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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 28, 1997 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 (Zip Code)
offices)
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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 5, 1997:
19,382,892
Number of shares of Common Stock outstanding as of September 5, 1997:
12,773,315
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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 28, 1997, 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
Windows- and Macintosh-compatible computers and operating systems.
BACKGROUND
The digital video industry is a 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 captured,
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
In the past, digital video production systems were significantly slower than
analog video production systems, and the picture quality was inadequate for many
high-end applications. Those digital video production systems that were of
sufficient speed and quality were offered by closed system providers that offer
customers a complete turnkey system that was not easily extensible with
third-party hardware and software. The Company believes that recent improvements
in digital video technology are 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 usually 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. That migration
led to a rapid expansion of the desktop publishing 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 computer, third-party software and storage vendors to take
advantage of this emerging opportunity. Through the Company's array of open
system digital video products, it is able to deliver a wide range of solutions
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 performance and a wider variety of features from their
computer peripherals at decreasing costs. 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.
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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 or CD-ROM's. Truevision's
strategy is to continue extensive in-house software development to provide
greater functionality to its hardware, 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, Matsushita Electric
Industrial Co. Ltd.--Video Systems Division ("Matsushita"), Montage Group Ltd.,
Pinnacle Systems, 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 Windows- and
Macintosh-compatible computers and operating systems that convert analog or
digital video input and compress 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 stand-alone or dedicated
analog video editing systems.
All of the Company's products are based on an integrated digital production
engine that provides professional quality capture, playback and non-linear
editing capabilities. The Company's products are designed for both Windows- and
Macintosh-compatible computers and operating 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 The top of the TARGA product line, the "X" products Animation
Trademark-2000 DTX provide quality high-end non-linear editing Off-line video production
TARGA-Registered capabilities. TARGA 2000 DTX provides single-stream On-air broadcast
Trademark-2000 RTX architecture, leading data rates, visually lossless Post-production video
TARGA-Registered component image quality, and on-board alpha channel. Special effects authoring
Trademark-2000 SDX TARGA 2000 RTX has all the capabilities of the DTX in a
with MADRAS dual-stream mode for real-time video editing. RTX comes
with a breakout box for professional connections to
component color and balanced audio. TARGA 2000 SDX with
MADRAS breakout box is designed to work with serial
digital video and audio in an analog environment. TARGA
2000 SDX supports D1, 3 and 5, Digital Betacam, DVCPRO,
DVCAM and Digital-S equipment.
TARGA-Registered The mid-range TARGA 2000/PRO builds on the basic 3D modeling
Trademark-2000 capabilities of the TARGA 1000. Additional features Animation
TARGA-Registered include integrated NTSC or PAL video monitor and up to Corporate video
Trademark-2000 PRO 21-inch graphics display, multi-component format support Educational video
for digital and analog equipment, seamless integration Off-line video production
with most video equipment and formats, and "genlock" for
integrating professional video suites. TARGA 2000/PRO
offers professional quality 3:1 compression and
compatibility with top professional software
applications.
TARGA-Registered TARGA 1000 is an introductory level product designed for Corporate video
Trademark-1000 the "pro-sumer" market. The TARGA 1000 provides users Event videographers
with capture and play-back of full motion, full Internet video
resolution digital video (including composite, S-Video Off-line video production
and component formats), and supports CD and DAT-quality Multimedia authoring
audio. TARGA 1000 is bundled with the Adobe Premiere Video enthusiasts
video editing software program.
BRAVADO-Registered BRAVADO is a low cost, PCI bus, video capture and Event videographers
Trademark- compression board designed to meet the needs of Internet video
professionals and consumers with limited budgets to Off-line video production
capture and edit audio (using a third party audio card)
and video at S-Video quality.
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In addition to these products, Truevision manufactures and sells a number of
specially designed OEM products for individual applications.
The TARGA product line is 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 video formats, (ii) an analog to digital converter
to render the video in digitized form, (iii) digital video compression, (iv) on-
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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 dealers and other
authorized resellers, (regional, national and international) distributors, mail
order catalogs, OEMs, 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, which are expected to be minimal, from
non-distributors 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 warranties 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 sales or warranty returns in the future.
The majority of Truevision's domestic sales are not made directly to the
entity that will use the product. The field sales force, consisting of Company
sales office personnel, is responsible for selling Truevision's products to
chains, distributors, mail order catalogs, resellers and VARs, and provides
marketing training and technical support. Domestic sales for "X" series products
(TARGA 2000 DTX, RTX and SDX) are made predominantly through a national network
of Signature VARs. Truevision Signature VARs are authorized resellers who sell
to end users within a defined geographic territory. In general, Signature VARs
are authorized to sell one or more of the leading software applications driven
by Truevision products, such as Avid's McXpress NT or Discreet Logic's Online
3.0. Signature VARs also provide marketing support, system configuration and
installation for Truevision products.
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. The sales force consists
of manufacturers' representative firms and Company sales personnel. Total
international net sales represented approximately 29.4%, 25.2% and 29.6% of the
Company's net sales for fiscal 1997, 1996 and 1995, 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 products 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.
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 by the Company and sales
made by distributors 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
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complete discussion, see "Certain Factors That May Affect the Company's Future
Results of Operations-- Significant Volatility in Operating Results."
In fiscal 1997, the Company's largest domestic distributor accounted for
11.0% of the Company's net sales. No other customers accounted for more than 10%
of the Company's net sales.
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 (particularly certain ASICs) used in Truevision's
products are available only from sole suppliers such as Applied Micro Circuits
Corporation, LSI Logic Corporation ("LSI"), Lucent Technologies ("Lucent"),
Toshiba America Electronic Components, Inc. ("Toshiba") and Zoran Corporation,
among others. Truevision expects these vendors to continue to supply its
requirements for these items, although there can be no assurance that they will
do so. 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."
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 Windows- and Macintosh-compatible computer and
operating systems market-places 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 Windows- and
Macintosh-compatible computer and operating systems 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 Windows- and
Macintosh-compatible computer and operating systems for the forseeable future.
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
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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 recently completed 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,
including development of third party software applications, 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 1997, 1996 and 1995 were
approximately $6.9 million, $7.2 million and $6.8 million, respectively.
Truevision did not capitalize any software development costs, as no significant
costs during those periods were incurred after technology feasibility was
established.
COMPETITION
The markets for Truevision products are extremely competitive, and
Truevision expects the competition to continue to increase. Avid, Digital
Processing Systems, Inc., Fast Electronics GmbH, Matrox Inc., Media 100 Inc.,
Miro Computer Products, Pinnacle Systems, Inc. and Radius Inc. 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 1998. For a more complete discussion, see
"Certain Factors That May Affect the Company's Future Results of
Operations--Competition."
PATENTS AND TRADEMARKS
On October 1, 1996, Truevision was granted U.S. patent No. 5,561,472 for
"Real Time Video Converter Having Relocatable and Resizable Windows." 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
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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 one patent application pending in the United States.
Truevision also has eleven patent applications based on the inventions covered
by its U.S. applications pending in several foreign jurisdictions, including the
European Economic Community, several individual European countries, Canada and
Japan, four of which applications have been allowed but not yet issued. One
patent, the invention covered by the "Method and Apparatus for CYMK-RGB RAMDAC"
patent identified above, has been granted to Truevision in Canada.
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 at least as important in
maintaining its competitive position as its efforts 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."
EMPLOYEES
At June 28, 1997, Truevision had 164 employees, of whom 45 were engaged in
research and development, 53 in manufacturing, and 66 in sales, general and
administration. In late June and early July 1997, the Company reduced its
headcount in connection with the Company's planned restructuring in the fourth
quarter of fiscal 1997. Following the reduction in headcount and as of July 7,
1997, Truevision had 133 employees, of whom 40 were engaged in research and
development, 41 in manufacturing, and 52 in sales, general and administration.
Truevision's future success will depend, in part, on its ability to continue to
retain, motivate and attract 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."
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CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS
LIQUIDITY AND 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, absent future
substantial operating losses, 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 anticipated fiscal 1998
level of operations, but may not be sufficient to allow for unrestricted growth
and unanticipated business declines. 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. In particular, the Company may seek
additional funding during the next twelve months to finance working capital. In
the event the Company experiences further significant operating losses, the
Company believes that it will require further capital infusions or other sources
of cash. 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 obtain in a timely
manner 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 the market price of the Common Stock 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
inventory. The more significant financial covenants of the line of credit are
quick ratio, tangible net worth, debt to tangible net worth and profitability
covenants. The Company is currently and has in the past been in violation of
certain of the covenants; in each instance, a waiver of such violations has been
obtained from the bank. Although the Company currently has a waiver of its
covenant violations as of June 28, 1997 from the bank, 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. The
Company's current credit agreement expired on August 20, 1997 and the bank
granted an extension through September 20, 1997. On September 19, 1997, the
Company entered into a new one year revolving line of credit agreement allowing
the Company to borrow up to $7 million based upon percentages of eligible
accounts receivable and inventory. The primary financial covenant of the new
line of credit is a tangible net worth covenant.
SUBSTANTIAL DECLINE IN SALES AND 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. In fiscal 1997, the Company experienced a decline in net sales of
39% from fiscal 1996 and again experienced a significant operating loss. There
can be no assurance that net sales will not decline further in the future, or
that the Company will not experience significant operating losses in the future.
As of June 28, 1997, the Company had an accumulated deficit of $45.1 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
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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 achieve or sustain profitability.
SIGNIFICANT VOLATILITY IN OPERATING RESULTS. In the past, the Company has
experienced significant fluctuations in its quarterly operating results, and it
anticipates that such fluctuations will continue and could intensify in the
future. Fluctuations in operating results may result in volatility in the price
of the Company's Common Stock. Operating results may fluctuate as a result of
many factors, including announcements by the Company, its competitors or the
manufacturers of the platforms with which its products are used, volume and
timing of orders received during the period, the timing of new product
introductions by the Company and its competitors, product line maturation, the
impact of price competition of the Company's average selling prices, the
availability and pricing of components for the Company's products, and changes
in product or distribution channels. 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. Furthermore, the Company adopted a deferred revenue
recognition policy with respect to sales made through distributors. The Company
believes such a method is more conservative and better reflects sales
performance of the Company's products; and such a method is likely to be less
volatile than a revenue recognition policy based on shipments to distributors.
The volume and timing of recognition of revenue from distributors and orders
received from other direct customers during a quarter are difficult to forecast.
Truevision's customers (other than some OEM customers) generally do not place
scheduled orders in advance and, as a result, backlog at the beginning of each
quarter represents only a small percentage of the product sales anticipated in
that quarter. Quarterly net sales and operating results therefore depend on the
volume and timing of bookings received by the Company and sales made by
distributors 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 KEY CUSTOMERS. The Company's operating results have depended
increasingly upon its ability to obtain orders from, maintain relationships with
and provide support to 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. During fiscal 1995, the Company entered into a
significant three-year OEM agreement with Avid under which Avid agreed to make
minimum aggregate purchases of certain products during the calendar years 1995
through 1997. The agreement between the Company and Avid also provided that Avid
had the right to manufacture certain Truevision products rather than purchasing
them from the Company subject to the payment of 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 and a fully paid license fee for Avid to
manufacture the current products used by Avid was negotiated. As a result, the
Company did not in fiscal 1997 and does not in the future expect to receive any
further revenues or royalties resulting from Avid's manufacture and use of such
9
<PAGE>
products. The Company has no further obligations to Avid. In fiscal 1997, 1996
and 1995, Avid accounted for 1.2%, 35.9% and 15.7%, respectively, of the
Company's net sales.
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, Lucent, Matsushita, Sony
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
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.
In August 1997, the Company entered into an agreement with a major supplier
to purchase $1.6 million of a certain component during fiscal 1998 and 1999. The
component is used in the majority of the Company's products and is currently
available only from this supplier. The supplier is discontinuing the component
and the purchase commitment represents the Company's anticipated usage
requirements for the next two years. The inability to obtain sufficient
quantities of this key component as required, or to develop an alternative
component, could result in delays or reductions in product shipments to the
Company's customers. However, the Company's future generation products, which
are expected to be released within the next two years, will not require this
component.
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
10
<PAGE>
this process could have a material adverse effect on the Company's business,
financial condition and results of operations.
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 versions of 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.
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 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.
11
<PAGE>
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.
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. In particular, in fiscal 1997
several of these independent software developers have experienced delays in
releasing their software applications which have, in turn, adversely impacted
the ability of the Company's products to compete effectively in the market. The
Company believes that market pressures will force application vendors to offer a
wider variety of 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
Microsoft or Apple were to deteriorate, its business and results of operations
could be materially adversely affected.
UNCERTAINTY REGARDING PROPRIETARY RIGHTS. The Company attempts to protect
its intellectual property rights through patents, trademarks, trade secrets and
a variety of other measures. There can be no assurance, however, that such
measures will provide adequate protection for the Company's intellectual
12
<PAGE>
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 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 experienced such integration and incorporation with
respect to its RasterOps branded products, which it discontinued, 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 1997, 1996 and 1995, international
sales represented 29.4%, 25.2% and 29.6%, respectively, of the Company's net
sales. The Company expects that international sales will continue to represent a
significant portion of net sales, although they may fluctuate from period to
period. 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
13
<PAGE>
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.
YEAR 2000 COMPLIANCE. The year 2000 Compliance issue, which is common to
most companies, concerns the inability of computerized information systems to
properly recognize and process date sensitive information as the year 2000
approaches. The Company is currently working to address and resolve this issue
with respect to its computerized information systems, but has not yet assessed
the total cost. However, based on preliminary information available to the
Company, such costs are not currently expected to have a material adverse impact
on the Company's financial position or results of operations in future periods.
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. In connection with the
Company's planned restructuring in the fourth quarter of fiscal 1997, the
Company decided to close its European offices and has terminated leases for
sales offices located 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
The Company is involved in certain legal proceedings arising in the ordinary
course of business, none of which is expected to have a material impact on the
financial condition or business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of fiscal 1997 to a vote
of the Company's security holders.
14
<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........................ 39 President and Chief Executive Officer
R. John Curson......................... 54 Senior Vice President, Chief Financial Officer and Secretary
Carl C. Calabria....................... 38 Senior Vice President, Engineering
Harvey A. Chesler...................... 39 Vice President and Corporate Controller
</TABLE>
All executive officers serve at the pleasure of the Board of Directors.
There are no family relationships among the directors or executive officers of
the Company.
Mr. Louis J. Doctor has been President and Chief Executive Officer since he
joined the Company in October 1994. Prior to joining the Company 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 of 1989.
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. 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.
15
<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 1997 JUNE 28 MARCH 29 DECEMBER 28 SEPTEMBER 28
- -------------------------------------------------- ------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
High.............................................. $ 2 13/16 $ 3 13/16 $ 4 3/8 $ 7 7/8
Low............................................... $ 1 5/8 $ 2 7/16 $ 2 9/16 $ 4 3/8
<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
</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 5, 1997, the Company had approximately 294 stockholders of record. The
price for the common stock as of the close of business on September 5, 1997 was
$2.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
JUNE 28, JUNE 29, JULY 1, JUNE 30, JUNE 30,
YEAR ENDED 1997 1996 1995 1994 1993
- -------------------------------------------------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $ 43,620 $ 71,536 $ 66,318 $ 79,175 $100,023
Restructuring and other costs..................... $ 1,680(A) $ -- $ 3,654(B) $ 6,694(C) $ 9,590(D)
Litigation settlement expense..................... $ -- $ -- $ 3,675(E) $ -- $ --
Income (loss) before income taxes and cumulative
effect of accounting change..................... $(13,419) $ 3,736 $(20,231) $(20,865) $(16,730)
Cumulative effect of accounting change............ $ (4,858)(F) $ -- $ -- $ -- $ --
Net income (loss)................................. $(19,787) $ 3,626 $(20,231) $(20,865) $(12,163)
Net income (loss) per share....................... $ (1.56) $ 0.27 $ (2.12) $ (2.20) $ (1.49)
Average common shares and equivalents............. 12,694 13,535 9,565 9,466 8,189
FINANCIAL POSITION
Total assets...................................... $ 20,488 $ 39,928 $ 40,726 $ 44,701 $ 66,704
Long-term obligations............................. $ 86 $ 151 $ 44 $ 247 $ 747
Stockholders' equity.............................. $ 7,876 $ 27,103 $ 18,527 $ 30,231 $ 50,193
Working capital................................... $ 5,027 $ 22,419 $ 14,215 $ 23,671 $ 42,487
Current ratio..................................... 1.4 2.8 1.6 2.7 3.7
</TABLE>
- ------------------------
(A) During the quarter ended June 28, 1997, the Company recorded a charge for
restructuring and other costs of $1,680,000. For a more complete discussion,
see Note 5 to the Consolidated Financial Statements.
(B) During the quarter ended September 30, 1994, the Company recorded a charge
for restructuring and other costs of $3,654,000. For a more complete
discussion, see Note 5 to the Consolidated Financial Statements.
(C) During the quarter ended September 30, 1993, the Company recorded a charge
for restructuring and litigation of $6,694,000. This charge included costs
of downsizing and integrating operations, write-down of certain assets as a
result of the discontinuance of certain product lines and write-off of other
impaired assets.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
(D) During the quarter ended March 31, 1993, RasterOps undertook a series of
actions to reduce costs and expenses. Restructuring charges totaling
approximately $6,700,000 were recorded, which included severance related
costs, downsizing operations and write-off of non-performing assets as a
result of the discontinuance of certain product lines.
In connection with the merger with Truevision (Indianapolis, Indiana) on
August 28, 1992, RasterOps recorded a charge for restructuring and merger
costs of approximately $2,900,000 to reflect the combination of operations
of the companies. This included professional fees and other direct
transaction costs associated with the merger, severance related costs
primarily for termination of redundant employees, elimination and/or
relocation of duplicate sales operations and write-off of excess property
and equipment and inventory which became obsolete by the merger.
(E) In fiscal 1995, the Company accrued $3,675,000 for settlement of a
stockholder class action lawsuit. For a more complete discussion, see Note 9
to the Consolidated Financial Statements
(F) During the quarter ended September 28, 1996, the Company recorded a charge
of $4,858,000 for the cumulative effect of changing its method of accounting
for revenue recognition for shipments to distributors. For a more complete
discussion, see Note 4 to the Consolidated Financial Statements.
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 28, 1997, and the year-to-year
percentage change in the dollar amounts of certain items in fiscal 1997 and 1996
(in thousands, except per share and ratio data):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29, JULY 1,
PERCENTAGE OF NET SALES 1997 1996 1995
- -------------------------------------------------------------------------------- ----------- ----------- ---------
<S> <C> <C> <C>
Net sales....................................................................... 100.0% 100.0% 100.0%
Cost of sales................................................................... 69.7 60.6 77.8
----------- ----------- ---------
Gross profit.................................................................... 30.3 39.4 22.2
Operating expenses:.............................................................
Research and development...................................................... 15.8 10.1 10.3
Selling, general and administrative........................................... 39.9 23.4 31.0
Restructuring and other costs................................................. 3.9 -- 5.5
----------- ----------- ---------
Income (loss) from operations................................................... (29.3) 5.9 (24.6)
Litigation, interest and other income (expense), net............................ (1.5) 0.7 (5.9)
----------- ----------- ---------
Income before provision for income taxes and cumulative effect of change in
accounting principle.......................................................... (30.8) 5.2 (30.5)
Provision for income taxes...................................................... 3.5 0.1 --
----------- ----------- ---------
Income (loss) before cumulative effect of change in accounting principle........ (34.3) 5.1 (30.5)
Cumulative effect of change in accounting principle............................. (11.1) -- --
----------- ----------- ---------
Net income (loss)............................................................... (45.4)% 5.1% (30.5)%
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
1997 CHANGE 1996 CHANGE 1995
---------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales................................................ $ 43,620 (39)% $ 71,536 8% $ 66,318
Gross profit............................................. $ 13,208 (53)% $ 28,213 92% $ 14,695
Operating expenses....................................... $ 25,978 8% $ 24,008 (23)% $ 31,021
Net Income (loss)........................................ $ (19,787) (646)% $ 3,626 118% $ (20,231)
Net income (loss) per share.............................. $ (1.56) (678)% $ 0.27 113% $ (2.12)
</TABLE>
17
<PAGE>
FISCAL 1997 COMPARED TO FISCAL 1996
On September 27, 1996, the Company announced a change in its method of
accounting for recognizing distributor revenue. As a result, the quarter ended
September 28, 1996 includes a $4.9 million, or $0.38 per share, charge for the
cumulative effect of the change in accounting. For a more complete discussion,
see "Accounting Change." The following table sets forth net sales and gross
profit for fiscal 1997 and 1996. Note, the net sales and gross profit for fiscal
1996 is on a pro forma basis assuming the new method had been applied
retroactively (in millions):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
----------- -----------
<S> <C> <C>
NET SALES:
Retail/Distribution..................................................... $ 32.3 $ 30.6*
OEM..................................................................... 11.3 35.3
----- -----
Total net sales....................................................... $ 43.6 $ 65.9
----- -----
----- -----
GROSS PROFIT.............................................................. $ 13.2 $ 25.6
----- -----
----- -----
</TABLE>
- ------------------------
* As compared to net sales of $36.2 for fiscal 1996 under the previous
accounting method.
NET SALES. Net sales were $43.6 million for fiscal 1997, a pro forma
decrease of $22.3 million, or 33.8%, from fiscal 1996. International net sales
represented 29.4% of net sales for fiscal 1997, compared to a pro forma 23.1%
for fiscal 1996. The decrease in total net sales from fiscal 1996 was primarily
due to a reduction in sales to Avid as discussed below.
Net sales to the retail/distribution channel were $32.3 million during
fiscal 1997, a pro forma increase of $1.7 million, or 5.6%, from fiscal 1996.
Sales to the retail/distribution channel for fiscal 1997 increased primarily due
to the addition of the TARGA 2000 RTX and Bravado product lines but sales were
still adversely impacted during the first half of fiscal 1997 by delays in the
availability of third party software applications. During the second quarter of
fiscal 1997, the Company's software development partners made progress toward
the completion of new applications for the Company's high-end TARGA 2000 RTX.
Two such applications were released in January 1997. Future sales could be
adversely impacted if future third party software applications are not readily
available.
The volume and timing of recognition of revenue from distributors and orders
received from other direct customers during a quarter are difficult to forecast.
Truevision's non-OEM customers generally do not place scheduled orders in
advance and, as a result, backlog at the beginning of each quarter represents
only a portion of the product sales anticipated in that quarter. Quarterly net
sales and operating results therefore depend on the volume and timing of
bookings received by the Company and sales made by distributors during a
quarter, which are difficult to forecast. The absence of backlog has limited the
Company's ability to predict appropriate production and inventory levels, which
has had and could have in the future an adverse effect on operating results.
Truevision's results of operations may fluctuate from quarter to quarter due to
these and other factors, such as announcements by Truevision, its competitors or
the manufacturers of platforms with which Truevision's products are used.
OEM net sales were $11.3 million for fiscal 1997, a decrease of $24.0
million, or 68.0%, from fiscal 1996. The decrease in OEM business in fiscal 1997
was primarily due to a reduction in sales to Avid as discussed below.
During fiscal 1995, the Company entered into a three-year OEM agreement with
Avid under which Avid had agreed to make minimum aggregate purchases of certain
products of $40 million during calendar years 1995 through 1997. In the fourth
quarter of fiscal 1996, Avid and the Company negotiated a fully paid license fee
in the amount of $1.45 million allowing Avid to manufacture certain products
used by Avid, rather than purchase them from the Company. The Company did not in
fiscal 1997 and does not in
18
<PAGE>
the future expect to receive any revenues or royalties resulting from Avid's
manufacture and use of such products. The Company has no further obligations to
Avid. For fiscal 1997 and 1996, Avid accounted for 1.2% and pro forma 39.0%,
respectively, of the Company's net sales.
OEM net sales for fiscal 1997 and 1996 included $0.8 million and $2.4
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 $13.2 million, or 30.3% of
net sales, for fiscal 1997 compared to pro forma gross profit of $25.6 million,
or 38.8% of net sales, during fiscal 1996. The Company's gross margins decreased
in fiscal 1997 primarily due to absorption of period costs (i.e., other cost of
sales) over a lower sales base, inventory valuation adjustments, and lower
revenue from license fees and engineering services. The gross profit for fiscal
1997 and 1996 included revenue from license fees and engineering services for
the periods. The revenue from license fees and engineering services for fiscal
1997 approximated the related costs.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$6.9 million for fiscal 1997, compared to $7.2 million for fiscal 1996. As a
percentage of net sales, research and development expenses were 15.8% for fiscal
1997, compared to a pro forma 11.0% for fiscal 1996. The decrease of $0.3
million in fiscal 1997 was primarily due to a shift in resources to support
engineering revenue as discussed above. The Company anticipates that as a result
of the restructuring during the quarter ended June 28, 1997 (see "Special
Charges--Fiscal 1997" below), absent any unusual circumstances or events, its
relative spending levels of research and development expenses will be slightly
lower in fiscal 1998.
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 expenses were $17.4 million for fiscal 1997, compared to $16.8
million for fiscal 1996. As a percentage of net sales, selling, general and
administrative expenses were 39.9% for fiscal 1997, compared to a pro forma
25.4% for fiscal 1996. The increase of $0.6 million in fiscal 1997 was primarily
due to start-up costs associated with launching the new signature VAR sales
channel, which is being used to market the TARGA 2000 RTX product line. The
Company anticipates that as a result of the restructuring during the quarter
ended June 28, 1997 (see "Special Charges--Fiscal 1997" below), absent any
unusual circumstances or events, its relative spending levels of selling,
general and administrative expenses will be lower in fiscal 1998.
OTHER INCOME (EXPENSE), NET. Other income (expense), net, for fiscal 1997
is comprised primarily of charges associated with the discontinuance of the
initial development of a separate computer system product line and residual
expenses associated with the RasterOps product line. Other income (expense),
net, for fiscal 1996 is comprised primarily of residual expenses associated with
the RasterOps product line.
INCOME TAXES. In the fourth quarter of fiscal 1997, the Company recorded a
provision for income taxes of $1.5 million to fully reserve for deferred tax
assets because management determined at that time that the future realization of
these deferred tax assets was uncertain. At June 28, 1997, the Company had gross
deferred tax assets of $22.5 million relating primarily to net operating loss
carryforwards. These deferred tax assets have been fully reserved due to the
uncertainty of future realization of the net operating loss carryforwards. A
provision for income taxes of $110,000 was recorded for fiscal 1996, which
represents federal and state alternative minimum taxes.
19
<PAGE>
SPECIAL CHARGES--FISCAL 1997. During the quarter ended June 28, 1997, the
Company recorded a charge for restructuring and other costs of $1.7 million.
This charge primarily consisted of costs associated with downsizing facilities
and reduction in headcount. Also, as a result of the Company's decision to close
its European offices, the restructuring charge included costs associated with
lease terminations and write-off of fixed assets for the sales offices located
in France and the United Kingdom, and the write-off of the cumulative
translation adjustment. The downsizing of facilities, lease terminations and
fixed asset reductions is expected to decrease facilities expenses by
approximately $0.8 million in fiscal 1998. The reduction in headcount is
expected to decrease employee costs by approximately $2.3 million in fiscal
1998.
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 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.
20
<PAGE>
OEM 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 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 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses 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 expenses decreased to 23.4% in fiscal
1996 compared with 31.0% for fiscal 1995. The decrease was primarily related 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.
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 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.
21
<PAGE>
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.
ACCOUNTING CHANGE
Revenue from product sales to dealers, OEMs, VARs and end users is
recognized upon shipment. In the quarter ended September 28, 1996, the Company
changed its accounting method for recognizing distributor revenue, whereby the
Company defers recognizing revenue, and does not relieve inventory on shipments
to distributors, until shipment by the distributor. Previously, the Company
recognized revenue, after recording appropriate reserves for sales returns from
distributors and allowances granted to them, at the time of shipment to the
distributor. Distributor agreements allow certain rights of return and price
protection on products held by distributors. Cash received in advance of
recognizing distributor revenue is recorded as advances on inventory held by
distributors. The Company believes that deferral of distributor sales and
related gross margins until the product is shipped by the distributors results
in a more meaningful measurement of operations and is a preferable method of
accounting for distributor revenue.
The cumulative effect on prior years of changing the accounting method was
$4.9 million, or $0.38 per share. This amount was reflected in the quarter ended
September 28, 1996. The estimated pro forma amounts for the year ended June 29,
1996 assuming the new method of accounting had been applied retroactively would
be net sales of $65.9 million and net income of $1.0 million, or $0.08 per
share.
LIQUIDITY AND CAPITAL RESOURCES
At June 28, 1997, the Company had cash and cash equivalents of $4.5 million,
a decrease of $1.6 million from the $6.1 million at June 29, 1996. Working
capital decreased to $5.0 million at June 28, 1997 from $22.4 million at June
29, 1996. Although the Company experienced a net loss of $19.8 million in fiscal
1997 and a reduction in trade accounts payable of $3.8 million, net cash used in
operating activities was only $0.7 million. The net loss and reduction in trade
accounts payable were partially offset primarily due to: (1) the non-cash effect
from the charge for the change in accounting method of $4.9 million,
depreciation and amortization of $2.4 million, the charge for restructuring of
$1.7 million, the write-off of deferred tax assets of $1.5 million, and
inventory valuation adjustments of $1.0 million; and (2) a reduction in
inventory of $6.7 million, a reduction in accounts receivable of $2.5 million
and an increase in accrued expenses of $1.4 million. During fiscal 1996, net
cash used in operating activities was $9.3 million, primarily due to an increase
of accounts receivable caused by increased net sales and timing of sales in the
latter part of the fourth quarter of fiscal 1996, and settlement related to a
stockholder class action lawsuit. In August 1995, the Company made a payment
totaling $3.6 million in settlement of the lawsuit, and the Company's insurance
carrier paid $3.0 million, which the Company had recorded in prepaid expenses
and other assets at July 1, 1995, liquidating the July 1, 1995 stockholder
litigation settlement accrual of $6.6 million.
The Company's products are sold to end users through dealers and other
authorized resellers, (regional, national and international) distributors, mail
order catalogs, OEMs and VARs. In fiscal 1997, distributor revenue accounted for
$21.1 million, or 48.3% of the Company's net sales. 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.
In August 1997, the Company entered into an agreement with a major supplier
to purchase $1.6 million of a certain component during fiscal 1998 and 1999. The
component is used in the majority of the Company's products and is currently
available only from this supplier. The supplier is discontinuing the component
and the purchase commitment represents the Company's anticipated usage
requirements for the next two years. The inability to obtain sufficient
quantities of this key component as required, or to develop an alternative
component, could result in delays or reductions in product shipments to the
22
<PAGE>
Company's customers. However, the Company's future generation products, which
are expected to be released within the next two years, will not require this
component.
Net cash used in investing activities was $1.3 million during fiscal 1997
and 1996. The Company spent approximately $1.4 million and $1.7 million for new
equipment during fiscal 1997 and 1996, respectively. Additionally, the Company
acquired new equipment under capital leases totaling $0.6 million in fiscal
1996. At June 28, 1997, the Company had no material commitments for the purchase
of capital equipment.
Net cash provided by financing activities was $0.4 million during fiscal
1997, compared to $6.3 million during fiscal 1996. In fiscal 1996, cash provided
by financing activities was derived primarily from funds generated, from the
issuance of Common Stock to investors, proceeds from stock options exercised,
and borrowings on the Company's line of credit. In August 1995, the Company
issued 650,000 shares of its Common Stock in a private placement to investors.
The proceeds were used primarily to fund the settlement of the Company's
stockholder class action lawsuit.
The Company has a $7 million revolving 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 inventory. The more significant financial covenants of the line
of credit are quick ratio, tangible net worth, debt to tangible net worth and
profitability covenants. At June 28, 1997, the Company was in violation of
certain financial covenants. However, a waiver of its covenant violations as of
June 28, 1997 has been obtained from the bank. Although the Company currently
has a waiver of its covenant violations from the bank, 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. The
Company's current line of credit expired on August 20, 1997 and the bank granted
an extension through September 20, 1997. On September 19, 1997, the Company
entered into a new one year revolving line of credit agreement allowing the
Company to borrow up to $7 million based upon percentages of eligible accounts
receivable and inventory. The primary financial covenant of the new line of
credit is a tangible net worth covenant. As of June 28, 1997, the Company had
borrowings of $3.7 million and $0.4 million was available under the line of
credit. As of September 19, 1997, the Company had borrowings of $2.0 million and
$0.9 million was available under the new line of credit. The amount available
under the line of credit has been reduced by a letter of credit totaling
$225,000 issued as a guarantee for a certain customer.
The Company's cumulative operating losses in the current and prior years
resulted in the need to address the Company's liquidity position. Truevision's
plans include cost reductions (during the quarter ended June 28, 1997, the
Company undertook actions to reduce costs and expenses and recorded a charge for
restructuring and other costs of $1.7 million which included primarily costs
associated with downsizing facilities and reduction in headcount, see "Special
Charges--Fiscal 1997"), and the introduction of new products during fiscal 1998.
Management has also developed production, sales and financing plans that they
believe will result in significantly improved performance in fiscal 1998
including significant reductions in losses and/or the achievement of profitable
operations. Management believes that these plans, when coupled with available
credit facilities as discussed above, will enable the Company to continue as a
going concern at least through June 27, 1998.
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 require additional equity or debt financing to
fund such activities. However, there can be no assurance that the Company will
be able to obtain these funds on terms and conditions acceptable to the Company.
In addition, the sale of additional equity or convertible debt securities could
result in additional dilution in the equity ownership of the Company's
stockholders.
23
<PAGE>
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." SFAS No. 123 requires the measurement of the fair
value of stock-based compensation to be included in the statement of operations
or disclosed in the notes to financial statements. The Company has elected the
disclosure-only alternative under SFAS No. 123 and will continue to account for
stock-based compensation for employees under Accounting Principles Board Opinion
No. 25. Accordingly, no compensation expense has been recognized in the
Company's consolidated statements of operations.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128 (SFAS No. 128), "Earnings per Share."
This Statement is effective for financial statements issued for periods ending
after December 15, 1997. This Statement replaces the presentation of primary EPS
with a presentation of "basic" EPS. Basic EPS is calculated by dividing the
income or loss available to common stockholders by the weighted average number
of common shares outstanding for the period, without consideration for common
stock equivalents. "Fully diluted" EPS is replaced by "diluted" EPS and is
computed similarly to fully diluted EPS under the provisions of Accounting
Principles Board Opinion No. 15. Basic earnings per share and diluted earnings
per share for the year ended June 28, 1997, calculated in accordance with SFAS
No. 128, are the same as net income per common share computed using the existing
rules.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement establishes standards of reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement is effective for financial statements issued for periods beginning
after December 15, 1997. The Company does not intend to adopt this Statement
early. Adoption of this Statement is not expected to have a material effect on
the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosures about
Segments of an Enterprise and Related Information. This Statement requires
public companies to disclose certain operating and financial information by
business segment in their annual and interim financial statements. This
Statement is effective for financial statements issued for periods beginning
after December 15, 1997. The Segment disclosures of the Company determined in
accordance with SFAS No. 131 would be the same as those determined using the
existing rules.
IMPACT OF CURRENCY AND INFLATION
The Company purchases materials and services primarily 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.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
1. FINANCIAL STATEMENTS
Report of Independent Accountants...................................................................... 26
Consolidated Balance Sheets--June 28, 1997 and June 29, 1996........................................... 27
Consolidated Statements of Operations--Three years ended June 28, 1997................................. 28
Consolidated Statements of Stockholders' Equity--Three years ended June 28, 1997....................... 29
Consolidated Statements of Cash Flows--Three years ended June 28, 1997................................. 30
Notes to Consolidated Financial Statements............................................................. 31
2. FINANCIAL STATEMENT SCHEDULES The following financial statement schedule of Truevision for the three
years ended June 28, 1997 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.
<CAPTION>
SCHEDULE PAGE
------------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
II--Valuation and Qualifying Accounts.................................................................. 48
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.
</TABLE>
25
<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 28, 1997 and June 29,
1996, and the results of their operations and their cash flows for each of the
three years in the period ended June 28, 1997, 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.
As discussed in Note 4 to the consolidated financial statements, during the
year ended June 28, 1997 the Company changed its method of recognizing revenue.
PRICE WATERHOUSE LLP
San Jose, California
August 12, 1997
26
<PAGE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 4,549 $ 6,101
Accounts receivable, less allowance for doubtful accounts of $338 and $598 (Note 4)..... 4,630 17,413
Inventory (Note 2)...................................................................... 7,746 9,627
Prepaid expenses and other assets....................................................... 555 1,662
Deferred income taxes (Note 7).......................................................... -- 60
Income taxes receivable................................................................. 73 230
---------- ----------
Total current assets.................................................................. 17,553 35,093
Property and equipment, net (Note 3).................................................... 2,757 3,131
Other assets............................................................................ 178 251
Deferred income taxes (Note 7).......................................................... -- 1,453
---------- ----------
Total assets.......................................................................... $ 20,488 $ 39,928
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (Note 6)................................................................. $ 3,738 $ 3,437
Accounts payable........................................................................ 2,475 6,288
Accrued employee compensation........................................................... 1,492 541
Accrued restructuring and other costs (Note 5).......................................... 1,531 --
Advances on inventory held by distributors (Note 4)..................................... 644 --
Other accrued liabilities............................................................... 2,581 2,165
Current portion of long-term obligations (Note 11)...................................... 65 243
---------- ----------
Total current liabilities............................................................. 12,526 12,674
Long-term obligations (Note 11)........................................................... 86 151
---------- ----------
Total liabilities..................................................................... 12,612 12,825
---------- ----------
Commitments and contingencies (Note 11)
Stockholders' equity (Note 8):
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; 12,728,000 and
12,629,000 shares issued and outstanding.............................................. 53,015 52,680
Accumulated deficit..................................................................... (45,139) (25,352)
Cumulative translation adjustment (Note 5).............................................. -- (225)
---------- ----------
Total stockholders' equity............................................................ 7,876 27,103
---------- ----------
Total liabilities and stockholders' equity............................................ $ 20,488 $ 39,928
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements
27
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------
JUNE 28, JUNE 29, JULY 1,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales (Note 4)............................................................ $ 43,620 $ 71,536 $ 66,318
Cost of sales................................................................. 30,412 43,323 51,623
---------- ---------- ----------
Gross profit.................................................................. 13,208 28,213 14,695
---------- ---------- ----------
Operating expenses:
Research and development.................................................... 6,899 7,247 6,831
Selling, general and administrative......................................... 17,399 16,761 20,536
Restructuring and other costs (Note 5)...................................... 1,680 -- 3,654
---------- ---------- ----------
Total operating expenses.................................................... 25,978 24,008 31,021
---------- ---------- ----------
Income (loss) from operations................................................. (12,770) 4,205 (16,326)
Other income (expense), net................................................... (471) (324) (76)
Interest expense.............................................................. (297) (229) (238)
Interest income............................................................... 119 84 84
Litigation settlement expense (Note 9)........................................ -- -- (3,675)
---------- ---------- ----------
Income (loss) before provision for income taxes and cumulative effect of
change in accounting principle.............................................. (13,419) 3,736 (20,231)
Provision for income taxes (Note 7)........................................... 1,510 110 --
---------- ---------- ----------
Income (loss) before cumulative effect of change in accounting principle...... (14,929) 3,626 (20,231)
Cumulative effect of change in accounting principle (Note 4).................. (4,858) -- --
---------- ---------- ----------
Net income (loss)............................................................. $ (19,787) $ 3,626 $ (20,231)
---------- ---------- ----------
---------- ---------- ----------
Per common share:
Income (loss) before cumulative effect of change in accounting principle.... $ (1.18) $ 0.27 $ (2.12)
Cumulative effect of change in accounting principle......................... $ (0.38) $ -- $ --
Net income (loss) per share................................................. $ (1.56) $ 0.27 $ (2.12)
Weighted average common shares and equivalents................................ 12,694 13,535 9,565
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements
28
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
-------------------- ACCUMULATED TRANSLATION
SHARES AMOUNT DEFICIT ADJUSTMENT TOTAL
--------- --------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
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 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 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
Exercise of Common Stock options...................... 25 68 -- -- 68
Issuance of Common Stock in connection with Employee
Stock Purchase Plan................................. 74 267 -- -- 267
Currency translation adjustment....................... -- -- -- 225 225
Net loss.............................................. -- -- (19,787) -- (19,787)
--------- --------- ------------ ----- ----------
BALANCES AT JUNE 28, 1997............................. 12,728 $ 53,015 $ (45,139) $ -- $ 7,876
--------- --------- ------------ ----- ----------
--------- --------- ------------ ----- ----------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
29
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
JUNE 28, JUNE 29, JULY 1,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING CASH FLOWS:
Net income (loss)............................................................... $ (19,787) $ 3,626 $ (20,231)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Cumulative effect of change in accounting principle........................... 4,858 -- --
Provision for doubtful accounts............................................... 182 402 428
Depreciation and amortization................................................. 2,382 1,755 2,598
Loss on disposal of fixed assets.............................................. 92 108 173
Deferred income taxes......................................................... 1,513 -- 480
Other......................................................................... 225 (73) 129
Changes in assets and liabilities:
Accounts receivable......................................................... 2,530 (7,089) (132)
Inventory................................................................... 6,724 555 5,718
Prepaid expenses and other assets........................................... 707 2,633 (3,196)
Income taxes receivable..................................................... 157 69 349
Accounts payable............................................................ (3,813) (2,868) (1,173)
Accrued employee compensation............................................... 951 (137) (345)
Accrued restructuring and other costs....................................... 1,531 -- 384
Advances on inventory held by distributors.................................. 644 -- --
Other accrued liabilities................................................... 416 (1,671) 1,087
Accrued litigation settlement............................................... -- (6,600) 6,600
--------- --------- ---------
Net cash used in operating activities........................................... (688) (9,290) (7,131)
--------- --------- ---------
INVESTING CASH FLOWS:
Acquisitions of property and equipment.......................................... (1,007) (1,268) (564)
Acquisitions of other assets.................................................... (250) (30) (44)
--------- --------- ---------
Net cash used in investing activities........................................... (1,257) (1,298) (608)
--------- --------- ---------
FINANCING CASH FLOWS:
Proceeds from line of credit, net............................................... 301 1,753 1,684
Repayment of debt obligations................................................... (243) (464) (508)
Issuance of Common Stock, net................................................... 335 5,023 8,686
--------- --------- ---------
Net cash provided by financing activities....................................... 393 6,312 9,862
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................ (1,552) (4,276) 2,123
Cash and cash equivalents, beginning of year.................................... 6,101 10,377 8,254
--------- --------- ---------
Cash and cash equivalents, end of year.......................................... $ 4,549 $ 6,101 $ 10,377
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year:
Interest.................................................................... $ 297 $ 229 $ 238
Income taxes................................................................ $ 82 $ 17 $ 36
Noncash investing and financing activities:
Property and equipment acquired under capital leases........................ $ -- $ 613 $ --
Property and equipment transferred from inventory........................... $ 370 $ 431 $ --
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
30
<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 Windows- and
Macintosh-compatible computers and operating systems. The Company's products are
sold throughout the United States as well as internationally, primarily Europe
and the Pacific Rim. Truevision's principal facilities are located in Santa
Clara, California and Indianapolis, Indiana, and the Company maintains its
headquarters in Santa Clara, California.
BASIS OF PRESENTATION. The consolidated financial statements of the Company
include the financial statements of Truevision and its wholly-owned
subsidiaries, after elimination of the intercompany accounts and transactions.
The Company's fiscal calendar and its operating year ends on the Saturday
closest to June 30.
LIQUIDITY AND FUTURE CAPITAL NEEDS. The Company's cumulative operating
losses in the current and prior years, the loss of a significant customer that
represented approximately 36% of the revenues in fiscal 1996 and cash used in
fiscal 1997 result in uncertainty about the Company's future viability.
Truevision's actions and plans to improve liquidity include cost reductions
(during the quarter ended June 28, 1997, the Company undertook actions to reduce
costs and expenses and recorded a charge for restructuring and other costs of
$1,680,000 which consisted primarily of costs associated with downsizing
facilities and reduction in headcount, see Note 5--Restructuring and Other
Costs), development of production, sales and financing plans, and the
introduction of new products during fiscal 1998. Management believes that these
plans, when coupled with recently renewed credit facilities (see Note 6--Line of
Credit), will enable Truevision to continue as a going concern at least through
June 27, 1998.
MANAGEMENT'S USE OF ESTIMATES AND ASSUMPTIONS. 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 allowances for doubtful accounts receivable and sales returns, reserves
for inventory and valuation allowance for deferred tax assets. Actual results
could differ from those estimates.
CASH EQUIVALENTS. The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
INVENTORY. Inventory is stated at the lower of cost or market; cost is
determined on a first-in, first-out basis, and includes materials, labor and
manufacturing overhead.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method based
upon the shorter of the estimated useful lives of the assets, generally three to
five years, or the lease term of the respective assets, if applicable.
INCOME TAXES. The Company accounts for income taxes under the asset and
liability method in accordance with Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes."
REVENUE RECOGNITION. Revenue from product sales to dealers, OEMs, VARs and
end users 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 at the time revenue is recognized.
31
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue from shipments to distributors is not recognized until the product is
shipped by the distributors. 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 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.
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 28, 1997 and June 29, 1996, 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 $3,792,000, $491,000 and
$347,000, 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.
STOCK BASED COMPENSATION. The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair value of
the shares at the date of grant. The Company accounts for stock options grants
to employees using the intrinsic value method described in accordance with
Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock
Issued to Employees." Accordingly, no compensation expense has been recognized
in the Company's consolidated statements of operations.
In October 1995, the Financial Accounting Standard Boards issued Statement
of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." SFAS No. 123 requires the measurement of the fair
value of stock-based compensation to be included in the statement of operations
or disclosed in the notes to financial statements. The Company has elected the
disclosure-only alternative under SFAS No. 123 and will continue to account for
stock-based compensation for employees under APB Opinion No. 25.
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.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings per Share."
This Statement is effective for financial statements issued for periods ending
after December 15, 1997. This Statement replaces the presentation of primary EPS
with a presentation of "basic" EPS. Basic EPS is calculated by dividing the
income or loss available to common stockholders by the weighted average number
of common shares outstanding for the period, without consideration for common
stock equivalents. "Fully diluted" EPS is replaced by "diluted" EPS and is
computed similarly to fully diluted EPS under the provisions of Accounting
Principles Board Opinion No. 15. Basic EPS and diluted EPS for the year ended
June 28, 1997, calculated in accordance
32
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with SFAS No. 128, are the same as net loss per common share computed using the
existing rules. Basic EPS and diluted EPS for the year ended June 29, 1996,
calculated in accordance with SFAS No. 128, would have been $0.29 per share and
$0.27 per share, respectively.
COMPREHENSIVE INCOME. In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." This Statement establishes standards of reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. This Statement is effective for financial
statements issued for periods beginning after December 15, 1997. The Company
does not intend to adopt this Statement early. Adoption of this Statement is not
expected to have a material effect on the Company's financial statements.
SEGMENT INFORMATION. In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131 (SFAS No. 131),
"Disclosures about Segments of an Enterprise and Related Information". This
Statement requires public companies to disclose certain operating and financial
information by business segment in their annual and interim financial
statements. This Statement is effective for financial statements issued for
periods beginning after December 15, 1997. The Segment disclosures of the
Company determined in accordance with SFAS No. 131 would be the same as those
determined using the existing rules.
NOTE 2. INVENTORY
A summary of inventory follows (in thousands):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
----------- -----------
<S> <C> <C>
Purchased parts and subassemblies......................................... $ 2,675 $ 4,194
Work-in-progress.......................................................... 2,039 1,237
Finished goods............................................................ 2,031 4,196
Finished goods held by distributors....................................... 1,001 --
----------- -----------
Total................................................................... $ 7,746 $ 9,627
----------- -----------
----------- -----------
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
--------- ----------
<S> <C> <C>
Computer equipment and machinery....................................... $ 9,535 $ 12,758
Furniture and fixtures................................................. 775 819
Leasehold improvements................................................. 111 105
--------- ----------
Subtotal............................................................... 10,421 13,682
Less: accumulated depreciation......................................... (7,664) (10,551)
--------- ----------
Total................................................................ $ 2,757 $ 3,131
--------- ----------
--------- ----------
</TABLE>
NOTE 4. ACCOUNTING CHANGE--RECOGNITION OF DISTRIBUTOR REVENUE
In the quarter ended September 28, 1996, the Company changed its accounting
method for recognizing distributor revenue, whereby the Company defers
recognizing revenue, and does not relieve inventory on shipments to
distributors, until shipment by the distributor. Previously, the Company
recognized
33
<PAGE>
NOTE 4. ACCOUNTING CHANGE--RECOGNITION OF DISTRIBUTOR REVENUE (CONTINUED)
revenue, after recording appropriate reserves for sales returns from
distributors and allowances granted to them, at the time of shipment to the
distributor. Distributor agreements allow certain rights of return and price
protection on products held by distributors. Cash received in advance of
recognizing distributor revenue is recorded as advances on inventory held by
distribution. The Company believes that deferral of distributor sales and
related gross margins until the product is shipped by the distributors results
in a more meaningful measurement of operations and is a preferable method of
accounting for distributor revenue.
The cumulative effect on prior years of changing the accounting method was
$4.9 million, or $0.38 per share. This amount was reflected in the quarter ended
September 28, 1996. The estimated pro forma amounts for the year ended June 29,
1996 assuming the new method of accounting had been applied retroactively would
be net sales of $65.9 million and net income of $1.0 million, or $0.08 per
share. The estimated pro forma impact for the year ended July 1, 1995 was not
material.
NOTE 5. RESTRUCTURING AND OTHER COSTS
During the quarter ended June 28, 1997, the Company recorded a charge for
restructuring of $1,680,000. This charge primarily consisted of costs associated
with downsizing facilities and reduction in headcount. Also, as a result of the
Company's decision to close its European offices, the restructuring charge
included costs associated with lease terminations and write-off of fixed assets
for the sales offices located in France and the United Kingdom, and the
write-off of the cumulative translation adjustment. The downsizing of
facilities, lease terminations, fixed asset reductions, and the reduction in
headcount are expected to decrease costs in fiscal 1998.
During the quarter ended September 30, 1994, the Company recorded a charge
for restructuring and other costs of approximately $3,700,000 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 approximately
$1,900,000 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 these restructuring
activities and had no remaining reserve as of June 29, 1996.
NOTE 6. LINE OF CREDIT
In February 1997, the Company entered into a new bank revolving line of
credit agreement ("the Credit Agreement") which consists of a $5,000,000
revolving line of credit facility ("Facility A") and a $2,000,000 EXIM backed
revolving line of credit facility ("Facility B"). This Credit Agreement replaced
the Company's previous $7,000,000 bank revolving line of credit agreement. Under
Facility A, borrowings are available up to $5,000,000 based on domestic eligible
invoiced receivables. Under Facility B, borrowings are available up to
$2,000,000 based on foreign eligible invoiced receivables and export finished
goods and channel inventory (borrowings on inventory are capped at a maximum of
$1,000,000). This Credit Agreement provides for interest based on the bank's
prime rate plus 1.50% and 1.375% for borrowings under Facility A and Facility B,
respectively. The Credit Agreement contains various financial convenants
34
<PAGE>
NOTE 6. LINE OF CREDIT (CONTINUED)
including maintaining certain financial ratios and tests. The primary financial
covenants include quick ratio, tangible net worth, debt to tangible net worth
and profitability covenants. At June 28, 1997, the Company was in violation of
certain financial covenants. However, a waiver of its covenant violations as of
June 28, 1997 has been obtained by the bank. This Credit Agreement expired on
August 20, 1997 and the bank granted an extension through September 20, 1997. On
September 19, 1997, the Company entered into a new one year revolving line of
credit agreement allowing the Company to borrow up to $7,000,000 based upon
percentages of eligible accounts receivable and inventory. The interest on
borrowings under the new credit agreement is based on the bank's prime rate plus
2.00% per annum. The primary financial covenant of the new credit agreement is a
tangible net worth covenant. Additionally, the new credit agreement restricts
the payment of dividends. Borrowings under the Credit Agreement are
collateralized by the Company's assets. As of June 28, 1997, the Company had
borrowings of $3,738,000 and $431,000 available under the Credit Agreement. The
amount available under the Credit Agreement at June 28, 1997 has been reduced by
a letter of credit totaling $225,000 issued as a guarantee for a certain
customer.
NOTE 7. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29, JULY 1,
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Current tax expense:
Federal............................................................................ $ 0 $ 80 $ (209)
State.............................................................................. 0 30 --
Foreign............................................................................ (3) -- 19
----------- ----- ---------
Subtotal......................................................................... (3) 110 (190)
----------- ----- ---------
Deferred tax expense:
Federal............................................................................ 1,513 -- 190
State.............................................................................. -- -- --
----------- ----- ---------
Subtotal......................................................................... 1,513 -- 190
----------- ----- ---------
Total.......................................................................... $ 1,510 $ 110 $ --
----------- ----- ---------
----------- ----- ---------
</TABLE>
Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29, JULY 1,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Reserves and nondeductible expenses........................................... $ 4,658 $ 1,800 $ 1,873
Credit carryovers............................................................. 1,451 1,468 1,468
Net operating loss carryforwards.............................................. 16,400 14,200 15,602
---------- ---------- ----------
Gross deferred tax assets................................................... 22,509 17,468 18,943
Valuation allowance........................................................... (22,509) (15,955) (17,430)
---------- ---------- ----------
Total net deferred tax assets............................................. $ 0 $ 1,513 $ 1,513
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
In the fourth quarter of fiscal 1997, the Company recorded a provision for
income taxes of $1,513,000 to fully reserve for deferred tax assets. At June 28,
1997, the Company had gross deferred tax assets of $22,509,000 relating
primarily to net operating loss carryforwards. These deferred tax assets have
been fully reserved due to the uncertainty of future realization of the net
operating loss carryforwards.
35
<PAGE>
NOTE 7. INCOME TAXES (CONTINUED)
The Company has approximately $45,000,000 of net operating loss and credit
carryforwards that expire beginning in 2009. Utilization of 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>
1997 1996 1995
----- ----- -----
<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 (6.1)
Increase/(decrease) in valuation allowance........ 40.1 (37.2) 41.6
Other, net........................................ -- -- (1.5)
----- ----- -----
Total......................................... 0% 2.9% 0%
----- ----- -----
----- ----- -----
</TABLE>
NOTE 8. 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 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 vests 25% during the first three months and 6,666.67 shares per month
thereafter. The purchase price of each share issuable upon exercise of the
warrant is $2.75 and, as of June 28, 1997, a total of 293,333 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.
36
<PAGE>
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 3,641,300 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.
In April 1997, the Company offered employees the opportunity to participate
in an option repricing program. Under the program, each employee could elect on
or before April 30 that 90% of his or her existing option issued under the
Company's Amended 1988 Stock Incentive Plan (the "Option Plan") be converted
into a repriced option, subject to final approval by the Compensation Committee
of the Company's Board of Directors. The per share exercise price of each
repriced option would be equal to the fair market value of the Company's Common
Stock on the conversion date (on or about May 2, 1997). All repriced options
have a vesting start date identical to that of the converted option, but the
vesting schedule of the repriced option would be forty-two months instead of the
forty-eight months vesting schedule of the converted option. On May 2, 1997, the
option repricing program and the options selected for conversion under the
program were approved by the Compensation Committee. On such date, the fair
market value of the Company's Common Stock was $2.16 and options to purchase
2,302,179 shares at a weighted average exercise price of $4.99 per share were
converted into repriced options to purchase 2,059,460 shares. The weighted
average per share exercise price of the repriced options prior to conversion was
$4.99.
As of June 28, 1997, options for a total of 844,664 shares were exercisable
under the Option Plan.
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 increased the
number of shares to 250,000 shares. Under the terms of the Plan, (i)
non-employee directors who were members of the Board on July 25, 1991 received
an option to purchase 10,000 shares of Common Stock, which options became
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
37
<PAGE>
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 28,
1997, options to purchase 103,125 shares of Common Stock are outstanding under
the Plan, 58,125 of which are exercisable.
The activity under the option plans, combined, was as follows:
<TABLE>
<CAPTION>
SHARES
AVAILABLE STOCK OPTIONS EXERCISE PRICE
FOR GRANT OUTSTANDING PER SHARE
----------- ------------- --------------
<S> <C> <C> <C>
BALANCES AT JUNE 30, 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
Increase in number of shares authorized.............................. 600,000 --
Options granted...................................................... (2,880,706) 2,880,706 $ 1.94-$ 6.75
Options exercised.................................................... -- (24,508) $ 0.22-$ 4.89
Options canceled..................................................... 2,615,341 (2,615,341) $ 2.16-$10.00
----------- -------------
BALANCES AT JUNE 28, 1997............................................ 621,557 2,463,218
----------- -------------
----------- -------------
SHARES EXERCISABLE AT JUNE 28, 1997.................................. 902,789
-------------
-------------
</TABLE>
Information relating to stock options outstanding under the option plans,
combined, at June 28, 1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Range of exercise prices:
$ 0.22-$ 0.22.......................... 74 1.1 years $ 0.22 74 $ 0.22
$ 1.94-$ 2.88.......................... 2,289,019 8.8 years $ 2.20 831,257 $ 2.22
$ 3.13-$ 4.13.......................... 66,000 7.8 years $ 3.88 26,250 $ 4.02
$ 6.00-$ 7.25.......................... 42,500 1.9 years $ 6.88 12,500 $ 6.00
$ 7.63-$ 7.88.......................... 55,625 2.4 years $ 7.82 22,708 $ 7.82
$11.25-$11.25.......................... 10,000 5.1 years $ 11.25 10,000 $ 11.25
----------- -----------
2,463,218 902,789
----------- -----------
----------- -----------
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes model with the following assumptions used for grants during fiscal
years 1997 and 1996: annual dividend yield of 0.0% for both periods; a weighted
average interest rate of 6.42% for options granted during the year ended June
28, 1997 and 5.83% for options granted during the year ended June 29, 1996; a
weighted average option term of 4 years for both periods; and an expected
volatility factor of 65% for both years. The weighted average
38
<PAGE>
fair value of options granted during fiscal years 1997 (including options
repriced in May 1997) and 1996 was $1.10 and $4.17, respectively, per share.
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.
The fair value of each stock award is estimated on the date of grant using
the Black-Scholes model with the following assumptions used for grants during
fiscal years 1997 and 1996: annual dividend yield of 0.0% for both periods; a
weighted average interest rate of 5.40% for stock awards granted during the year
ended June 28, 1997 and 5.22% for stock awards granted during the year ended
June 29, 1996; a weighted average expected stock award term of six months for
both periods; and an expected volatility factor of 65% for both years. The
weighted average fair value of the options granted during fiscal years 1997 and
1996 was $1.47 and $1.89, respectively, per share.
FAIR VALUE DISCLOSURES. Had compensation cost for the Company's stock
option and stock purchase plans been determined based on the fair value of the
options at the grant dates using the Black-Scholes model as provided by SFAS No.
123, the Company's net income (loss) and net income (loss) per share for the
years ended June 28, 1997 and June 29, 1996 would have been as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------
JUNE 28, JUNE 29,
1997 1996
---------- -----------
<S> <C> <C>
Net income (loss):
As reported........................................................... $ (19,787) $ 3,626
Pro forma............................................................. $ (21,896) $ 3,221
Net income (loss) per share:
As reported........................................................... $ (1.56) $ 0.27
Pro forma............................................................. $ (1.72) $ 0.24
</TABLE>
The pro forma amounts reflect compensation expenses related to fiscal 1997
and 1996 employee and director option grants and employee stock purchase plan
awards only. In future years, the pro forma annual compensation expense will
increase due to the additional expense associated with future grants combined
with the expense associated with grants in prior years.
NOTE 9. 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 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.
39
<PAGE>
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 28,
1997, June 29, 1996 and July 1, 1995 consisted of the following:
<TABLE>
<CAPTION>
JUNE 28, JUNE 29, JULY 1,
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Europe.......................................................... 12.4% 15.5% 20.9%
Asia/Pacific.................................................... 16.1 8.8 7.7
Other........................................................... 0.9 0.9 1.0
----------- ----------- ---------
Total......................................................... 29.4% 25.2% 29.6%
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
During fiscal 1995, the Company entered into a three-year OEM agreement with
a major customer under which the customer had agreed to make minimum aggregate
purchases of certain products of $40,000,000 during calendar years 1995 through
1997. In the fourth quarter of fiscal 1996, the customer and the Company
negotiated a fully paid license fee in the amount of $1,450,000 for the customer
to manufacture certain products used by the customer, rather than purchase them
from the Company. The Company did not in fiscal 1997 and does not in the future
expect to receive any further revenues or royalties resulting from the
customer's manufacture and use of such products. The Company has no further
obligations to the customer. This customer accounted for 1.2%, 35.9% and 15.7%
of the Company's net sales during fiscal 1997, 1996 and 1995, respectively. No
other customers accounted for more than 10% of the Company's net sales in fiscal
1996 and 1995. In fiscal 1997, the Company's largest domestic distributor
accounted for 11.0% of the Company's net sales. No other customers accounted for
more than 10% of the Company's net sales in fiscal 1997.
NOTE 11. COMMITMENTS AND CONTINGENCIES
In August 1997, the Company entered into an agreement with a major supplier
to purchase $1,572,000 of a certain component during fiscal 1998 and 1999. The
component is used in the majority of the Company's products and is currently
available only from this supplier. The supplier is discontinuing the component
and the purchase commitment represents the Company's anticipated usage
requirements for the next two years. The Company's future generation products,
which are expected to be released within the next two years, will not require
this component.
The Company occupies its 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 28, 1997, June 29, 1996, and July 1, 1995 was $1,101,000,
$1,070,000 and $1,132,000, respectively.
40
<PAGE>
NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments at June 28, 1997 under non-cancelable lease
obligations are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR ENDING LEASES LEASES
- ------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1998..................................................................... $ 65 $ 1,257
1999..................................................................... 42 660
2000..................................................................... 31 660
2001..................................................................... 15 496
2002..................................................................... -- --
Years thereafter......................................................... -- --
----- -----------
Total minimum lease payments............................................. 153 $ 3,073
-----------
-----------
Less: amount representing interest....................................... 2
-----
Present value of net minimum lease payments.............................. 151
Less: current portion of capital lease obligations....................... (65)
-----
Capital lease obligations.............................................. $ 86
-----
-----
</TABLE>
Capital leases are for manufacturing and office equipment. Capital lease
property included in property, plant and equipment is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
----------- -----------
<S> <C> <C>
Computer equipment and machinery.......................................... $ 338 $ 613
Less: accumulated depreciation............................................ (106) (68)
----- -----
Total................................................................... $ 232 $ 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 or other litigation will have a material adverse effect on the
Company's financial position or results of operations.
NOTE 12. RELATED PARTY TRANSACTIONS
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.
41
<PAGE>
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 28 MARCH 29 DECEMBER 28 SEPTEMBER 28
- --------------------------------------------------------------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
FISCAL 1997
Net sales...................................................... $ 10,757 $ 11,904 $ 10,911 $ 10,048
Gross profit................................................... $ 2,145 $ 4,226 $ 4,161 $ 2,676
Loss from operations........................................... $ (7,396) $ (1,337) $ (680) $ (3,357)
Cumulative effect of accounting change......................... $ -- $ -- $ -- $ (4,858)
Net loss....................................................... $ (8,926) $ (1,462) $ (983) $ (8,416)
Net loss per share............................................. $ (0.70) $ (0.12) $ (0.08) $ (0.66)
<CAPTION>
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
</TABLE>
During the quarter ended June 28, 1997, the Company recorded a charge for
restructuring and other costs of $1,680,000. This charge primarily included
costs associated with downsizing facilities and reduction in headcount. Also, as
a result of the Company's decision to close its European offices, the
restructuring charge included costs associated with lease terminations and
write-offs of assets for the sales offices located in France and the United
Kingdom, and the write-off of the cumulative translation adjustment. In
addition, the Company recorded charges to fully reserve for deferred tax assets
of $1,513,000, inventory valuation adjustments of $955,000, the write-off of
certain other assets (including prepaid royalties no longer having economic
value) of $450,000, and settlement of pending lawsuits and other legal costs of
$350,000.
During the quarter ended September 28, 1996, the Company changed its
accounting method for recognizing distributor revenue. The first quarter of
fiscal 1997 included a $4,858,000 charge for the cumulative effect on prior
years of changing the accounting method. In addition, the Company recorded
inventory valuation adjustments of $500,000 and severance related costs of
$250,000.
The Company's net sales for the quarter ended June 29, 1996 included revenue
of approximately $1,850,000 from license fees under product license agreements
(including $1,450,000 for the Avid product license buyout) and engineering
services revenue from a product design and design development agreement.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
42
<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 1997 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.
43
<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
There were no reports on Form 8-K filed for the year ended June 28, 1997.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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(2)
10.1 Amended 1988 Incentive Stock Plan(8)
10.2 Form of Incentive Stock Option Agreement(3)
10.3 Form of Incentive Stock Option Agreement (provides for payment by promissory note)(3)
10.4 Form of Nonstatutory Stock Option Agreement(3)
10.5 Form of Nonstatutory Stock Option Agreement (provides for payment by promissory note)(3)
10.6 Form of Stock Purchase Agreement(3)
10.7 Form of Stock Purchase Agreement (provides for payment by promissory note)(3)
10.8 Form of Stock Bonus Agreement(8)
10.9 1990 Employee Stock Purchase Plan(3)
10.10 Form of 1990 Employee Stock Purchase Plan Subscription Agreement(3)
10.11 Amended and Restated 1991 Director Option Plan(8)
10.12 Form of Director Option Agreement(4)
10.13 Lease Agreement for the Company's executive offices in Santa Clara, California dated February 1989, as
amended May 1989(2)
10.14 Second Amendment to the Lease Agreement for the Company's executive offices in Santa Clara, California
dated January 18, 1996(8)
10.15 Lease Agreements for the Company's executive offices in Indianapolis, Indiana, dated June 7, 1991(5)
10.16 Form of Indemnification Agreement(2)
10.21 Manufacturing License Agreement by and between the Company and Avid dated December 30, 1994(6)
10.22 First Addendum to the Manufacturing License Agreement by and between the Company and Avid dated December
30, 1994(8)
10.23 Product Design and Development Agreement by and between the Company and Matsushita dated March 19,
1996(7)
10.24 Form of Employment Agreement between the Company and Lou Doctor(6)
10.25 Loan and Security Agreement by and between the Company and Silicon Valley Bank dated May 2, 1996(8)
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.26 Loan and Security Agreement by and between the Company and Silicon Valley Bank dated February 21, 1997
10.27 Loan and Security Agreement by and between the Company and Silicon Valley Bank (EXIM Program) dated
February 21, 1997
10.28 Waiver and Amendment to the Loan and Security Agreement by and between the Company and Silicon Valley
Bank dated August 20, 1997
10.29 Waiver and Amendment to the Loan and Security Agreement (EXIM Program) by and between the Company and
Silicon Valley Bank dated August 20, 1997
10.30 Loan and Security Agreement by and between the Company and Silicon Valley Bank dated September 19, 1997
10.31 Loan and Security Agreement (EXIM Program) by and between the Company and Silicon Valley Bank dated
September 19, 1997
18.1 Preferability Letter from Independent Accountants re: Change in Accounting Principle(9)
21.1 List of Subsidiaries(6)
24.1 Consent of Independent Accountants (see page 44)
27.1 Financial Data Schedule
</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-1,
File No. 33-33995, which was declared effective May 8, 1990, and
incorporated herein by reference.
(3) Filed as an exhibit to the Company's Registration Statement on Form S-8,
filed February 1, 1991, and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1991, and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated herein by reference.
(6) 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.
(7) Filed as an exhibit to the Company's report on Form 8-K/A, filed August 6,
1996, 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 June 29, 1996, and incorporated herein by reference.
(9) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the
quarter ended September 28, 1996, and incorporated herein by reference.
(D) FINANCIAL STATEMENT SCHEDULES
See Item (a) above.
45
<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, 1997.
<TABLE>
<S> <C> <C>
TRUEVISION, INC.
By: /s/ R. JOHN CURSON
-----------------------------------------
R. John Curson
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND SECRETARY
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
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.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ WALTER W. BREGMAN
- ------------------------------ Chairman of the Board of September 19, 1997
Walter W. Bregman Directors
/s/ LOUIS J. DOCTOR President, Chief Executive
- ------------------------------ Officer (Principal September 19, 1997
Louis J. Doctor Executive Officer)
Senior Vice President,
/s/ R. JOHN CURSON Chief Financial Officer
- ------------------------------ and Secretary (Principal September 19, 1997
R. John Curson Financial Officer)
Vice President and
/s/ HARVEY A. CHESLER Corporate Controller
- ------------------------------ (Principal Accounting September 19, 1997
Harvey A. Chesler Officer)
/s/ WILLIAM H. MCALEER
- ------------------------------ Director September 19, 1997
William H. McAleer
/s/ KIETH E. SORENSON
- ------------------------------ Director September 19, 1997
Kieth E. Sorenson
/s/ CONRAD J. WREDBERG
- ------------------------------ Director September 19, 1997
Conrad J. Wredberg
46
<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 August 12, 1997
included in this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
San Jose, California
September 22, 1997
47
<PAGE>
TRUEVISION, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 28, 1997, JUNE 29, 1996 AND JULY 1, 1995
(IN THOUSANDS)
ADDITIONS
<TABLE>
<CAPTION>
DEDUCTIONS
BALANCE CHARGED TO CHARGED TO FROM BALANCE AT
BEGINNING COSTS AND OTHER RESERVES END OF
OF PERIOD EXPENSES (1) ACCOUNTS (2) PERIOD
----------- --------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for sales returns, doubtful accounts and
price protection:
1997............................................... $ 1,018 $ 360 $ 196 $ 924 $ 650
1996............................................... $ 1,291 $ 472 $ -- $ 745 $ 1,018
1995............................................... $ 1,360 $ 381 $ 228 $ 678 $ 1,291
Reserves for inventory:
1997............................................... $ 1,218 $ 981 $ -- $ 1,389 $ 810
1996............................................... $ 1,514 $ 687 $ -- $ 983 $ 1,218
1995............................................... $ 3,713 $ 845 $ -- $ 3,044 $ 1,514
</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.
48
<PAGE>
[LOGO] SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051
DATE: FEBRUARY 21, 1997
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.
EXIM AGREEMENT;
CROSS-COLLATERALIZATION;
CROSS-DEFAULT: Silicon and Borrower are parties to that certain
Loan and Security Agreement (Exim Program) dated
February 21, 1997 (as amended from time to time,
the "Exim Agreement"). This Agreement and the
Exim Agreement shall continue in full force and
effect, and all rights and remedies under this
Agreement and the Exim Agreement are cumulative.
The term "Obligations" as used in this Agreement
and the Exim Agreement shall include without
limitation the obligation to pay when due all
Loans made pursuant to this Agreement (sometimes
referred to herein as the "Silicon Loans") and all
interest thereon and the obligation to pay when
due all Loans made pursuant to the Exim Agreement
(the "Exim Loans") and all interest thereon.
Without limiting the generality of the foregoing,
all "Collateral" as defined in this Agreement and
the Exim Agreement shall secure all Exim Loans,
all Silicon Loans, all interest thereon, and all
other Obligations. Any Event of Default under
this Agreement shall also constitute an Event of
Default under the Exim Agreement, and any Event of
Default under the Exim Agreement shall also
constitute an Event of Default under this
Agreement.
CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of:
(i) $5,000,000 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.
"Net Amount" of an account means the gross amount
of the account, minus all applicable sales, use,
excise and other similar taxes and
-1-
<PAGE>
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 is pre-approved by Silicon in
its discretion, in writing, or backed by a letter
of credit satisfactory to Silicon, or FCIA insured
satisfactory to Silicon, (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 and are
otherwise considered eligible hereunder, (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.
OVERALL LIMIT: In addition to the foregoing, the total unpaid
principal balance of all Silicon Loans and all
Exim Loans, and all accrued and unpaid interest
thereon, and all other Obligations relating to any
of the foreging at any time outstanding may not
exceed $7,000,000.
INTEREST RATE (Section 1.2): On all Loans, a rate equal to the "Prime Rate" in
effect from time to time, plus 1.50% per annum,
PROVIDED that the interest rate with respect to
Exim Loans shall be as is set forth in the Exim
Agreement.
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): See Amendment to Loan Agreement of even date
herewith.
LETTER OF CREDIT SUBLIMIT
(Section 1.4): $4,000,000
FOREIGN EXCHANGE
CONTRACT SUBLIMIT Up to $4,000,000 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
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day (the "Determination Date"): (i) on all
outstanding Exchange Contracts on which delivery
is to be effected or settlement allowed more than
two business days from the Determination Date, 10%
of the gross amount of the Exchange Contracts;
plus (ii) on all outstanding Exchange Contracts on
which delivery is to be effected or settlement
allowed within two business days after the
Determination Date, 100% of the gross amount of
the Exchange Contracts. In lieu of the Foreign
Exchange Reserve for 100% of the gross amount of
any Exchange Contract, the Borrower may request
that Silicon debit the Borrower's bank account
with Silicon for such amount, provided Borrower
has immediately available funds in such amount in
its bank account.
Silicon may, in its discretion, terminate the
Exchange Contracts at any time (a) that an Event
of Default occurs or (b) that there is not
sufficient availability under the Credit Limit and
Borrower does not have available funds in its bank
account to satisfy the Foreign Exchange Reserve.
If either Silicon or Borrower terminates the
Exchange Contracts, and without limitation of the
FX Indemnity Provisions (as 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 $2,000,000
(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.
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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.
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): AUGUST 20, 1997
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 effective as of December 28, 1996.
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 .70 to 1
effective for the period ending December 28, 1996.
Thereafter, Borrower shall maintain a ratio of
"Quick Assets" to current liabilities of not less
than 1.00 to 1.
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TANGIBLE NET WORTH: As of December 28, 1996, and as of the end of each
succeeding quarter, Borrower shall maintain a
tangible net worth of not less than the sum of:
(a) $17,500,000, as of December 28, 1996;
plus
(b) 80% of the sum of all equity
contributions received by Borrower
subsequent to December 28, 1996; plus
(c) 80% of all net income (but without
deductions for any net losses) earned in
each fiscal quarter ending after December
28, 1996.
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 Effective with the period ending March 31, 1997,
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:
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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 15 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. an inventory status report regarding of
Borrower's inventory, in such form as
Silicon shall reasonably request.
BORROWER:
TRUEVISION, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY_______________________________
TITLE______________________________
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[LOGO] SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
(EXIM PROGRAM)
BORROWER: TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051
DATE: FEBRUARY 21, 1997
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.
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
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,
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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.
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.
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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 with such financial reports and
other information as are required pursuant to the Silicon Agreement (as defined
in the Schedule hereto), including without limitation Section 3.7 of the Silicon
Agreement.
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
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
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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
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)
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.
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
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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
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 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
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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.
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
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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
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.
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.
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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.
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
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RIGHTS FOLLOWING ITS CONSULTATION WITH ITS LEGAL COUNSEL.
BORROWER:
TRUEVISION, INC.
BY
---------------------------------
PRESIDENT OR VICE PRESIDENT
BY
---------------------------------
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY
---------------------------------
TITLE
------------------------------
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[LOGO] SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
(EXIM PROGRAM)
BORROWER: TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051
DATE: FEBRUARY 21, 1997
SILICON AGREEMENT;
CROSS-COLLATERALIZATION;
CROSS-DEFAULT: Silicon and the Borrower are parties to that
certain Loan and Security Agreement dated May 2,
1996, as modified by that Loan Modification
Agreement dated December 18, 1996, as amended by
that Amendment to Loan Agreement dated
February 21, 1997 and as otherwise modified from
time to time (the "Silicon Agreement"). This
Agreement and the Silicon Agreement shall continue
in full force and effect, and all rights and
remedies under this Agreement and the Silicon
Agreement are cumulative. The term "Obligations"
as used in this Agreement and the Silicon
Agreement shall include without limitation the
obligation to pay when due all Loans made pursuant
to this Agreement (the "Exim Loans") and all
interest thereon and the obligation to pay when
due all Loans made pursuant to the Silicon
Agreement (the "Silicon Loans") and all interest
thereon. Without limiting the generality of the
foregoing, all "Collateral" as defined in this
Agreement, as defined in the Silicon Agreement
shall secure all Exim Loans and all Silicon Loans
and all interest thereon, and all other
Obligations relating thereto. Any Event of
Default under this Agreement shall also constitute
an Event of Default under the Silicon Agreement,
and any Event of Default under the Silicon
Agreement shall also constitute an Event of
Default under this Agreement. In the event
Silicon assigns its rights under this Agreement
and/or under any Note evidencing Exim Loans,
and/or its rights under the Silicon Agreement
and/or under any Note evidencing Silicon Loans, to
any third party, including without limitation the
Export-Import Bank of the United States ("Exim
Bank"), whether before or after the occurrence of
any Event of Default, Silicon shall have the right
(but not any obligation), in its sole discretion,
to allocate and apportion Collateral to the
Agreement and/or Note assigned and to specify the
priorities of the respective security interests in
such Collateral between itself and the assignee,
all without notice to or consent of the Borrower.
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CREDIT LIMIT (Section 1.1):
EXIM LOANS: The unpaid principal balance of all Exim Loans and
all accrued interest thereon from time to time
outstanding may not exceed the lesser of (a) or
(b) as follows:
(a) $2,000,000 at any one time outstanding; or
(b) the sum of (i), (ii) and (iii):
(i) up to 80% of the value of Borrower's
eligible export accounts receivable, which arise
from sales to entities that are not distributors
and which Silicon in its discretion otherwise
deems eligible for borrowing, PLUS
(ii) up to 65% of the value of Borrower's
eligible export accounts receivable, which arise
from sales to entities that are distributors and
which Silicon in its discretion otherwise deems
eligible for borrowing, PLUS
(iii) up to 60% of the Value of Borrower's
finished goods inventory which Silicon in its
discretion deems eligible for borrowing, up to a
maximum of $1,000,000 total at any one time
outstanding.
"Value" of Borrower's inventory means the lower of
cost or market value.
Without limiting the fact that the determination
of which accounts and inventory are eligible for
borrowing is a matter of Silicon's discretion, the
following will not be deemed eligible for
borrowing: accounts and inventory which are not
subject to the Borrower Agreement dated
February 21, 1997 between Silicon and the
Borrower, a copy of which is attached hereto, and
including the annexes attached thereto
(collectively referred to as the "Exim Borrower
Agreement") with respect to the guarantee by the
Export Import Bank of the United States in favor
of Silicon.
OVERALL LIMIT: In addition to the foregoing, the total unpaid
principal balance of all Exim Loans and all
accrued interest thereon and all Silicon Loans and
all interest thereon and all other Obligations at
any time outstanding may not exceed $7,000,000.
AGREEMENT SUBJECT
TO EXIM BORROWER
GUARANTEE; COSTS: This Agreement is subject to all of the terms and
conditions of the Exim Borrower Agreement
(including without limitation any attachments and
annexes thereto) which are hereby incorporated
herein by this reference. Borrower expressly
agrees to perform all of the obligations and
comply with all of the affirmative and negative
covenants and all other terms conditions set forth
in the Exim Borrower Agreement as though the same
were expressly set forth herein, and all of the
same are hereby incorporated herein by this
reference. In the event of any conflict between
the terms of the Exim Borrower Agreement and the
other terms of this Agreement, whichever terms are
more restrictive shall apply. Borrower shall
reimburse Silicon for all fees and all out of
pocket costs and expenses incurred by Silicon with
respect to the Exim Borrower Agreement, including
without limitation all facility fees and usage
fees, and Silicon is authorized to debit
Borrower's account with Silicon for such fees,
costs and expenses when paid by Silicon.
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<PAGE>
INTEREST RATE (Section 1.2): A rate equal to the "Prime Rate" in effect from
time to time, plus 1.375% 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): $15,000
MATURITY DATE
(Section 5.1): AUGUST 20, 1997
SUBSIDIARIES OF BORROWER
(Section 3.1): TRUE VISION, INC., AN INDIANA CORPORATION
SHADELAND ROAD, INDIANAPOLIS, INDIANA
PRIOR NAMES OF BORROWER
(Section 3.2): RASTEROPS
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 .70 to 1
effective for the period ending December 28, 1996.
Thereafter, Borrower shall maintain a ratio of
"Quick Assets" to current liabilities of not less
than 1.00 to 1.
TANGIBLE NET WORTH: As of December 28, 1996, and as of the end of each
succeeding quarter, Borrower shall maintain a
tangible net worth of not less than the sum of:
(a) $17,500,000, as of December 28, 1996;
plus
(b) 80% of the sum of all equity
contributions received by Borrower subsequent
to December 28, 1996; plus
(c) 80% of all net income (but without
deductions for any net losses) earned in each
fiscal quarter ending after December 28,
1996.
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<PAGE>
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 Effective with the period ending March 31, 1997,
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. Within 15 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. an inventory status report
regarding of Borrower's inventory, in
such form as Silicon shall reasonably
request.
3. OTHER REPORTS. Without limitation of the
other terms and conditions hereof, Borrower agrees
to provide Silicon with such
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reports and other information as may be required
by the guarantee issued by the Exim Bank.
BORROWER:
TRUEVISION, INC.
BY
-------------------------------
PRESIDENT OR VICE PRESIDENT
BY
-------------------------------
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY
-------------------------------
TITLE
---------------------------
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[LOGO] SILICON VALLEY BANK
CERTIFIED RESOLUTION (EXIM PROGRAM)
BORROWER: TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051
DATE: FEBRUARY 21, 1997
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.
<PAGE>
INCUMBENCY
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
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[LOGO] SILICON VALLEY BANK
WAIVER AND AMENDMENT AGREEMENT
BORROWER: TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051
DATE: AUGUST 20, 1997
THIS WAIVER AND AMENDMENT AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower").
The Parties agree to amend the Loan and Security Agreement between them,
dated May 2, 1996, as amended by that certain Loan Modification Agreement dated
as of December 18, 1996, as amended by that Amendment to Loan Agreement dated
February 21, 1997 and as otherwise amended from time to time (the "Loan
Agreement"), as follows, effective as of the date hereof. (Capitalized terms
used but not defined in this Agreement, shall have the meanings set forth in the
Loan Agreement.)
1. LIMITED WAIVER. Silicon and Borrower agree that the Borrower's
compliance with the financial covenants set forth in section of the Schedule to
Loan Agreement entitled "Financial Covenants (Section 4.1)", is hereby waived
for the period ending June 30, 1997. It is understood by the parties hereto,
however, that such waiver does not constitute a waiver of any other provision or
term of the Loan Agreement or any related document, nor an agreement to waive in
the future these covenants or any other provision or term of the Loan Agreement
or any related document.
2. EXTENSION. Silicon and Borrower agree that the Maturity Date as set
forth in Section 5.1 of the Schedule to the Loan Agreement is hereby amended to
be "September 20, 1997."
3. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
4. GENERAL PROVISIONS. This Agreement, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, as so amended, and all other documents and
agreements
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<PAGE>
between Silicon and the Borrower shall continue in full force and effect and the
same are hereby ratified and confirmed.
BORROWER: SILICON:
TRUEVISION, INC. SILICON VALLEY BANK
BY_______________________________
BY_______________________________ TITLE__________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
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<PAGE>
[LOGO] SILICON VALLEY BANK
WAIVER AND AMENDMENT AGREEMENT
(EXIM PROGRAM)
BORROWER: TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051
DATE: AUGUST 20, 1997
THIS WAIVER AND AMENDMENT AGREEMENT (EXIM PROGRAM) is entered into between
SILICON VALLEY BANK ("Silicon") and the borrower named above (the "Borrower").
The Parties agree to amend the Loan and Security Agreement (Exim Program)
between them, dated February 21, 1997, as amended from time to time (the "Loan
Agreement"), as follows, effective as of the date hereof. (Capitalized terms
used but not defined in this Agreement, shall have the meanings set forth in the
Loan Agreement.)
1. LIMITED WAIVER. Silicon and Borrower agree that the Borrower's
compliance with the financial covenants set forth in section of the Schedule to
Loan Agreement entitled "Financial Covenants (Section 4.1)", is hereby waived
for the period ending June 30, 1997. It is understood by the parties hereto,
however, that such waiver does not constitute a waiver of any other provision or
term of the Loan Agreement or any related document, nor an agreement to waive in
the future these covenants or any other provision or term of the Loan Agreement
or any related document.
2. EXTENSION. Silicon and Borrower agree that the Maturity Date as set
forth in Section 5.1 of the Schedule to the Loan Agreement is hereby amended to
be "September 20, 1997."
3. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
4. GENERAL PROVISIONS. This Agreement, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, as so amended, and all other documents and
agreements
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<PAGE>
between Silicon and the Borrower shall continue in full force and effect and the
same are hereby ratified and confirmed.
BORROWER: SILICON:
TRUEVISION, INC. SILICON VALLEY BANK
BY_______________________________
BY_______________________________ TITLE__________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
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<PAGE>
[LOGO] SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
BORROWER: TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA
DATE: SEPTEMBER 19, 1997
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is
3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named
above (jointly and severally, the "Borrower"), whose chief executive office is
located at the above address ("Borrower's Address"). The Schedule to this
Agreement (the "Schedule") shall for all purposes be deemed to be a part of this
Agreement, and the same is an integral part of this Agreement. (Definitions of
certain terms used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 LOANS. Silicon will make loans to Borrower (the "Loans"), in amounts
determined by Silicon in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Silicon may, in its discretion, charge interest to
Borrower's Deposit Accounts maintained with Silicon.
1.3 OVERADVANCES. If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand. Without limiting Borrower's obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at a
rate equal to the interest rate which would otherwise be applicable to the
Overadvance, plus an additional 2% per annum.
1.4 FEES. Borrower shall pay Silicon the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Silicon and are not
refundable.
1.5 LETTERS OF CREDIT. At the request of Borrower, Silicon may, in its sole
discretion, issue or arrange for the issuance of letters of credit for the
account of Borrower, in each case in form and substance satisfactory to Silicon
in its sole discretion (collectively, "Letters of Credit"). The aggregate face
amount of all outstanding Letters of Credit from time to time shall not exceed
the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be
reserved against Loans which would otherwise be available hereunder. Borrower
shall pay all bank charges (including charges of Silicon) for the issuance of
Letters of Credit, together with such additional fee as Silicon's letter of
credit department shall charge in connection with the issuance of the Letters of
Credit. Any payment by Silicon under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made. Each Letter
of Credit shall have an expiry date no later than thirty days prior to the
Maturity Date. Borrower hereby agrees to indemnify, save, and hold Silicon
harmless from any loss, cost, expense, or liability, including payments made by
Silicon, expenses, and reasonable attorneys' fees incurred by Silicon arising
out of or in connection with any Letters of Credit. Borrower agrees to be bound
by the regulations and interpretations of the issuer of any Letters of Credit
guarantied by Silicon and opened for Borrower's account or by Silicon's
interpretations of any Letter of Credit issued by Silicon for Borrower's
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or
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<PAGE>
commission, in following Borrower's instructions or those contained in the
Letters of Credit or any modifications, amendments, or supplements thereto.
Borrower understands that Letters of Credit may require Silicon to indemnify
the issuing bank for certain costs or liabilities arising out of claims by
Borrower against such issuing bank. Borrower hereby agrees to indemnify and
hold Silicon harmless with respect to any loss, cost, expense, or liability
incurred by Silicon under any Letter of Credit as a result of Silicon's
indemnification of any such issuing bank. The provisions of this Loan
Agreement, as it pertains to Letters of Credit, and any other present or
future documents or agreements between Borrower and Silicon relating to
Letters of Credit are cumulative.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Silicon a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, and all money, and all property now or at
any time in the future in Silicon's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Silicon may now or in the future be
granted a lien or security interest, is referred to herein, collectively, as the
"Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Silicon to enter into this Agreement and to make Loans,
Borrower represents and warrants to Silicon as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower.
The execution, delivery and performance by Borrower of this Agreement, and all
other documents contemplated hereby (i) have been duly and validly authorized,
(ii) are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement
or instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Silicon at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Silicon now has,
and will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Silicon and the Collateral against all claims
of others. None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture.
Borrower is not and will not become a lessee under any real property lease
pursuant to which the lessor may obtain any rights in any of the Collateral and
no such lease now prohibits, restrains, impairs or will prohibit, restrain or
impair Borrower's right to remove any Collateral from the leased premises.
Whenever any Collateral is located upon premises in which any third party has an
interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien
or otherwise), Borrower shall, whenever requested by Silicon, use its best
efforts to cause such third party to execute and deliver to Silicon, in form
acceptable to Silicon, such waivers and subordinations as Silicon shall specify,
so as to ensure that Silicon's rights in the Collateral are, and will continue
to be, superior to the rights of any such third party. Borrower will keep in
full force and effect, and will comply with all the terms of, any lease of real
property where any of the Collateral now or in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good
working condition, and Borrower will not use the Collateral for any unlawful
purpose. Borrower will immediately advise Silicon in writing of any material
loss or damage to the Collateral.
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<PAGE>
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now
or in the future delivered to Silicon have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and accurately reflect the financial condition of
Borrower, at the times and for the periods therein stated. Between the last
date covered by any such statement provided to Silicon and the date hereof,
there has been no material adverse change in the financial condition or business
of Borrower. Borrower is now and will continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Silicon in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, including, but not limited to, those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, and all environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Silicon in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants
to Silicon as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business, and (ii)
meet the Minimum Eligibility Requirements set forth in Section 8 below.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Silicon as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all signatories and endorsers have the capacity to contract. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and indorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver
to Silicon transaction reports and loan requests, schedules and assignments of
all Receivables, and schedules of collections, all on Silicon's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Silicon's security interest and other rights in all of
Borrower's Receivables, nor shall Silicon's failure to advance or lend against a
specific Receivable affect or limit Silicon's security interest and other rights
therein. Loan requests received after 2:30 PM will not be considered by Silicon
until the next Business Day. Together with each
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such schedule and assignment, or later if requested by Silicon, Borrower
shall furnish Silicon with copies (or, at Silicon's request, originals) of
all contracts, orders, invoices, and other similar documents, and all
original shipping instructions, delivery receipts, bills of lading, and other
evidence of delivery, for any goods the sale or disposition of which gave
rise to such Receivables, and Borrower warrants the genuineness of all of the
foregoing. Borrower shall also furnish to Silicon an aged accounts
receivable trial balance in such form and at such intervals as Silicon shall
request. In addition, Borrower shall deliver to Silicon the originals of all
instruments, chattel paper, security agreements, guarantees and other
documents and property evidencing or securing any Receivables, immediately
upon receipt thereof and in the same form as received, with all necessary
indorsements, all of which shall be with recourse. Borrower shall also
provide Silicon with copies of all credit memos *.
* IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN THE SCHEDULE HERETO
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Silicon, and Borrower shall immediately deliver all such payments and proceeds
to Silicon in their original form, duly endorsed in blank, to be applied to the
Obligations in such order as Silicon shall determine. Silicon may, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Silicon may specify,
pursuant to a blocked account agreement in such form as Silicon may specify.
Silicon or its designee may, at any time, notify Account Debtors that the
Receivables have been assigned to Silicon.
4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of any
Collateral shall be delivered, in kind, by Borrower to Silicon in the original
form in which received by Borrower not later than the following Business Day
after receipt by Borrower, to be applied to the Obligations in such order as
Silicon shall determine; provided that, if no Default or Event of Default has
occurred, Borrower shall not be obligated to remit to Silicon the proceeds of
the sale of worn out or obsolete equipment disposed of by Borrower in good faith
in an arm's length transaction for an aggregate purchase price of $25,000 or
less (for all such transactions in any fiscal year). Borrower agrees that it
will not commingle proceeds of Collateral with any of Borrower's other funds or
property, but will hold such proceeds separate and apart from such other funds
and property and in an express trust for Silicon. Nothing in this Section
limits the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.
4.6 DISPUTES. Borrower shall notify Silicon promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit. Silicon may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable credit judgment and, in all cases, Silicon shall
credit Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Silicon). In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) hold the
returned Inventory in trust for Silicon, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as Silicon's property, and (iv) immediately notify Silicon of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.
4.8 VERIFICATION. Silicon may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose.
4.9 NO LIABILITY. Silicon shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall Silicon be deemed to be responsible for any of Borrower's obligations
under any contract or agreement giving rise to a Receivable. Nothing herein
shall, however, relieve Silicon from liability for its own gross negligence or
willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
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5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require, and Borrower shall provide evidence of such insurance to
Silicon, so that Silicon is satisfied that such insurance is, at all times, in
full force and effect. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole discretion, except that, provided no Default
or Event of Default has occurred and is continuing, Silicon shall release to
Borrower insurance proceeds with respect to Equipment totaling less than
$100,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Silicon may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Silicon may, but
is not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Silicon copies of all reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Silicon with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, sales projections, operating plans and other
financial documentation), as Silicon shall from time to time reasonably specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one
Business Day's notice, Silicon, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records.
Silicon shall take reasonable steps to keep confidential all information
obtained in any such inspection or audit, but Silicon shall have the right to
disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $500 per person per day (or such higher amount as shall represent
Silicon's then current standard charge for the same), plus reasonable out of
pocket expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first obtaining Silicon's
written consent, which may be conditioned upon such accounting firm, service
bureau or other third party agreeing to give Silicon the same rights with
respect to access to books and records and related rights as Silicon has under
this Loan Agreement. Borrower waives the benefit of any accountant-client
privilege or other evidentiary privilege precluding or limiting the disclosure,
divulgence or delivery of any of its books and records (except that Borrower
does not waive any attorney-client privilege).
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) merge or consolidate with another corporation or entity; (ii)
acquire any assets, except in the ordinary course of business; (iii) enter
into any other transaction outside the ordinary course of business; (iv) sell
or transfer any Collateral, except for the sale of finished Inventory in the
ordinary course of Borrower's business, and except for the sale of obsolete
or unneeded Equipment in the ordinary course of business; (v) store any
Inventory or other Collateral with any warehouseman or other third party;
(vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or
other contingent basis; (vii) make any loans of any money or other assets;
(viii) incur any debts, outside the ordinary course of business, which would
have a material, adverse effect on Borrower or on the prospect of repayment
of the Obligations; (ix) guarantee or otherwise become liable with respect to
the obligations of another party or entity; (x) pay or declare any dividends
on Borrower's stock (except for dividends payable solely in stock of
Borrower); (xi) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's stock; (xii) make any change in Borrower's
capital structure which would have a material adverse effect on Borrower or
on the prospect of repayment of the Obligations; or (xiii) pay total
compensation, including salaries, fees, bonuses, commissions, and all other
payments, whether directly or indirectly, in money or otherwise, to
Borrower's executives, officers and directors (or any relative thereof) in an
amount in excess of the amount set forth on the Schedule; or (xiv) dissolve
or elect to dissolve. Transactions permitted by the foregoing provisions of
this Section are only permitted if no Default or Event of Default would occur
as a result of such transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Silicon, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Silicon may deem them reasonably necessary in order
to prosecute or defend any such suit or proceeding.
5.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the "Maturity Date"); provided that the Maturity
Date shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to
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the next Maturity Date, that such party elects to terminate this Agreement
effective on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective three Business Days after written
notice of termination is given to Silicon; or (ii) by Silicon at any time after
the occurrence of an Event of Default, without notice, effective immediately.
If this Agreement is terminated by Borrower or by Silicon under this Section
6.2, Borrower shall pay to Silicon a termination fee in an amount equal to one
percent (1%) of the maximum Credit Limit, without regard to any limitation
thereon relating to the eligibility of accounts receivable. The termination fee
shall be due and payable on the effective date of termination and thereafter
shall bear interest at a rate equal to the highest rate applicable to any of the
Obligations.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Silicon, Silicon may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right
or remedy of Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Silicon shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Silicon's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower
shall give Silicon immediate written notice thereof: (a) Any warranty,
representation, statement, report or certificate made or delivered to Silicon
by Borrower or any of Borrower's officers, employees or agents, now or in the
future, shall be untrue or misleading in a material respect; or (b) Borrower
shall fail to pay when due any Loan or any interest thereon or any other
monetary Obligation; or (c) the total Loans and other Obligations outstanding
at any time shall exceed the Credit Limit; or (d) Borrower shall fail to
comply with any of the financial covenants set forth in the Schedule or shall
fail to perform any other non-monetary Obligation which by its nature cannot
be cured; or (e) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within 5 Business Days after the date
due; or (f) Any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral
which is not cured within 10 days after the occurrence of the same; or (g)
any default or event of default occurs under any obligation secured by a
Permitted Lien, which is not cured within any applicable cure period or
waived in writing by the holder of the Permitted Lien; or (h) Borrower
breaches any material contract or obligation, which has or may reasonably be
expected to have a material adverse effect on Borrower's business or
financial condition; or (i) Dissolution, termination of existence, insolvency
or business failure of Borrower; or appointment of a receiver, trustee or
custodian, for all or any part of the property of, assignment for the benefit
of creditors by, or the commencement of any proceeding by Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (j) the commencement of any proceeding against Borrower
or any guarantor of any of the Obligations under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in
effect, which is not cured by the dismissal thereof within 30 days after the
date commenced; or (k) revocation or termination of, or limitation or denial
of liability upon, any guaranty of the Obligations or any attempt to do any
of the foregoing, or commencement of proceedings by any guarantor of any of
the Obligations under any bankruptcy or insolvency law; or (l) revocation or
termination of, or limitation or denial of liability upon, any pledge of any
certificate of deposit, securities or other property or asset of any kind
pledged by any third party to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or
against any such third party under any bankruptcy or insolvency law; or (m)
Borrower makes any payment on account of any indebtedness or obligation which
has been subordinated to the Obligations other than as permitted in the
applicable subordination agreement, or if any Person who has subordinated
such indebtedness or obligations terminates or in any way limits his
subordination agreement; or (n) there shall be a change in the record or
beneficial ownership of an aggregate of more than 20% of the outstanding
shares of stock of Borrower, in one or more transactions, compared to the
ownership of outstanding shares of stock of Borrower in effect on the date
hereof, without the prior written consent of Silicon; or (o) Borrower shall
generally not pay its debts as they
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become due, or 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; or (p) there shall be a
material adverse change in Borrower's business or financial condition; or (q)
Silicon, acting in good faith and in a commercially reasonable manner, deems
itself insecure because of the occurrence of an event prior to the effective
date hereof of which Silicon had no knowledge on the effective date or
because of the occurrence of an event on or subsequent to the effective date.
Silicon may cease making any Loans hereunder during any of the above cure
periods, and thereafter if an Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence of any Event of Default, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following: (a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement; (b) Accelerate
and declare all or any part of the Obligations to be immediately due, payable,
and performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation; (c) Take possession of
any or all of the Collateral wherever it may be found, and for that purpose
Borrower hereby authorizes Silicon without judicial process to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof,
without charge for so long as Silicon deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, however, that should Silicon seek to take possession of any
of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any
bond and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof; and (iii) any requirement that Silicon retain possession of, and not
dispose of, any such Collateral until after trial or final judgment; (d) Require
Borrower to assemble any or all of the Collateral and make it available to
Silicon at places designated by Silicon which are reasonably convenient to
Silicon and Borrower, and to remove the Collateral to such locations as Silicon
may deem advisable; (e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Silicon shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Silicon obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Silicon shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Silicon deems reasonable, or on Silicon's premises, or elsewhere and
the Collateral need not be located at the place of disposition. Silicon may
directly or through any affiliated company purchase or lease any Collateral at
any such public disposition, and if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Silicon to endorse or sign Borrower's name on all collections,
receipts, instruments and other documents, to take possession of and open mail
addressed to Borrower and remove therefrom payments made with respect to any
item of the Collateral or proceeds thereof, and, in Silicon's sole discretion,
to grant extensions of time to pay, compromise claims and settle Receivables and
the like for less than face value; (h) Offset against any sums in any of
Borrower's general, special or other Deposit Accounts with Silicon; and (i)
Demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities
and obligations incurred by Silicon with respect to the foregoing shall be added
to and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. Without limiting any of Silicon's rights and remedies, from and
after the occurrence of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional four percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and Silicon
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by Silicon, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m;
(v) Payment of the purchase price in cash or by cashier's check or wire transfer
is required; (vi) With respect to any sale of any of the Collateral, Silicon may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same. Silicon shall be
free to employ
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other methods of noticing and selling the Collateral, in its discretion, if
they are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to
Borrower, and at Borrower's expense, to do any or all of the following, in
Borrower's name or otherwise, but Silicon agrees to exercise the following
powers in a commercially reasonable manner: (a) Execute on behalf of Borrower
any documents that Silicon may, in its sole discretion, deem advisable in order
to perfect and maintain Silicon's security interest in the Collateral, or in
order to exercise a right of Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute
on behalf of Borrower, any invoices relating to any Receivable, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or
other lien, or assignment or satisfaction of mechanic's, materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Silicon's
possession; (e) Endorse all checks and other forms of remittances received by
Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (g)
Grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give Silicon the same rights of access and other rights with respect
thereto as Silicon has under this Agreement; and (k) Take any action or pay any
sum required of Borrower pursuant to this Agreement and any other present or
future agreements. Any and all reasonable sums paid and any and all reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall Silicon's rights under the foregoing power of attorney or any of Silicon's
other rights under this Agreement be deemed to indicate that Silicon is in
control of the business, management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
of the Collateral shall be applied by Silicon first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Silicon in
the exercise of its rights under this Agreement, second to the interest due upon
any of the Obligations, and third to the principal of the Obligations, in such
order as Silicon shall determine in its sole discretion. Any surplus shall be
paid to Borrower or other persons legally entitled thereto; Borrower shall
remain liable to Silicon for any deficiency. If, Silicon, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, Silicon shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of purchase price or deferring
the reduction of the Obligations until the actual receipt by Silicon of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, Silicon shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"BUSINESS DAY" means a day on which Silicon is open for business.
"CODE" means the Uniform Commercial Code as adopted and in effect in the State
of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 above.
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"DEFAULT" means any event which with notice or passage of time or both, would
constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"ELIGIBLE INVENTORY" [NOT APPLICABLE].
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Silicon, in its sole judgment, shall deem eligible for borrowing, based on such
considerations as Silicon may from time to time deem appropriate. Without
limiting the fact that the determination of which Receivables are eligible for
borrowing is a matter of Silicon's discretion, the following (the "MINIMUM
ELIGIBILITY REQUIREMENTS") are the minimum requirements for a Receivable to be
an Eligible Receivable: (i) the Receivable must not be outstanding for more
than 90 days from its invoice date, (ii) the Receivable must not represent
progress billings, or be due under a fulfillment or requirements contract with
the Account Debtor, (iii) the Receivable must not be subject to any
contingencies (including Receivables arising from sales on consignment,
guaranteed sale or other terms pursuant to which payment by the Account Debtor
may be conditional), (iv) the Receivable must not be owing from an Account
Debtor with whom the Borrower has any dispute (whether or not relating to the
particular Receivable), (v) the Receivable must not be owing from an Affiliate
of Borrower, (vi) the Receivable must not be owing from an Account Debtor which
is subject to any insolvency or bankruptcy proceeding, or whose financial
condition is not acceptable to Silicon, or which, fails or goes out of a
material portion of its business, (vii) the Receivable must not be owing from
the United States or any department, agency or instrumentality thereof (unless
there has been compliance, to Silicon's satisfaction, with the United States
Assignment of Claims Act)*, (viii) the Receivable must not be owing from an
Account Debtor located outside the United States or Canada (unless pre-approved
by Silicon in its discretion in writing, or backed by a letter of credit
satisfactory to Silicon, or FCIA insured satisfactory to Silicon), (ix) the
Receivable must not be owing from an Account Debtor to whom Borrower is or may
be liable for goods purchased from such Account Debtor or otherwise. Receivables
owing from one Account Debtor will not be deemed Eligible Receivables to the
extent they exceed 25%** of the total eligible Receivables outstanding. In
addition, if more than 50% of the Receivables owing from an Account Debtor are
outstanding more than 90 days from their invoice date (without regard to
unapplied credits) or are otherwise not eligible Receivables, then all
Receivables owing from that Account Debtor will be deemed ineligible for
borrowing. Silicon may, from time to time, in its discretion, revise the
Minimum Eligibility Requirements, upon written notice to the Borrower.
* PROVIDED THAT UP TO $100,000 OF RECEIVABLES MAY BE ELIGIBLE FOR BORROWING
PURPOSED WITHOUT COMPLIANCE WITH SUCH ACT, IF SUCH RECEIVABLES ARE OTHERWISE
DETERMINED TO BE ELIGIBLE RECEIVABLES
** (SUCH PERCENTAGE MAY BE UP TO 50% ON A CASE BY CASE BASIS IF SO APPROVED IN
WRITING BY THE DIVISION MANAGER OF SILICON)
"EQUIPMENT" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of this
Agreement.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in
all litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Silicon, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security held
by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.
"OBLIGATIONS" means all present and future Loans, advances, debts, liabilities,
obligations, guaranties,
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covenants, duties and indebtedness at any time owing by Borrower to Silicon,
whether evidenced by this Agreement or any note or other instrument or
document, whether arising from an extension of credit, opening of a letter of
credit, banker's acceptance, loan, guaranty, indemnification or otherwise,
whether direct or indirect (including, without limitation, those acquired by
assignment and any participation by Silicon in Borrower's debts owing to
others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney's fees, expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and
any other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Silicon.
"PERMITTED LIENS" means the following: (i) purchase money security interests
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens consented to in writing by Silicon, which consent shall not be
unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired accounts
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
OTHER TERMS. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Silicon on account of the Obligations three (3) Business Days after
receipt by Silicon of immediately available funds, and, for purposes of the
foregoing, any such funds received after 2:30 PM on any day shall be deemed
received on the next Business Day. Silicon shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Silicon in its sole discretion, and Silicon may charge
Borrower's loan account for the amount of any item of payment which is returned
to Silicon unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may
be applied, and in Silicon's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Silicon shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNTS. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.
9.4 MONTHLY ACCOUNTINGS. Silicon shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless
Borrower notifies Silicon in writing to the contrary within thirty days after
each account is rendered, describing the nature of any alleged errors or
admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to Silicon or Borrower at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. Notices to Silicon shall be directed to the
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Commercial Finance Division, to the attention of the Division Manager or the
Division Credit Manager. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered, or at the expiration of
one Business Day following delivery to the private delivery service, or two
Business Days following the deposit thereof in the United States mail, with
postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Silicon and
supersede 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.
9.8 WAIVERS. The failure of Silicon at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Silicon shall not waive or
diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Silicon, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon, but nothing herein shall relieve Silicon from
liability for its own gross negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of Silicon.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by Silicon,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys' fees and costs Silicon incurs in order to do the following:
prepare and negotiate this Agreement and the documents relating to this
Agreement; obtain legal advice in connection with this Agreement or Borrower;
enforce, or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, Account Debtors; commence, intervene in, or defend any
action or proceeding; initiate any complaint to be relieved of the automatic
stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce Silicon's security
interest in, the Collateral; and otherwise represent Silicon in any
litigation relating to Borrower. In satisfying Borrower's obligation
hereunder to reimburse Silicon for attorneys fees, Borrower may, for
convenience, issue checks directly to Silicon's attorneys, Levy, Small &
Lallas, but Borrower acknowledges and agrees that Levy, Small & Lallas is
representing only Silicon and not Borrower in connection with this Agreement.
If either Silicon or Borrower files any lawsuit against the other predicated
on a breach of this Agreement, the prevailing party in such action shall be
entitled to recover its reasonable costs and attorneys' fees, including (but
not limited to) reasonable attorneys' fees and costs incurred in the
enforcement of, execution upon or defense of any order, decree, award or
judgment. All attorneys' fees and costs to which Silicon may be entitled
pursuant to this Paragraph shall immediately become part of Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Silicon; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Silicon, and any prohibited assignment
shall be void. No consent by Silicon to any assignment shall release Borrower
from its liability for the Obligations.
9.14 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and
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several, and the compromise of any claim with, or the release of, any
Borrower shall not constitute a compromise with, or a release of, any other
Borrower.
9.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against
Silicon, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Silicon, or on any other person
authorized to accept service on behalf of Silicon, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Silicon in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.16 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or Borrower under any rule
of construction or otherwise.
9.17 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Silicon to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Santa Clara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND SILICON EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN
ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
TRUEVISION, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY_______________________________
TITLE______________________________
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[LOGO] SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA
DATE: SEPTEMBER 19, 1997
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrower of even date.
EXIM AGREEMENT;
CROSS-COLLATERALIZATION;
CROSS-DEFAULT: Silicon and Borrower are parties to that certain
Loan and Security Agreement (Exim Program) of even
date herewith (as amended from time to time, the
"Exim Agreement"). This Agreement and the Exim
Agreement shall continue in full force and effect,
and all rights and remedies under this Agreement
and the Exim Agreement are cumulative. The term
"Obligations" as used in this Agreement and the
Exim Agreement shall include without limitation the
obligation to pay when due all Loans made pursuant
to this Agreement (sometimes referred to herein as
the "Silicon Loans") and all interest thereon and
the obligation to pay when due all Loans made
pursuant to the Exim Agreement (the "Exim Loans")
and all interest thereon. Without limiting the
generality of the foregoing, all "Collateral" as
defined in this Agreement and the Exim Agreement
shall secure all Exim Loans, all Silicon Loans, all
interest thereon, and all other Obligations. Any
Event of Default under this Agreement shall also
constitute an Event of Default under the Exim
Agreement, and any Event of Default under the Exim
Agreement shall also constitute an Event of Default
under this Agreement.
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1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of: (i)
$5,000,000 at any one time outstanding; or (ii) 65%
of the amount of Borrower's Eligible Receivables
(as defined in Section 8 above).
LETTER OF CREDIT SUBLIMIT
(Section 1.5): $4,000,000
FOREIGN EXCHANGE
CONTRACT SUBLIMIT Up to $4,000,000 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
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day (the "Determination Date"): (i) on all
outstanding Exchange Contracts on which delivery is
to be effected or settlement allowed more than two
business days from the Determination Date, 10% of
the gross amount of the Exchange Contracts; plus
(ii) on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed
within two business days after the Determination
Date, 100% of the gross amount of the Exchange
Contracts. In lieu of the Foreign Exchange Reserve
for 100% of the gross amount of any Exchange
Contract, the Borrower may request that Silicon
debit the Borrower's bank account with Silicon for
such amount, provided Borrower has immediately
available funds in such amount in its bank account.
Silicon may, in its discretion, terminate the
Exchange Contracts at any time (a) that an Event of
Default occurs or (b) that there is not sufficient
availability under the Credit Limit and Borrower
does not have available funds in its bank account
to satisfy the Foreign Exchange Reserve. If either
Silicon or Borrower terminates the Exchange
Contracts, and without limitation of the FX
Indemnity Provisions (as 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 $2,000,000 (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.
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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.
Without limiting any of the other terms of this
Loan Agreement or any such standard form
applications and agreements of Silicon, Borrower
agrees to indemnify Silicon and hold it harmless,
from and against any and all claims, debts,
liabilities, demands, obligations, actions, costs
and expenses (including, without limitation,
attorneys' fees of counsel of Silicon's choice), of
every nature and description, which it may sustain
or incur, based upon, arising out of, or in any way
relating to any of the Exchange Contracts or any
transactions relating thereto or contemplated
thereby (collectively referred to as the "FX
Indemnity Provisions").
The Exchange Contracts shall have maturity dates no
later than the Maturity Date.
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2. INTEREST.
INTEREST RATE (Section 1.2):
A rate equal to the "Prime Rate" in effect from
time to time, plus 2.00% per annum. Interest shall
be calculated on the basis of a 360-day year for
the actual number of days elapsed. "Prime Rate"
means the rate announced from time to time by
Silicon as its "prime rate;" it is a base rate upon
which other rates charged by Silicon are based, and
it is not necessarily the best rate available at
Silicon. The interest rate applicable to the
Obligations shall change on each date there is a
change in the Prime Rate.
MINIMUM MONTHLY
INTEREST (Section 1.2): Not Applicable.
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3. FEES (Section 1.4):
Loan Fee: $50,000, payable concurrently herewith.
Collateral Monitoring
Fee: $1,000 per calendar month, payable in arrears
(prorated for any partial calendar month at the
beginning and at termination of this Agreement).
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4. MATURITY DATE
(Section 6.1): One year from the date of this Agreement, subject
to automatic renewal as provided in Section 6.1
above, and early termination as provided in Section
6.2 above.
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5. FINANCIAL COVENANTS
(Section 5.1): Borrower shall comply with all of the following
covenant. Compliance shall be determined as of the
end of each month, except as otherwise specifically
provided below:
MINIMUM TANGIBLE
NET WORTH: Borrower shall maintain a Tangible Net Worth of not
less than $6,000,000.
DEFINITIONS. For purposes of the foregoing financial covenants,
the following terms shall have the following
meanings:
"Current assets", "current liabilities" and
"liabilities" shall have the meanings ascribed to
them by generally accepted accounting principles.
"Tangible Net Worth" shall mean the excess of total
assets over total liabilities, determined in
accordance with generally accepted accounting
principles, consistently applied, with the
following adjustments:
(A) there shall be excluded from assets: (i)
notes, accounts receivable and other obligations
owing to the Borrower from its officers or other
Affiliates, and (ii) all assets which would be
classified as intangible assets under generally
accepted accounting principles, including without
limitation goodwill, licenses, patents,
trademarks, trade names, copyrights, capitalized
software and organizational costs, licenses and
franchises
(B) there shall be excluded from liabilities:
all indebtedness which is subordinated to the
Obligations under a subordination agreement in
form specified by Silicon or by language in the
instrument evidencing the indebtedness which is
acceptable to Silicon in its discretion.
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6. REPORTING
(Section 5.3):
Borrower shall provide silicon with the following:
1. Monthly Receivable agings, aged by invoice date,
within fifteen days after the end of each month.
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2. Monthly accounts payable agings, aged by invoice
date fifteen days after the end of each month,
and outstanding or held check registers within
thirty days after the end of each month.
3. Monthly reconciliations of Receivable agings
(aged by invoice date), transaction reports, and
general ledger, within ten days after the end of
each month, provided that reconciliations and
transaction reports shall also be provided with
each Loan request concurrently therewith.
4. Monthly perpetual inventory reports for the
inventory valued on a first-in, first-out basis
at the lower of cost or market (in accordance
with generally accepted accounting principles)
or such other inventory reports as are
reasonably requested by Silicon, all within
fifteen days after the end of each month.
5. Monthly unaudited financial statements, as soon
as available, and in any event within thirty
days after the end of each month.
6. Monthly Compliance Certificates, within thirty
days after the end of each month, in such form
as Silicon shall reasonably specify, signed by
the Chief Financial Officer of Borrower,
certifying that as of the end of such month
Borrower was in full compliance with all of the
terms and conditions of this Agreement, and
setting forth calculations showing compliance
with the financial covenants set forth in this
Agreement and such other information as Silicon
shall reasonably request.
7. Quarterly unaudited financial statements, as
soon as available, and in any event within
forty-five days after the end of each fiscal
quarter of Borrower.
8. Annual operating budgets (including income
statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal
year of Borrower within thirty days prior to the
end of each fiscal year of Borrower.
9. Annual financial statements, as soon as
available, and in any event within 120 days
following the end of Borrower's fiscal year,
certified by independent certified public
accountants acceptable to Silicon.
10. A report of all distributor sell-throughs and
return sales, within fifteen days after the end
of each month, in such form as Silicon shall
reasonably specify.
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7. COMPENSATION
(Section 5.5): Without Silicon's prior written consent, Borrower
shall not pay total compensation, including
salaries, withdrawals, fees, bonuses, commissions,
drawing accounts and other payments, whether
directly or indirectly, in money or otherwise,
during any fiscal year to all of Borrower's
executives, officers and directors (or any relative
thereof) as a group in excess of 115% of the total
amount thereof in the prior fiscal year.
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<PAGE>
8. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): RASTEROPS.
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): None.
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): Targa.
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): 7340 Shadeland Station, Indianapolis, IN 46256.
MATERIAL ADVERSE
LITIGATION (Section 3.10): None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. OTHER COVENANTS
(Section 5.1): Borrower shall at all times comply with the
following additional covenants:
(1) BANKING RELATIONSHIP. Borrower shall at all
times maintain its primary banking
relationship with Silicon.
Borrower: Silicon:
TRUEVISION, INC. SILICON VALLEY BANK
By_______________________________ By_______________________________
President or Vice President Title_____________________________
By_______________________________
Secretary or Ass't Secretary
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<PAGE>
[LOGO] SILICON VALLEY BANK
CERTIFIED RESOLUTION AND INCUMBENCY CERTIFICATE
BORROWER: TRUEVISION, INC.,
A CORPORATION ORGANIZED UNDER THE LAWS
OF THE STATE OF DELAWARE
DATE: SEPTEMBER 19, 1997
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.
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.
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.
-1-
<PAGE>
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, as may be required under the terms of the credit facility
with Silicon, if any, which said instrumentsand 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.
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.
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:
<TABLE>
<CAPTION>
NAMES OFFICE(S) ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
______________________________ _________________________________ X___________________________
______________________________ _________________________________ X___________________________
______________________________ _________________________________ X___________________________
______________________________ _________________________________ X___________________________
</TABLE>
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
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<PAGE>
[logo] SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
(EXIM PROGRAM)
BORROWER: TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA
DATE: SEPTEMBER 19, 1997
THIS LOAN AND SECURITY AGREEMENT (Exim Program) is entered into on the above
date between SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"),
whose address is 3003 Tasman Drive, Santa Clara, California 95054 and the
borrower(s) named above (jointly and severally, the "Borrower"), whose chief
executive office is located at the above address ("Borrower's Address"). The
Schedule to this Agreement (the "Schedule") shall for all purposes be deemed to
be a part of this Agreement, and the same is an integral part of this Agreement.
(Definitions of certain terms used in this Agreement are set forth in Section 8
below.)
1. LOANS.
1.1 LOANS. Silicon will make loans to Borrower (the "Loans"), in amounts
determined by Silicon in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Silicon may, in its discretion, charge interest to
Borrower's Deposit Accounts maintained with Silicon.
1.3 OVERADVANCES. If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand. Without limiting Borrower's obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at a
rate equal to the interest rate which would otherwise be applicable to the
Overadvance, plus an additional 2% per annum.
1.4 FEES. Borrower shall pay Silicon the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Silicon and are not
refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Silicon a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, and all money, and all property now or at
any time in the future in Silicon's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Silicon may now or in the future be
granted a lien or security interest, is referred to herein, collectively, as the
"Collateral").
-1-
<PAGE>
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Silicon to enter into this Agreement and to make Loans,
Borrower represents and warrants to Silicon as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower.
The execution, delivery and performance by Borrower of this Agreement, and all
other documents contemplated hereby (i) have been duly and validly authorized,
(ii) are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement
or instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Silicon at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Silicon now has,
and will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Silicon and the Collateral against all claims
of others. None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture.
Borrower is not and will not become a lessee under any real property lease
pursuant to which the lessor may obtain any rights in any of the Collateral and
no such lease now prohibits, restrains, impairs or will prohibit, restrain or
impair Borrower's right to remove any Collateral from the leased premises.
Whenever any Collateral is located upon premises in which any third party has an
interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien
or otherwise), Borrower shall, whenever requested by Silicon, use its best
efforts to cause such third party to execute and deliver to Silicon, in form
acceptable to Silicon, such waivers and subordinations as Silicon shall specify,
so as to ensure that Silicon's rights in the Collateral are, and will continue
to be, superior to the rights of any such third party. Borrower will keep in
full force and effect, and will comply with all the terms of, any lease of real
property where any of the Collateral now or in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good
working condition, and Borrower will not use the Collateral for any unlawful
purpose. Borrower will immediately advise Silicon in writing of any material
loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now
or in the future delivered to Silicon have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and accurately reflect the financial condition of
Borrower, at the times and for the periods therein stated. Between the last
date covered by any such statement provided to Silicon and the date hereof,
there has been no material adverse change in the financial condition or business
of Borrower. Borrower is now and will continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Silicon in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral. Borrower is
unaware of any claims or adjustments
-2-
<PAGE>
proposed for any of Borrower's prior tax years which could result in
additional taxes becoming due and payable by Borrower. Borrower has paid,
and shall continue to pay all amounts necessary to fund all present and
future pension, profit sharing and deferred compensation plans in accordance
with their terms, and Borrower has not and will not withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental
agency. Borrower shall, at all times, utilize the services of an outside
payroll service providing for the automatic deposit of all payroll taxes
payable by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, including, but not limited to, those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, and all environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Silicon in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants
to Silicon as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business, and (ii)
meet the Minimum Eligibility Requirements set forth in Section 8 below.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Silicon as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all signatories and endorsers have the capacity to contract. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and indorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver
to Silicon transaction reports and loan requests, schedules and assignments of
all Receivables, and schedules of collections, all on Silicon's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Silicon's security interest and other rights in all of
Borrower's Receivables, nor shall Silicon's failure to advance or lend against a
specific Receivable affect or limit Silicon's security interest and other rights
therein. Loan requests received after 2:30 PM will not be considered by Silicon
until the next Business Day. Together with each such schedule and assignment,
or later if requested by Silicon, Borrower shall furnish Silicon with copies
(or, at Silicon's request, originals) of all contracts, orders, invoices, and
other similar documents, and all original shipping instructions, delivery
receipts, bills of lading, and other evidence of delivery, for any goods the
sale or disposition of which gave rise to such Receivables, and Borrower
warrants the genuineness of all of the foregoing. Borrower shall also furnish
to Silicon an aged accounts receivable trial balance in such form and at such
intervals as Silicon shall request. In addition, Borrower shall deliver to
Silicon the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any
Receivables, immediately upon receipt thereof and in the same form as received,
with all necessary indorsements, all of which shall be with recourse. Borrower
shall also provide Silicon with copies of all credit memos *.
* IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN THE SCHEDULE HERETO
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Silicon, and Borrower shall immediately deliver all such payments and proceeds
to Silicon in their original form, duly endorsed in blank, to be applied to the
Obligations in such order as Silicon shall determine. Silicon may, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Silicon may specify,
pursuant to a
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<PAGE>
blocked account agreement in such form as Silicon may specify. Silicon or its
designee may, at any time, notify Account Debtors that the Receivables have
been assigned to Silicon.
4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of any
Collateral shall be delivered, in kind, by Borrower to Silicon in the original
form in which received by Borrower not later than the following Business Day
after receipt by Borrower, to be applied to the Obligations in such order as
Silicon shall determine; provided that, if no Default or Event of Default has
occurred, Borrower shall not be obligated to remit to Silicon the proceeds of
the sale of worn out or obsolete equipment disposed of by Borrower in good faith
in an arm's length transaction for an aggregate purchase price of $25,000 or
less (for all such transactions in any fiscal year). Borrower agrees that it
will not commingle proceeds of Collateral with any of Borrower's other funds or
property, but will hold such proceeds separate and apart from such other funds
and property and in an express trust for Silicon. Nothing in this Section
limits the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.
4.6 DISPUTES. Borrower shall notify Silicon promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit. Silicon may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable credit judgment and, in all cases, Silicon shall
credit Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Silicon). In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) hold the
returned Inventory in trust for Silicon, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as Silicon's property, and (iv) immediately notify Silicon of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.
4.8 VERIFICATION. Silicon may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose.
4.9 NO LIABILITY. Silicon shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall Silicon be deemed to be responsible for any of Borrower's obligations
under any contract or agreement giving rise to a Receivable. Nothing herein
shall, however, relieve Silicon from liability for its own gross negligence or
willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require, and Borrower shall provide evidence of such insurance to
Silicon, so that Silicon is satisfied that such insurance is, at all times, in
full force and effect. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole discretion, except that, provided no Default
or Event of Default has occurred and is continuing, Silicon shall release to
Borrower insurance proceeds with respect to Equipment totaling less than
$100,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Silicon may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Silicon may, but
is not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Silicon copies of all reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Silicon with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, sales projections, operating plans and other
financial documentation), as Silicon shall from time to time reasonably specify.
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<PAGE>
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one
Business Day's notice, Silicon, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records.
Silicon shall take reasonable steps to keep confidential all information
obtained in any such inspection or audit, but Silicon shall have the right to
disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $500 per person per day (or such higher amount as shall represent
Silicon's then current standard charge for the same), plus reasonable out of
pocket expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first obtaining Silicon's
written consent, which may be conditioned upon such accounting firm, service
bureau or other third party agreeing to give Silicon the same rights with
respect to access to books and records and related rights as Silicon has under
this Loan Agreement. Borrower waives the benefit of any accountant-client
privilege or other evidentiary privilege precluding or limiting the disclosure,
divulgence or delivery of any of its books and records (except that Borrower
does not waive any attorney-client privilege).
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) merge or consolidate with another corporation or entity; (ii)
acquire any assets, except in the ordinary course of business; (iii) enter
into any other transaction outside the ordinary course of business; (iv) sell
or transfer any Collateral, except for the sale of finished Inventory in the
ordinary course of Borrower's business, and except for the sale of obsolete
or unneeded Equipment in the ordinary course of business; (v) store any
Inventory or other Collateral with any warehouseman or other third party;
(vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or
other contingent basis; (vii) make any loans of any money or other assets;
(viii) incur any debts, outside the ordinary course of business, which would
have a material, adverse effect on Borrower or on the prospect of repayment
of the Obligations; (ix) guarantee or otherwise become liable with respect to
the obligations of another party or entity; (x) pay or declare any dividends
on Borrower's stock (except for dividends payable solely in stock of
Borrower); (xi) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's stock; (xii) make any change in Borrower's
capital structure which would have a material adverse effect on Borrower or
on the prospect of repayment of the Obligations; or (xiii) pay total
compensation, including salaries, fees, bonuses, commissions, and all other
payments, whether directly or indirectly, in money or otherwise, to
Borrower's executives, officers and directors (or any relative thereof) in an
amount in excess of the amount set forth on the Schedule; or (xiv) dissolve
or elect to dissolve. Transactions permitted by the foregoing provisions of
this Section are only permitted if no Default or Event of Default would occur
as a result of such transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Silicon, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Silicon may deem them reasonably necessary in order
to prosecute or defend any such suit or proceeding.
5.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully
consummate the transactions contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the "Maturity Date"); provided that the Maturity
Date shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to the
next Maturity Date, that such party elects to terminate this Agreement effective
on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective three Business Days after written
notice of termination is given to Silicon; or (ii) by Silicon at any time after
the occurrence of an Event of Default, without notice, effective immediately.
If this Agreement is terminated by Borrower or by Silicon under this Section
6.2, Borrower shall pay to Silicon a termination fee in an amount equal to one
percent (1%) of the maximum Credit Limit, without regard to any limitation
thereon relating to the eligibility of accounts receivable. The termination fee
shall be due and payable on the effective date of termination and thereafter
shall bear interest at a rate equal to the highest rate applicable to any of the
Obligations.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of
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the Obligations relating to said Letters of Credit, pursuant to Silicon's
then standard form cash pledge agreement. Notwithstanding any termination of
this Agreement, all of Silicon's security interests in all of the Collateral
and all of the terms and provisions of this Agreement shall continue in full
force and effect until all Obligations have been paid and performed in full;
provided that, without limiting the fact that Loans are subject to the
discretion of Silicon, Silicon may, in its sole discretion, refuse to make
any further Loans after termination. No termination shall in any way affect
or impair any right or remedy of Silicon, nor shall any such termination
relieve Borrower of any Obligation to Silicon, until all of the Obligations
have been paid and performed in full. Upon payment and performance in full
of all the Obligations and termination of this Agreement, Silicon shall
promptly deliver to Borrower termination statements, requests for
reconveyances and such other documents as may be required to fully terminate
Silicon's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower
shall give Silicon immediate written notice thereof: (a) Any warranty,
representation, statement, report or certificate made or delivered to Silicon
by Borrower or any of Borrower's officers, employees or agents, now or in the
future, shall be untrue or misleading in a material respect; or (b) Borrower
shall fail to pay when due any Loan or any interest thereon or any other
monetary Obligation; or (c) the total Loans and other Obligations outstanding
at any time shall exceed the Credit Limit; or (d) Borrower shall fail to
comply with any of the financial covenants set forth in the Schedule or shall
fail to perform any other non-monetary Obligation which by its nature cannot
be cured; or (e) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within 5 Business Days after the date
due; or (f) Any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral
which is not cured within 10 days after the occurrence of the same; or (g)
any default or event of default occurs under any obligation secured by a
Permitted Lien, which is not cured within any applicable cure period or
waived in writing by the holder of the Permitted Lien; or (h) Borrower
breaches any material contract or obligation, which has or may reasonably be
expected to have a material adverse effect on Borrower's business or
financial condition; or (i) Dissolution, termination of existence, insolvency
or business failure of Borrower; or appointment of a receiver, trustee or
custodian, for all or any part of the property of, assignment for the benefit
of creditors by, or the commencement of any proceeding by Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (j) the commencement of any proceeding against Borrower
or any guarantor of any of the Obligations under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in
effect, which is not cured by the dismissal thereof within 30 days after the
date commenced; or (k) revocation or termination of, or limitation or denial
of liability upon, any guaranty of the Obligations or any attempt to do any
of the foregoing, or commencement of proceedings by any guarantor of any of
the Obligations under any bankruptcy or insolvency law; or (l) revocation or
termination of, or limitation or denial of liability upon, any pledge of any
certificate of deposit, securities or other property or asset of any kind
pledged by any third party to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or
against any such third party under any bankruptcy or insolvency law; or (m)
Borrower makes any payment on account of any indebtedness or obligation which
has been subordinated to the Obligations other than as permitted in the
applicable subordination agreement, or if any Person who has subordinated
such indebtedness or obligations terminates or in any way limits his
subordination agreement; or (n) there shall be a change in the record or
beneficial ownership of an aggregate of more than 20% of the outstanding
shares of stock of Borrower, in one or more transactions, compared to the
ownership of outstanding shares of stock of Borrower in effect on the date
hereof, without the prior written consent of Silicon; or (o) Borrower shall
generally not pay its debts as they become due, or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or
similar law; or (p) there shall be a material adverse change in Borrower's
business or financial condition; or (q) Silicon, acting in good faith and in
a commercially reasonable manner, deems itself insecure because of the
occurrence of an event prior to the effective date hereof of which Silicon
had no knowledge on the effective date or because of the occurrence of an
event on or subsequent to the effective date. Silicon may cease making any
Loans hereunder during any of the above cure periods, and thereafter if an
Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence of any Event of Default, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following: (a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement; (b) Accelerate
and declare all or any part of the Obligations to be immediately due, payable,
and performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation; (c) Take possession of
any or all of the Collateral wherever it may be found, and for that purpose
Borrower hereby authorizes Silicon without judicial process to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the
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premises or cause a custodian to remain on the premises in exclusive control
thereof, without charge for so long as Silicon deems it reasonably necessary
in order to complete the enforcement of its rights under this Agreement or
any other agreement; provided, however, that should Silicon seek to take
possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives: (i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any
suit or action to recover possession thereof; and (iii) any requirement that
Silicon retain possession of, and not dispose of, any such Collateral until
after trial or final judgment; (d) Require Borrower to assemble any or all of
the Collateral and make it available to Silicon at places designated by
Silicon which are reasonably convenient to Silicon and Borrower, and to
remove the Collateral to such locations as Silicon may deem advisable; (e)
Complete the processing, manufacturing or repair of any Collateral prior to a
disposition thereof and, for such purpose and for the purpose of removal,
Silicon shall have the right to use Borrower's premises, vehicles, hoists,
lifts, cranes, equipment and all other property without charge; (f) Sell,
lease or otherwise dispose of any of the Collateral, in its condition at the
time Silicon obtains possession of it or after further manufacturing,
processing or repair, at one or more public and/or private sales, in lots or
in bulk, for cash, exchange or other property, or on credit, and to adjourn
any such sale from time to time without notice other than oral announcement
at the time scheduled for sale. Silicon shall have the right to conduct such
disposition on Borrower's premises without charge, for such time or times as
Silicon deems reasonable, or on Silicon's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Silicon may
directly or through any affiliated company purchase or lease any Collateral
at any such public disposition, and if permissible under applicable law, at
any private disposition. Any sale or other disposition of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Silicon to endorse or sign Borrower's name on all collections,
receipts, instruments and other documents, to take possession of and open
mail addressed to Borrower and remove therefrom payments made with respect to
any item of the Collateral or proceeds thereof, and, in Silicon's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables and the like for less than face value; (h) Offset against any
sums in any of Borrower's general, special or other Deposit Accounts with
Silicon; and (i) Demand and receive possession of any of Borrower's federal
and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto. All reasonable attorneys' fees,
expenses, costs, liabilities and obligations incurred by Silicon with respect
to the foregoing shall be added to and become part of the Obligations, shall
be due on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations. Without limiting any of
Silicon's rights and remedies, from and after the occurrence of any Event of
Default, the interest rate applicable to the Obligations shall be increased
by an additional four percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and Silicon
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by Silicon, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m.;
(v) Payment of the purchase price in cash or by cashier's check or wire transfer
is required; (vi) With respect to any sale of any of the Collateral, Silicon may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same. Silicon shall be
free to employ other methods of noticing and selling the Collateral, in its
discretion, if they are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to
Borrower, and at Borrower's expense, to do any or all of the following, in
Borrower's name or otherwise, but Silicon agrees to exercise the following
powers in a commercially reasonable manner: (a) Execute on behalf of Borrower
any documents that Silicon may, in its sole discretion, deem advisable in order
to perfect and maintain Silicon's security interest in the Collateral, or in
order to exercise a right of Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute
on behalf of Borrower, any invoices relating to any Receivable, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or
other lien, or assignment or satisfaction of mechanic's, materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence
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of payment or Collateral that may come into Silicon's possession; (e) Endorse
all checks and other forms of remittances received by Silicon; (f) Pay,
contest or settle any lien, charge, encumbrance, security interest and
adverse claim in or to any of the Collateral, or any judgment based thereon,
or otherwise take any action to terminate or discharge the same; (g) Grant
extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and
other documents in connection therewith; (h) Pay any sums required on account
of Borrower's taxes or to secure the release of any liens therefor, or both;
(i) Settle and adjust, and give releases of, any insurance claim that relates
to any of the Collateral and obtain payment therefor; (j) Instruct any third
party having custody or control of any books or records belonging to, or
relating to, Borrower to give Silicon the same rights of access and other
rights with respect thereto as Silicon has under this Agreement; and (k) Take
any action or pay any sum required of Borrower pursuant to this Agreement and
any other present or future agreements. Any and all reasonable sums paid and
any and all reasonable costs, expenses, liabilities, obligations and
attorneys' fees incurred by Silicon with respect to the foregoing shall be
added to and become part of the Obligations, shall be payable on demand, and
shall bear interest at a rate equal to the highest interest rate applicable
to any of the Obligations. In no event shall Silicon's rights under the
foregoing power of attorney or any of Silicon's other rights under this
Agreement be deemed to indicate that Silicon is in control of the business,
management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
of the Collateral shall be applied by Silicon first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Silicon in
the exercise of its rights under this Agreement, second to the interest due upon
any of the Obligations, and third to the principal of the Obligations, in such
order as Silicon shall determine in its sole discretion. Any surplus shall be
paid to Borrower or other persons legally entitled thereto; Borrower shall
remain liable to Silicon for any deficiency. If, Silicon, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, Silicon shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of purchase price or deferring
the reduction of the Obligations until the actual receipt by Silicon of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, Silicon shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"BUSINESS DAY" means a day on which Silicon is open for business.
"CODE" means the Uniform Commercial Code as adopted and in effect in the State
of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 above.
"DEFAULT" means any event which with notice or passage of time or both, would
constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
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"EQUIPMENT" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of this
Agreement.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in
all litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Silicon, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security held
by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.
"OBLIGATIONS" means all present and future Loans, advances, debts, liabilities,
obligations, guaranties, covenants, duties and indebtedness at any time owing by
Borrower to Silicon, whether evidenced by this Agreement or any note or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by Silicon in Borrower's debts
owing to others), absolute or contingent, due or to become due, including,
without limitation, all interest, charges, expenses, fees, attorney's fees,
expert witness fees, audit fees, letter of credit fees, collateral monitoring
fees, closing fees, facility fees, termination fees, minimum interest charges
and any other sums chargeable to Borrower under this Agreement or under any
other present or future instrument or agreement between Borrower and Silicon.
"PERMITTED LIENS" means the following: (i) purchase money security interests
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens consented to in writing by Silicon, which consent shall not be
unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower
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agree that any uncured default in any obligation secured by the subordinate
security interest shall also constitute an Event of Default under this
Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired accounts
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
OTHER TERMS. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Silicon on account of the Obligations three (3) Business Days after
receipt by Silicon of immediately available funds, and, for purposes of the
foregoing, any such funds received after 2:30 PM on any day shall be deemed
received on the next Business Day. Silicon shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Silicon in its sole discretion, and Silicon may charge
Borrower's loan account for the amount of any item of payment which is returned
to Silicon unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may
be applied, and in Silicon's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Silicon shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNTS. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.
9.4 MONTHLY ACCOUNTINGS. Silicon shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless Borrower
notifies Silicon in writing to the contrary within thirty days after each
account is rendered, describing the nature of any alleged errors or admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to Silicon or Borrower at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. Notices to Silicon shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and Silicon and supersede 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.
9.8 WAIVERS. The failure of Silicon at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Silicon shall not waive or
diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document
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or guaranty at any time held by Silicon on which Borrower is or may in any
way be liable, and notice of any action taken by Silicon, unless expressly
required by this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Silicon, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon, but nothing herein shall relieve Silicon from
liability for its own gross negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of Silicon.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral; and otherwise represent Silicon
in any litigation relating to Borrower. IN SATISFYING BORROWER'S OBLIGATION
HEREUNDER TO REIMBURSE SILICON FOR ATTORNEYS FEES, BORROWER MAY, FOR
CONVENIENCE, ISSUE CHECKS DIRECTLY TO SILICON'S ATTORNEYS, LEVY, SMALL & LALLAS,
BUT BORROWER ACKNOWLEDGES AND AGREES THAT LEVY, SMALL & LALLAS IS REPRESENTING
ONLY SILICON AND NOT BORROWER IN CONNECTION WITH THIS AGREEMENT. If either
Silicon or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party in such action shall be entitled to
recover its reasonable costs and attorneys' fees, including (but not limited to)
reasonable attorneys' fees and costs incurred in the enforcement of, execution
upon or defense of any order, decree, award or judgment. All attorneys' fees
and costs to which Silicon may be entitled pursuant to this Paragraph shall
immediately become part of Borrower's Obligations, shall be due on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Silicon; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Silicon, and any prohibited assignment
shall be void. No consent by Silicon to any assignment shall release Borrower
from its liability for the Obligations.
9.14 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against
Silicon, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Silicon, or on any other person
authorized to accept service on behalf of Silicon, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Silicon in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.16 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or Borrower under any rule
of construction or otherwise.
-11-
<PAGE>
9.17 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Silicon to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Santa Clara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND SILICON EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN
ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
TRUEVISION, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY_______________________________
TITLE______________________________
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<PAGE>
[logo] SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
(EXIM PROGRAM)
BORROWER: TRUEVISION, INC.
ADDRESS: 2500 WALSH AVENUE
SANTA CLARA, CALIFORNIA
DATE: SEPTEMBER 19, 1997
This Schedule forms an integral part of the Loan and Security Agreement (Exim
Program) between Silicon Valley Bank and the above-borrower of even date.
SILICON AGREEMENT;
CROSS-COLLATERALIZATION;
CROSS-DEFAULT: Silicon and the Borrower are parties to that
certain Loan and Security Agreement of even date
herewith, as amended from time to time (the
"Silicon Agreement"). This Agreement and the
Silicon Agreement shall continue in full force and
effect, and all rights and remedies under this
Agreement and the Silicon Agreement are cumulative.
The term "Obligations" as used in this Agreement
and the Silicon Agreement shall include without
limitation the obligation to pay when due all Loans
made pursuant to this Agreement (the "Exim Loans")
and all interest thereon and the obligation to pay
when due all Loans made pursuant to the Silicon
Agreement (the "Silicon Loans") and all interest
thereon. Without limiting the generality of the
foregoing, all "Collateral" as defined in this
Agreement, as defined in the Silicon Agreement
shall secure all Exim Loans and all Silicon Loans
and all interest thereon, and all other Obligations
relating thereto. Any Event of Default under this
Agreement shall also constitute an Event of Default
under the Silicon Agreement, and any Event of
Default under the Silicon Agreement shall also
constitute an Event of Default under this
Agreement. In the event Silicon assigns its rights
under this Agreement and/or under any Note
evidencing Exim Loans, and/or its rights under the
Silicon Agreement and/or under any Note evidencing
Silicon Loans, to any third party, including
without limitation the Export-Import Bank of the
United States ("Exim Bank"), whether before or
after the occurrence of any Event of Default,
Silicon shall have the right (but not any
obligation), in its sole discretion, to allocate
and apportion Collateral to the Agreement and/or
Note assigned and to specify the priorities of the
respective security interests in such Collateral
between itself and the assignee, all without notice
to or consent of the Borrower.
-1-
<PAGE>
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- --------------------------------------------------------------------------------
1. CREDIT LIMIT
(Section 1.1): The unpaid principal balance of all Exim Loans and
all accrued interest thereon from time to time
outstanding may not exceed the lesser of (a) or (b)
as follows:
(a) $2,000,000 at any one time outstanding; or
(b) the sum of (i) and (ii):
(i) up to 65% of the value of Borrower's
eligible export Receivables, which Silicon in its
discretion deems eligible for borrowing, PLUS
(ii) up to 60% of the Value of Borrower's
export inventory which Silicon in its discretion
deems eligible for borrowing, up to a maximum of
$1,000,000 total at any one time outstanding.
"Value" of Borrower's inventory means the lower of
cost or market value.
Without limitation of which inventory is eligible
for borrowing is to be determined by Silicon in its
discretion, the category of EXPORT inventory will
be determined by applying the percentage of foreign
sales of the Borrower, for an appropriate period as
determined by Silicon, to all inventory of the
Borrower which is acceptable to Silicon in its
discretion and which EXPORT inventory is also
subject to the requirements of the Exim Borrower
Agreement (as defined below).
Without limiting the fact that the determination of
which accounts and inventory are eligible for
borrowing is a matter of Silicon's discretion, the
following will not be deemed eligible for
borrowing: accounts and inventory which are not
subject to the Borrower Agreement of even date
herewith between Silicon and the Borrower, a copy
of which is attached hereto, and including the
annexes attached thereto (collectively referred to
as the "Exim Borrower Agreement") with respect to
the guarantee by the Export Import Bank of the
United States in favor of Silicon.
AGREEMENT SUBJECT
TO EXIM BORROWER
GUARANTEE; COSTS: This Agreement is subject to all of the terms and
conditions of the Exim Borrower Agreement
(including without limitation any attachments and
annexes thereto) which are hereby incorporated
herein by this reference. Borrower expressly agrees
to perform all of the obligations and comply with
all of the affirmative and negative covenants and
all other terms conditions set forth in the Exim
Borrower Agreement as though the same were
expressly set forth herein, and all of the same are
hereby incorporated herein by this reference. In
the event of any conflict between the terms of the
Exim Borrower Agreement and the other terms of this
Agreement, whichever terms are more restrictive
shall apply. Borrower shall reimburse Silicon for
all fees and all out of pocket costs and expenses
incurred by Silicon with respect to the Exim
Borrower Agreement, including without limitation
all facility fees and usage fees, and Silicon is
authorized to debit Borrower's account with Silicon
for such fees, costs and expenses when paid by
Silicon.
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<PAGE>
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- --------------------------------------------------------------------------------
2. INTEREST.
INTEREST RATE (Section 1.2): A rate equal to the "Prime Rate" in effect from
time to time, plus 2.00% 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.
3. FEES (Section 1.4):
Loan Fee: $30,000, payable concurrently herewith.
Collateral Monitoring
Fee: $1,000 per calendar month, payable in arrears
(prorated for any partial calendar month at the
beginning and at termination of this Agreement).
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- --------------------------------------------------------------------------------
4. MATURITY DATE
(Section 6.1): One year from the date of this Agreement, subject
to early termination as provided in Section 6.2
above.
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- --------------------------------------------------------------------------------
5. FINANCIAL COVENANTS
(Section 5.1): Borrower shall comply with all of the following
covenant. Compliance shall be determined as of the
end of each month, except as otherwise
specifically provided below:
MINIMUM TANGIBLE
NET WORTH: Borrower shall maintain a Tangible Net Worth of
not less than $6,000,000.
DEFINITIONS. For purposes of the foregoing financial covenants,
the following terms shall have the following
meanings:
"Current assets", "current liabilities" and
"liabilities" shall have the meanings ascribed to
them by generally accepted accounting principles.
"Tangible Net Worth" shall mean the excess of
total assets over total liabilities, determined in
accordance with generally accepted accounting
principles, consistently applied, with the
following adjustments:
(A) there shall be excluded from assets: (i)
notes, accounts receivable and other obligations
owing to the Borrower from its officers or other
Affiliates, and (ii) all assets which would be
classified as intangible assets under generally
accepted accounting principles, including
without limitation goodwill, licenses, patents,
trademarks, trade names, copyrights, capitalized
software and organizational costs, licenses and
franchises
-3-
<PAGE>
(B) there shall be excluded from liabilities:
all indebtedness which is subordinated to the
Obligations under a subordination agreement in
form specified by Silicon or by language in the
instrument evidencing the indebtedness which is
acceptable to Silicon in its discretion.
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- --------------------------------------------------------------------------------
6. REPORTING.
(SECTION 5.3):
BORROWER SHALL PROVIDE SILICON WITH THE FOLLOWING:
1. Monthly Receivable agings, aged by invoice date,
within fifteen days after the end of each month.
2. Monthly accounts payable agings, aged by invoice
date fifteen days after the end of each month,
and outstanding or held check registers within
thirty days after the end of each month.
3. Monthly reconciliations of Receivable agings
(aged by invoice date), transaction reports, and
general ledger, within ten days after the end of
each month, provided that reconciliations and
transaction reports shall also be provided with
each Loan request concurrently therewith.
4. Monthly perpetual inventory reports for the
Inventory valued on a first-in, first-out basis
at the lower of cost or market (in accordance
with generally accepted accounting principles)
or such other inventory reports as are
reasonably requested by Silicon, all within
fifteen days after the end of each month.
5. Monthly unaudited financial statements, as soon
as available, and in any event within thirty
days after the end of each month.
6. Monthly Compliance Certificates, within thirty
days after the end of each month, in such form
as Silicon shall reasonably specify, signed by
the Chief Financial Officer of Borrower,
certifying that as of the end of such month
Borrower was in full compliance with all of the
terms and conditions of this Agreement, and
setting forth calculations showing compliance
with the financial covenants set forth in this
Agreement and such other information as Silicon
shall reasonably request.
7. Quarterly unaudited financial statements, as
soon as available, and in any event within
forty-five days after the end of each fiscal
quarter of Borrower.
8. Annual operating budgets (including income
statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal
year of Borrower within thirty days prior to the
end of each fiscal year of Borrower.
9. Annual financial statements, as soon as
available, and in any event within 120 days
following the end of Borrower's fiscal year,
certified by independent certified public
accountants acceptable to Silicon.
-4-
<PAGE>
10. A report of all distributor sell-throughs and
return sales, within fifteen days after the end
of each month, in such form as Silicon shall
reasonably specify.
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- --------------------------------------------------------------------------------
7. COMPENSATION
(Section 5.5): Without Silicon's prior written consent, Borrower
shall not pay total compensation, including
salaries, withdrawals, fees, bonuses, commissions,
drawing accounts and other payments, whether
directly or indirectly, in money or otherwise,
during any fiscal year to all of Borrower's
executives, officers and directors (or any relative
thereof) as a group in excess of 115% of the total
amount thereof in the prior fiscal year.
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- --------------------------------------------------------------------------------
8. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): RASTEROPS.
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): None.
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): Targa.
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): 7340 Shadeland Station, Indianapolis, IN 46256.
MATERIAL ADVERSE
LITIGATION (Section 3.10): None
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- --------------------------------------------------------------------------------
9. OTHER COVENANTS
(Section 5.1): Borrower shall at all times comply with the
following additional covenants:
(1) BANKING RELATIONSHIP. Borrower shall at all
times maintain its primary banking
relationship with Silicon.
Borrower: Silicon:
TRUEVISION, INC. SILICON VALLEY BANK
By_______________________________ By_______________________________
President or Vice President Title_____________________________
By_______________________________
Secretary or Ass't Secretary
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<PAGE>
[logo] SILICON VALLEY BANK
CERTIFIED RESOLUTION AND INCUMBENCY CERTIFICATE
(EXIM PROGRAM)
BORROWER: TRUEVISION, INC.,
A CORPORATION ORGANIZED UNDER THE LAWS
OF THE STATE OF DELAWARE
DATE: SEPTEMBER 19, 1997
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.
-1-
<PAGE>
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:
<TABLE>
<CAPTION>
NAMES OFFICE(S) ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
______________________________ _________________________________ X___________________________
______________________________ _________________________________ X___________________________
______________________________ _________________________________ X___________________________
______________________________ _________________________________ X___________________________
</TABLE>
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
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<PAGE>
[logo] SILICON VALLEY BANK
NOTICE OF SECURITY INTEREST
September 19, 1997
Certified Mail, Return Receipt Requested
Bank of the West
__________________________
__________________________
Re: TRUEVISION, INC.
Ladies and Gentlemen:
Notice is hereby given that your above-named customer has
granted a security interest in all of its present and future deposit accounts
maintained with your institution, general and special, and of every other
kind, to Silicon Valley Bank, 3003 Tasman Drive, Santa Clara, California
95054.
Please contact the undersigned at 408-654-1070, if you have
any questions about this matter.
Sincerely yours,
Silicon Valley Bank
By______________________________
Title_______________________
TRUEVISION, INC.
By______________________________
Title_______________________
-1-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> JUN-28-1997
<CASH> 4,549
<SECURITIES> 0
<RECEIVABLES> 4,968
<ALLOWANCES> 338
<INVENTORY> 7,746
<CURRENT-ASSETS> 17,553
<PP&E> 10,421
<DEPRECIATION> 7,664
<TOTAL-ASSETS> 20,488
<CURRENT-LIABILITIES> 12,526
<BONDS> 0
0
0
<COMMON> 53,015
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,488
<SALES> 43,620
<TOTAL-REVENUES> 43,739
<CGS> 30,412
<TOTAL-COSTS> 30,412
<OTHER-EXPENSES> 26,746
<LOSS-PROVISION> 182
<INTEREST-EXPENSE> 297
<INCOME-PRETAX> (13,419)
<INCOME-TAX> 1,510
<INCOME-CONTINUING> (14,929)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (4,858)
<NET-INCOME> (19,787)
<EPS-PRIMARY> (1.56)
<EPS-DILUTED> 0
</TABLE>
