii) the sum of
(a) 75% of the Net Amount of Borrower's Eligible
Accounts (defined below) which arise from sales to
entities which are not distributors; plus
(b) 50% of the Net Amount of Borrower's Eligible
Accounts (defined below) which arise from sales to
distributors; plus
(c) 20% of the Value of Borrower's raw materials and
finished goods inventory which Silicon in its
discretion deems eligible for borrowing, up to a
maximum of $1,500,000 total at any one time outstanding
with respect to inventory.
Loans made with respect to Borrower's Accounts may be
referred to in this Agreement as "Accounts Loans". Loans
made with respect to Borrower's inventory may be referred to
in this Agreement as "Inventory Loans".
"Net Amount" of an account means the gross amount of the
account, minus all applicable sales, use, excise and other
similar taxes and minus all discounts, credits and
allowances of any nature granted or claimed.
"Eligible Accounts" means accounts which Silicon in its
discretion deems eligible for borrowing. Without limiting
the generality of the foregoing, the following accounts will
not be deemed Eligible Accounts: (a) accounts outstanding
for more than 90 days from the invoice date, (b) accounts
subject to any contingencies, or arising from a consignment,
guaranteed sale, bill and hold, sale on approval or other
transaction in which payment by the account debtor is
conditional, (c) accounts owing from the United States or
any department, agency or instrumentality of the United
States or any state, city or municipality, (d) accounts
owing from an account debtor whose chief executive office or
principal place of business is outside the United States,
except for any account which: (i) is pre-approved by
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- ------------------------------------------------------------------------------
Silicon in its discretion, or backed by a letter of credit
satisfactory to Silicon, or FCIA insured satisfactory to
Silicon, or (ii) arises from goods shipped or services
rendered to a branch or office of the account debtor in the
United States, or (iii) is owing from the following account
debtors and is acceptable to Silicon in its sole discretion:
Dai Nippon, Avid Ireland, Scitex, Matsushita, Apple Ireland,
Sony and Hitachi, (e) accounts owing from one account
debtor to the extent they exceed 25% of the total eligible
accounts outstanding, except that accounts owing from Avid
shall only be deemed ineligible to the extent they exceed
35% of the total eligible accounts outstanding, (f)
accounts owing from an affiliate of Borrower, and (g)
accounts owing from an account debtor to whom Borrower is or
may be liable for goods purchased from, or services received
from, such account debtor or otherwise (to the extent of the
amount owing to such account debtor). In addition, if more
than 50% of the accounts owing from an account debtor are
outstanding more than 90 days from the invoice date or are
otherwise not eligible for borrowing, then all accounts
owing from that account debtor will be deemed ineligible for
borrowing.
"Value" of Borrower's inventory means the lower of cost or
market value.
INTEREST RATE
(Section 1.2): On all Accounts Loans, a rate equal to the "Prime Rate" in
effect from time to time, plus 1.375% per annum;
On all Inventory Loans, a rate equal to the "Prime Rate" in
effect from timte to time, plus 2% 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.
LOAN ORIGINATION FEE
(Section 1.3): $55,000.
LETTER OF CREDIT SUBLIMIT
(Section 1.4): $6,000,000
FOREIGN EXCHANGE
CONTRACT SUBLIMIT Up to $6,000,000 of the Credit Limit (the "Contract Limit")
may be utilized for spot and future foreign exchange
contracts (the "Exchange Contracts"). The Credit 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.
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- ------------------------------------------------------------------------------
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 defined 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 $3,000,000 (the "Settlement Limit"), 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 the Contract Limit.
Notwithstanding the above, however, the amount which may be
settled in any two (2) business day period may, in Silicon's
sole discretion, be increased above the Settlement Limit up
to, but in no event to exceed, the amount of the Contract
Limit (the "Discretionary Settlement Amount") under either
of the following circumstances (the "Discretionary
Settlement Circumstances"):
(i) if there is sufficient availability under the
Credit Limit in the amount of the Foreign Exchange
Reserve as of each Determination Date, and Silicon in
advance shall reserve the full amount of the Foreign
Exchange Reserve against the Credit Limit; or
(ii) if there is insufficient availability under the
Credit Limit as to settlements within any two (2)
business day period, and if Silicon is able to: (A)
verify good funds overseas prior to crediting
Borrower's deposit account with Silicon (in the case of
Borrower's sale of foreign currency); or (B) debit
Borrower's deposit account with Silicon prior to
delivering foreign currency overseas (in the case of
Borrower's purchase of foreign currency);
PROVIDED that it is expressly understood that Silicon's
willingness to adopt the Discretionary Settlement Amount is
a matter of Silicon's sole discretion and the existence of
the Discretionary Settlement Circumstances in no way means
or implies that Silicon shall be obligated to permit the
Borrower to exceed the Settlement Limit in any two business
day period.
In the case of Borrower's purchase of foreign currency,
Borrower shall instruct Silicon in advance upon settlement
either to treat the settlement amount as an advance under
the Credit Limit or to debit Borrower's account for the
amount settled.
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.
14
<PAGE>
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- ------------------------------------------------------------------------------
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.
MATURITY DATE
(Section 5.1): ONE YEAR FROM THE DATE OF THIS AGREEMENT
SUBSIDIARIES OF BORROWER
(Section 3.1): TRUE VISION, INC., AN INDIANA CORPORATION
SHADELAND ROAD, INDIANAPOLIS, INDIANA
PRIOR NAMES OF BORROWER
(Section 3.2): RASTEROPS
PRESENT TRADE NAMES OF BORROWER
(Section 3.2): NONE
PRIOR TRADE NAMES OF BORROWER
(Section 3.2): NONE
OTHER LOCATIONS AND ADDRESSES
(Section 3.3): NONE
MATERIAL ADVERSE LITIGATION
(Section 3.10): NONE
FINANCIAL COVENANTS
(Section 4.1): Borrower shall comply with all of the following
covenants. Compliance shall be determined as of the end
of each fiscal quarter, except as otherwise specifically
provided below:
QUICK ASSET RATIO: Borrower shall maintain a ratio of "Quick Assets" to
current liabilities of not less than 1.25 to 1.
TANGIBLE NET WORTH: As of December 31, 1995, and as of the end of each
succeeding quarter, Borrower shall maintain a tangible
net worth of not less than the sum of:
(a) $24,000,000, as of December 31, 1995;
plus
(b) 80% of the sum of all equity contributions
received by Borrower subsequent to December 31,
1995;
plus
15
<PAGE>
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- ------------------------------------------------------------------------------
(c) 80% of all net income (but without deductions
for any net losses) earned in each fiscal quarter
ending after December 31, 1995.
DEBT TO TANGIBLE
NET WORTH RATIO: Borrower shall maintain a ratio of total liabilities to
tangible net worth of not more than 1.0 to 1.
PROFITABILITY Borrower shall not incur a loss (after taxes) for any
fiscal quarter or fiscal year during the term of this
Agreement.
DEFINITIONS: "Tangible net worth" means the excess of total assets
over total liabilities, determined in accordance with
generally accepted accounting principles, excluding
however 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, licences
and franchises.
"Quick Assets" means cash on hand or on deposit in
banks, readily marketable securities issued by the
United States, readily marketable commercial paper
rated "A-1" by Standard & Poor's Corporation (or a
similar rating by a similar rating organization),
certificates of deposit and banker's acceptances, and
accounts receivable (net of allowance for doubtful
accounts).
DEFERRED REVENUES: For purposes of the above quick asset ratio, deferred
revenues shall not be counted as current liabilities.
For purposes of the above debt to tangible net worth
ratio, deferred revenues shall not be counted in
determining total liabilities but shall be counted in
determining tangible net worth for purposes of such
ratio. For all other purposes deferred revenues shall
be counted as liabilities in accordance with generally
accepted accounting principles.
SUBORDINATED DEBT: "Liabilities" for purposes of the foregoing covenants
do not include indebtedness which is subordinated to
the indebtedness to Silicon under a subordination
agreement in form specified by Silicon or by language
in the instrument evidencing the indebtedness which is
acceptable to Silicon.
OTHER COVENANTS
(Section 4.1): Borrower shall at all times comply with all of the
following additional covenants:
1. BANKING RELATIONSHIP. Borrower shall at all times
maintain its primary banking relationship with Silicon.
2. MONTHLY BORROWING BASE CERTIFICATE AND OTHER
REPORTS. Subject to the final paragraph of this
Section 2, within 20 days after the end of each month,
Borrower shall provide Silicon with:
a. a Borrowing Base Certificate in such form as
Silicon shall specify;
b. an aged listing of Borrower's accounts
receivable;
c. an aged listing of Borrower's accounts
payable;
d. a report of all distributor sell-throughs and
return sales; and
e. a perpetual inventory report of Borrower's
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.
Notwithstanding the foregoing, if during any quarter
(i) any Inventory Loans were outstanding, or (ii) there
was no period of at least 30 consecutive days during
which there were no outstanding Loans, then during the
following quarter each of the foregoing reports shall
be due on Monday of each week.
BORROWER:
TRUEVISION, INC.
BY /s/ R. John Curson
-----------------------------------------
PRESIDENT OR VICE PRESIDENT
BY
-----------------------------------------
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY /s/ Diane Thompson
-----------------------------------------
TITLE Vice President
--------------------------------------
16
<PAGE>
-------------------------------------------------------------------
[LOGO] SILICON VALLEY BANK
CERTIFIED RESOLUTION
BORROWER: TRUEVISION, INC., A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE
OF DELAWARE
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051
DATE: MAY 2, 1996
I, the undersigned, Secretary or Assistant Secretary of the above-named
borrower, a corporation organized under the laws of the state set forth above,
do hereby certify that the following is a full, true and correct copy of
resolutions duly and regularly adopted by the Board of Directors of said
corporation as required by law, and by the by-laws of said corporation, and that
said resolutions are still in full force and effect and have not been in any way
modified, repealed, rescinded, amended or revoked.
RESOLVED, that this corporation borrow from Silicon Valley Bank
("Silicon"), from time to time, such sum or sums of money as, in the
judgment of the officer or officers hereinafter authorized hereby, this
corporation may require.
RESOLVED FURTHER, that any officer of this corporation be, and he or she
is hereby authorized, directed and empowered, in the name of this
corporation, to execute and deliver to Silicon, and Silicon is requested to
accept, the loan agreements, security agreements, notes, financing
statements, and other documents and instruments providing for such loans
and evidencing and/or securing such loans, with interest thereon, and said
authorized officers are authorized from time to time to execute renewals,
extensions and/or amendments of said loan agreements, security agreements,
and other documents and instruments.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized, directed and empowered, as security for any and all
indebtedness of this corporation to Silicon, whether arising pursuant to
this resolution or otherwise, to grant, transfer, pledge, mortgage, assign,
or otherwise hypothecate to Silicon, or deed in trust for its benefit, any
property of any and every kind, belonging to this corporation, including,
but not limited to, any and all real property, accounts, inventory,
equipment, general intangibles, instruments, documents, chattel paper,
notes, money, deposit accounts, furniture, fixtures, goods, and other
property of every kind, and to execute and deliver to Silicon any and all
grants, transfers, trust receipts, loan or credit agreements, pledge
agreements, mortgages, deeds of trust, financing statements, security
agreements and other hypothecation agreements, which said instruments and
the note or notes and other instruments referred to in the preceding
paragraph may contain such provisions, covenants, recitals and agreements
as Silicon may require and said authorized officers may approve, and the
execution thereof by said authorized officers shall be conclusive evidence
of such approval.
RESOLVED FURTHER, that Silicon may conclusively rely upon a certified copy
of these resolutions and a certificate of the Secretary or Ass't Secretary
of this corporation as to the officers of this corporation and their
offices and signatures, and continue to conclusively rely on such certified
copy of these resolutions and said certificate for all past, present and
future transactions until written notice of any change hereto or thereto is
given to Silicon by this corporation by certified mail, return receipt
requested.
FOREIGN EXCHANGE CONTRACTS
- --------------------------
RESOLVED, that this corporation enter into contracts for the purchase
and/or sale of foreign exchange, on either a spot or forward basis, with
Silicon, from time to time, and in such amounts as, in the judgment of the
officer or officers hereinafter authorized hereby, this corporation may
require.
17
<PAGE>
SILICON VALLEY BANK CERTIFIED RESOLUTION
- ------------------------------------------------------------------------------
RESOLVED FURTHER, that any officer of this corporation be, and he or she is
hereby authorized, directed and empowered, in the name of this corporation,
to execute and deliver to Silicon, and Silicon is requested to accept, the
documents and instruments evidencing the contracts of this corporation with
Silicon for the purchase or sale of foreign exchange, and said authorized
officers are authorized from time to time to execute renewals, extensions
and/or amendments of said documents and instruments and all other related
agreements.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized, directed and empowered, as security for any and all of such
obligations regarding the foreign exchange contracts of this corporation to
Silicon, whether arising pursuant to this resolution or otherwise, to
grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to
Silicon, or deed in trust for its benefit, any property of any and every
kind, belonging to this corporation, including, but not limited to, margin,
securities, any and all real property, accounts, inventory, equipment,
general intangibles, instruments, documents, chattel paper, notes, money,
deposit accounts, furniture, fixtures, goods, and other property of every
kind, and to execute and deliver to Silicon any and all grants, transfers,
trust receipts, loan or credit agreements, pledge agreements, mortgages,
deeds of trust, financing statements, security agreements and other
hypothecation agreements, which said instruments and the other documents
and instruments referred to in the preceding paragraph may contain such
provisions, covenants, recitals and agreements as Silicon may require and
said authorized officers may approve, and the execution thereof by said
authorized officers shall be conclusive evidence of such approval.
The undersigned further hereby certifies that the following persons are the
duly elected and acting officers of the corporation named above as borrower and
that the following are their actual signatures:
NAMES OFFICE(S) ACTUAL SIGNATURES
- ----- --------- ------------------
- ---------------------------- ---------------------- x-------------------------
- ---------------------------- ---------------------- x-------------------------
- ---------------------------- ---------------------- x-------------------------
- ---------------------------- ---------------------- x-------------------------
IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or Assistant
Secretary on the date set forth above.
---------------------------------------
Secretary or Assistant Secretary
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-29-1996
<CASH> 6,101
<SECURITIES> 0
<RECEIVABLES> 18,011
<ALLOWANCES> 598
<INVENTORY> 9,627
<CURRENT-ASSETS> 35,093
<PP&E> 13,682
<DEPRECIATION> 10,551
<TOTAL-ASSETS> 39,928
<CURRENT-LIABILITIES> 12,674
<BONDS> 0
0
0
<COMMON> 52,680
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 39,928
<SALES> 71,536
<TOTAL-REVENUES> 71,536
<CGS> 43,323
<TOTAL-COSTS> 43,323
<OTHER-EXPENSES> 24,008
<LOSS-PROVISION> 402
<INTEREST-EXPENSE> 229
<INCOME-PRETAX> 3,736
<INCOME-TAX> 110
<INCOME-CONTINUING> 3,736
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,626
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0
</TABLE>
