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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997 Commission file number 0-19492
nVIEW CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1413745
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
860 Omni Boulevard, Newport News, Virginia 23606
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (757) 873-1354
Securities registered pursuant to Section 12(b) of the
Act: None Securities registered pursuant to Section
12(g) of the Act:
Common Stock, without 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 Regulations 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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing sale price as reported in The Wall Street
Journal on February 27, 1998, was $4,271,486. For the purpose of the foregoing
calculation only, all directors and executive officers of the registrant have
been deemed affiliates.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 5,005,166 shares of Common
Stock on February 27,1998.
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nVIEW CORPORATION
Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1997
Table of Contents
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PART I Page
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Item 1 Business 3
Item 2 Properties 6
Item 3 Legal Proceedings 7
Item 4 Submission of Matters to a Vote
of Security Holders 7
PART II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters 7
Item 6 Selected Financial Data 8
Item 7 Management's Discussion and
Analysis of Financial Condition and
Results of Operations 10
Item 8 Financial Statements and
Supplementary Data 16
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 16
PART III
Item 10 Directors and Executive Officers
of the Registrant 17
Item 11 Executive Compensation 18
Item 12 Security Ownership of Certain
Beneficial Owners and Management 20
Item 13 Certain Relationships and
Related Transactions 21
PART IV
Item 14 Exhibits, Financial Statement Schedule,
and Reports on Form 8-K 21
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PART I
Item 1. Business
Certain statements in this Form 10-K are forward-looking in nature and
involve risks and uncertainties. Investors are cautioned that the Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors discussed herein. The
Company makes forward-looking statements relating to new markets, anticipated
gross margins, new product introductions, year 2000 issues, and availability of
products manufactured on behalf of the Company. Factors that could cause actual
results to differ from those in the forward looking statements include, but are
not limited to, the following: (1) uncertainties relating to the impact of
competitive pricing, competitive products and market acceptance and demand for
the Company's current products and new product introductions; (2) uncertainties
relating to new technologies, availability of components, dependence on third
party suppliers, and manufacturing capabilities; (3) new markets for the
Company's products - the Company's product in development, the P1500
Professional Series projector, is designed specifically for the professional
market, with applications in professional video, rental and staging, and home
theater environments. There can be no assurance that the product will be
successful in these markets.
In addition, the Company makes forward looking statements regarding its
ability to fund future operations through cash flow and borrowings under a new
Loan and Security Agreement (the "Agreement") with a financial institution.
Several factors may cause actual results to differ including, but not limited
to, reduced sales due to the above described factors, difficulty collecting its
accounts receivable, reduction in the amount available for borrowing under the
loan as that amount is based on a formula applied to eligible receivables as
defined by the lender, and shift in sales volume to foreign sales, which sales
are not included as eligible receivables for calculating the borrowing base
under the Loan Agreement.
General
nVIEW Corporation ("nVIEW" or the "Company"), a Virginia corporation
founded in 1987, designs, manufactures and markets projection systems
incorporating electronic image display technologies, including liquid crystal
display ("LCD") and Digital Light Processing(TM) ("DLP(TM)") subsystems to
project large, high quality images from a variety of computer and video sources.
The Company's projection systems allow audiences to view computer and
video images in group settings and to interact with these images in real time.
The products are used in business, education, entertainment and other settings
to facilitate group communication. The Company previously designed and produced
projection panels for use in conjunction with an overhead projector, and now
produces projectors incorporating the light source, optical path and imaging
component in one product. The market for projection panels diminished as the
volume and variety of projectors increased and, therefore, the Company no longer
develops and manufactures the panel products.
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Technology
The Company designs electronic drivers and controls, some of which are
manufactured to the Company's specifications by other manufacturers, to drive
products using LCD and DLP imaging systems. Through ongoing research and
development, the Company actively pursues advancements in imaging technologies,
to enhance the performance of existing products and the development of new
products.
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Products
The Company's projection systems are compatible with most personal and
desktop computers on the market.
Projectors:
nVIEW DIAMOND Series - The DiaMonD Series of projectors incorporates
the DLP subsystem developed by Texas Instruments Incorporated. This reflective
imaging technology projects bright, clear images with high contrast ratios,
absolute picture uniformity, and full color from the middle to all edges of the
projected image. All projectors in the series include a motorized zoom lens,
built-in control panel and an infrared remote allowing full computer mouse
control, as well as controls for source selection, brightness, contrast, volume,
curtain and power. The projectors accept up to four source connections
simultaneously, two computer and two video (video available only on models
supporting video images).
o The D700 displays data only images at 700 lumens in 800 x 600 (SVGA)
resolution and resized resolutions from 640 x 480 (VGA) up to 1024 x
786 (XGA), and is video upgradeable.
o The D705 displays data and video images at 700 lumens in 800 x 600
(SVGA) resolution and resized resolutions from 640 x 480 (VGA) up to
1024 x 768 (XGA).
nVIEW L-600 Series - The L-600 Series of multimedia projectors utilizes
three 0.9" polysilicon LCDs. The projectors weigh just 11 pounds, display up to
16.7 million colors, and feature a PC card slot, allowing the presenter to store
and display presentations without connecting a desktop or laptop computer. Other
features include a manual zoom lens, a built-in control panel and an infrared
remote, allowing wireless control of source selection, brightness, contrast,
volume, curtain and lamp on/off functions. One computer and one video source may
be connected simultaneously.
o The L-605 projects data and video at 450 lumens in 800 x 600 (SVGA)
resolution and displays resized resolutions from 640 x 480 (VGA) up to
1024x768 (XGA).
o The L-600 projects data only in 800x600 (SVGA) resolution, and resized
images from 640 x 480 (VGA) up to 1024 x 768 (XGA) resolution at 450
lumens, and is video upgradeable.
nVIEW L-800 Projector - The L-800 Projector is a true XGA (1024 x 768)
resolution projector, using three 1.3" polysilicon LCDs to display 16.7 million
colors at 650 lumens. Features include power zoom and power focus of the
automatically retracting lens, and lens shift capability to raise or lower the
image up to 10 degrees without keystone effect. The projector has "picture in
picture" capability, allowing the presenter to run a video image inside a
computer presentation. Controls are available through either the on-board
control panel or the infrared remote. Image resizing capability allows the
projector to display resolutions from 640 x 480 (VGA) through 1280 x 1024
(SXGA).
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New Products and Products in Development
The Company is currently developing the first product in its new series
of projectors, the nVIEW Professional Series. The P1500 is the Company's first
product developed specifically to target the high end fixed installation
projector market, and is expected to be available in the second quarter of 1998.
Features of the product include true XGA (1024 x 768) resolution, and a modular
design allowing the end user to select the exact configuration appropriate for
the application and to upgrade the product as new features and capabilities
(such as HDTV, SXGA resolution, etc.) become available. Professional quality
video capability will be available by configuring the projector to include
technology by Snell & Wilcox Limited, with which the Company has a joint
development agreement.
The Company can provide no assurance that this product will be
completed or, if completed, will achieve market acceptance.
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Sales, Marketing and Distribution
nVIEW has developed and supports a worldwide distribution network with
the ability to demonstrate and sell the Company's products to a wide range of
end users, primarily through dealers, distributors, and presentation
specialists. Sales representatives are located throughout the US, in Europe and
in Latin America. The Company is pursuing new channels of distribution, in
addition to its existing customers, in preparation for the introduction of the
nVIEW Professional Series projectors. New potential markets include but are not
limited to, professional video environments, rental and staging applications,
and home theater environments.
The Company's sales by geographic region for each of the years ended
December 31, 1997, 1996 and 1995 are summarized in Note 11 of the Notes to the
Company's Consolidated Financial Statements contained elsewhere in this Report.
Customer Service
The Company has established a customer service and support department
that provides telephone support, technical training and hardware repair to
distributors, dealers and end users. The Company's products are typically
covered by a one-year warranty for parts and labor (excluding bulbs) from the
date of sale to the end-user. Non-warranty work is guaranteed for 90 days. The
Company performs warranty and repair service at its headquarters and through
Authorized Service Centers located worldwide.
Manufacturing and Supply
During 1997 the Company received its Certificate of Registration to ISO
9001 standards, indicating the Company has documented its quality management
standards, has provided objective evidence that it follows such standards, and
has successfully completed a registration audit of its Quality Management System
by an independent auditing agency. The Company is subject to continuing audits
in order to maintain its registration to ISO 9001 standards.
The principal components of the Company's products are LCD and DLP
subsystems, case parts, and electronic subassemblies. The Company procures and
tests parts manufactured to the Company's specifications and delivers certain
electronic components to its subcontractors for subassembly. The Company
contracts with high quality, competitive component manufacturers, and then
performs final assembly and testing in its Newport News, Virginia facility.
The Company's L-600 and L-800 series of LCD polysilicon projectors are
manufactured for the Company through a single supplier. Should the supplier be
unable to provide the Company with these products, the Company's future results
of operations could be materially affected.
The Company purchases LCD subsystems from a single supplier. The
supplier also manufactures and markets LCD projection products in competition
with those manufactured by nVIEW. Should the supplier be unable or unwilling to
provide the Company with these subsystems, the Company would seek an alternate
source of supply, possibly requiring product redesign and/or delays in product
delivery, which could materially affect the Company's future results of
operations.
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A key component of the professional video version of the Company's new
Professional Series product is available from a single supplier, Snell & Wilcox,
with which the Company has a joint development agreement and a supply agreement.
Should this component be unavailable or available only in limited quantities,
the Company's future results of operations could be materially effected.
The Company normally ships products immediately upon receipt of an
order, consistent with product availability, except when a specific delivery
date beyond that is requested by the customer. Due to the modular design, custom
configuration concept of the nVIEW Professional Series projectors, it is
anticipated products in that series will be completed upon receipt of an order.
Competition
nVIEW believes the ability to compete in the high-end and fixed
installation projection products market depends on certain key product
characteristics including image quality, resolution and brightness, feature
options, ease of operation and price. Size and weight are also significant
factors in the portable projector market, in addition to the other factors noted
above.
The Company faces competition from established competitors and expects
significant additional competition as new technologies, applications and
products are introduced, and as more competitors enter the market. Most of the
Company's competitors have significantly greater financial, technical and
marketing resources than nVIEW. In the portable and conference room markets
major competitors include but are not limited to, InFocus Systems, Seiko-Epson,
Proxima, Sharp, ASK, Davis, Sony, Sanyo, Panasonic and Hitachi. In the high end
and fixed installation market, competitors include InFocus Systems, Sanyo, Sony,
Mitsubishi, Electrohome, AmPro and Barco.
Research and Development
The Company recognizes the importance of research and development to
its success in the marketplace. Research and development expenses were
approximately $1,918,000, $1,994,000, and $4,704,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. The higher research and
development expenses in 1995 primarily related to the development of the DLP
based projector series and the nFINITY projector.
Employees
The Company currently employs 80 employees, with 18 engaged in
engineering, 21 in manufacturing, 14 in sales and marketing, 6 in customer
service and 21 in finance and administration. The Company's employees are not
represented by any collective bargaining organization and nVIEW has never
experienced a work stoppage.
Patents, Licenses and Trademarks
nVIEW attempts to protect its intellectual, trade and published
property through the use of patents, trademarks, copyrights and other prudent
protection means. The Company requires employees, and consultants to execute
confidentiality agreements.
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Since its inception, the Company has actively sought patent protection
for a number of inventions and processes believed to be important to certain
business goals. The Company currently holds several patents in the United
States, with corresponding protection typically sought in Japan, Taiwan, Korea
and the 17 member countries of the European Patent Office.
While the value of individual patents vary, the Company believes other
factors, such as speed of product development, access to emerging technologies
and accurate market research may be of equal or greater importance in
maintaining its technology and/or competitive position.
Item 2. Properties
The Company's facility is located in Newport News, Virginia and
consists of approximately 34,700 square feet of office, light manufacturing and
storage space. This space is leased in accordance with a lease agreement
expiring in December 2002.
Financial commitments under the Company's leases are summarized in Note
5 of the Notes to the Consolidated Financial Statements contained in this
report.
Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings. However,
the Company may from time to time, in the ordinary course of business, become
involved in legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders of the Company
through the solicitation of proxies or otherwise during the fourth quarter of
the fiscal year ended December 31, 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock is traded in the over-the-counter market and
is quoted on the National Association of Securities Dealers Automated Quotation
National Market System ("Nasdaq/NM") under the symbol NVUE. The Nasdaq/NM high
and low closing sales prices are set forth in the following table. The Nasdaq/NM
prices reflect inter-dealer quotations, without retail mark-up, mark-down or
commission and do not necessarily represent actual transactions.
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NASDAQ/NM - CLOSING SALES PRICES - PER SHARE
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1997 1996
High Low High Low
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First Quarter $4-5/8 $2-13/16 $4-1/2 $3-1/8
Second Quarter 2-7/8 1-13/16 9-7/16 4-1/4
Third Quarter 2-1/4 1-7/16 6-5/8 3-7/8
Fourth Quarter 1-7/8 13/16 6-3/8 2-7/8
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On February 27, 1998, there were 304 holders of record of the Company's
Common Stock. Because many of such shares are held by brokers and other
institutions on behalf of shareholders, the Company is unable to estimate the
total number of shareholders represented by these record holders.
Since the Company first registered its shares for sale to the public in
1991, it has not paid cash dividends and has retained any available earnings to
finance research and development and operations. During February 1998, the
Company entered into a loan and security agreement with a lending institution
which prohibits distributions to shareholders. The Company will be prohibited
from making distributions to shareholders as long as the loan and security
agreement is in place.
The Nasdaq Stock Market instituted new initial and continued listing
requirements, effective February 23, 1998. The Company has been notified that it
is not in compliance with one of the continued listing requirements for the
Nasdaq National Market and is evaluating steps to bring the Company into
compliance and is researching alternative trading mechanisms.
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Item 6. Selected Financial Data
The selected data presented below under the captions "Statements of
Operations Data" and "Balance Sheet Data" as of and for each of the years in the
five year period ended December 31, 1997, are derived from the consolidated
financial statements of nVIEW Corporation and subsidiaries, which have been
audited by KPMG Peat Marwick LLP, independent public accountants. The
consolidated financial statements as of December 31, 1997 and 1996, and for each
of the years in the three-year period ended December 31, 1997, and the
independent auditors' report thereon, are included elsewhere herein.
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Years ended December 31,
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1997 1996 1995 1994 1993
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(in thousands, except per share data)
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Statements of Operations Data:
Sales $19,883 $34,525 $32,876 $35,870 $33,555
Cost of good sold 21,575 27,469 26,794 23,272 21,728
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Gross profit (1,692) 7,056 6,082 12,598 11,827
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Operating expenses:
Marketing and promotion 3,253 3,688 6,841 5,194 7,689
Research and development 1,918 1,994 4,704 2,998 2,064
General and administrative 2,279 2,072 2,369 2,358 2,234
Restructuring charge - - - - 433
Litigation expense - - - 127 353
Insurance reimbursement of
litigation expense - - - (550) -
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Operating expenses 7,450 7,754 13,914 10,127 12,773
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Earnings (loss) from operations (9,142) (698) (7,832) 2,471 (946)
Other income (expense):
Interest expense (191) (191) (113) (41) (55)
Interest income 57 104 132 344 344
Miscellaneous (33) (20) 1 - (3)
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(167) (107) 20 303 286
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Earnings (loss) before income taxes (9,309) (805) (7,812) 2,774 (660)
Income tax expense (benefit) - - (35) 234 -
---------------- -------------- ------------- ------------- --------------
Net earnings (loss) ($9,309) ($805) ($7,777) $2,540 ($660)
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Net earnings (loss) per share - basic ($1.86) ($0.16) ($1.59) $0.52 ($0.13)
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Weighted average common shares
outstanding 5,005 4,942 4,899 4,885 4,946
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Net earnings (loss) per share - diluted ($1.86) ($0.16) ($1.59) $0.51 ($0.13)
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Weighted average common and 5,005 4,942 4,899 4,953 4,946
potentially dilutive shares outstanding
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December 31,
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1997 1996 1995 1994 1993
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(in thousands)
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Balance Sheet Data:
Working capital $7,409 $16,309 $16,125 $22,235 $19,785
Total assets 9,966 24,182 21,587 32,430 28,095
Shareholders' equity 7,993 17,302 17,542 25,259 22,848
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Fiscal Year 1997 Compared with Fiscal Year 1996
Sales decreased 42% to $19.9 million in 1997 from $34.5 million in 1996. For the
first six months of 1997, quarterly sales averaged $6.2 million, while for the
second six months of the year, quarterly sales averaged $3.8 million; a
reduction of 39%. The Company believes that future quarterly sales will continue
at or below the average for the second six months of 1997, until it begins
shipping the new P1500 projector series.
The significant decrease in sales in 1997 was caused by declining sales of the
Company's DLP projectors, a portion of which was due to reduced sales under the
Company's original equipment manufacturing agreement with Polaroid Corporation.
DLP projector sales under this agreement represented $3.3 million in 1997
compared to $7.0 million in 1996. This contract ended under its terms in the
third quarter of 1997. Non-Polaroid DLP projector sales declined in 1997 by $3.1
million from 1996. Overall, the loss of market share in the Company's
traditional audio visual ("AV") distribution channels, on a worldwide basis,
resulted in the 1997 sales decline. Management believes that this continuing
trend is caused by the following factors:
a. rapid technological changes are shortening product lives and creating
excess inventories;
b. excess inventories are forcing significant reductions in the average
selling prices of projectors to more quickly reduce inventory levels;
c. an increased number of competitors are producing products with improved
features over those available in the Company's DLP projector series,
thereby reducing volumes sold.
Additionally, the limited credit capacity and unfavorable credit history of
certain international customers is negatively impacting volumes sold.
Further declines in 1997 sales resulted from a $7.4 million reduction in LCD
panel product sales in 1997 from 1996, as the industry shifted away from
projection panels and toward portable projectors. The Company no longer develops
LCD projection panel products, and will continue to sell the remaining inventory
of such products until depleted.
During 1997, the Company exited the computer distribution channel, due to the
high marketing expenses associated with the distributor contracts. As a result,
sales to computer distributors decreased by $1.5 million in 1997 compared to
1996. No future sales are anticipated in this channel.
In 1997, the Company continued to sell custom products, consisting of flat panel
monitors and related items. Sales in this product line were $2.0 million in 1997
and $2.2 million in 1996. As the Company transitions into new vertical markets
with the P1500 projector series, future sales of non-projector products are
expected to decline.
The combined effect of the non-renewal of the Company's OEM agreement with
Polaroid, exiting the computer distribution channel, the decline in LCD panel
product sales and anticipated decline in custom product sales will reduce future
annual sales by approximately $6 million or 30% of 1997 sales. The Company
intends to offset this decline with new shipments of the P1500 projector series
scheduled for release in the summer of 1998.
The Company's gross profit margin declined to a negative 9% in 1997 from 20% in
1996, due in
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part, to the declining average selling prices explained above. However, a
majority of the negative margin was the result of a $4.4 million write-down of
inventory to net realizable value.
The Company is also experiencing higher cost of sales due to idle capacity in
its manufacturing facility, caused by lower production levels in response to the
decline in sales volumes during the second half of 1997. This idle capacity will
continue until the production of the new P1500 projector commences.
The Company's 1997 gross profit was also impacted by the approximately 18% of
1997 sales of product purchased from Matsushita Corporation and sold under the
nVIEW label at lower gross profit margins than are achieved from proprietary
products. The Company intends to include this product offering in the future
because such sales require no research and development costs, thereby offsetting
the lower gross profit margins.
Until the Company has completed its transition into new vertical markets,
existing product sales will continue to generate at or near break-even gross
margins.
Operating expenses decreased 4% in 1997 to $7.5 million, from $7.8 million in
1996.
Marketing and promotion expenses decreased 12% to $3.3 million in 1997 from $3.7
million in 1996. Increased product reliability surrounding the DLP projector
series in 1997 resulted in lower overall warranty expense. Additionally, sales
commissions decreased in response to lower sales in 1997 verses 1996. As a
result of the Company's exit from the computer distribution channel, related
marketing expenses declined proportionately. During 1998, management believes
marketing and promotion expenses will increase to support the product launch of
the new P1500 projector.
Research and development expenses decreased 4% to $1.9 million in 1997 from $2.0
million in 1996. However, in the second six months of 1997, research and
development expenses increased from the comparable period of 1996. This
fluctuation is the result of increased development costs relating to the
Company's new P1500 projector series targeted for new vertical markets and
expected to be released during 1998. As a result, management will allow
controlled increases in research and development expenses in 1998 to develop
this new product.
General and administrative expenses increased 10% to $2.3 million in 1997 from
$2.1 million in 1996. The majority of this increase was the expense associated
with increasing the Company's allowance for doubtful accounts.
The Company must generate quarterly sales higher than the average quarterly
sales for the second six months of 1997 in order to cover its current level of
operating expenses. Until the Company begins shipping the new P1500 projector
series, it expects to continue to experience net operating losses.
Other expenses increased 56% to $167 thousand in 1997 from $107 thousand in
1996. This net change consisted of lower earned interest income in 1997 as a
result of lower overall cash balances. Additionally, a nominal amount of losses
from fixed asset disposals was recorded as a result of the Company's closing of
its European sales office in the fourth quarter of 1997. Expenses and payments
associated with the Company's prior loan agreement are included here.
No income tax expense was recorded for the year ended December 31, 1997 or 1996.
The Company's cumulative net operating loss carryforward at December 31, 1997 is
approximately $11 million.
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Fiscal Year 1996 Compared with Fiscal Year 1995
Sales increased 5% to $34.5 million in 1996 from $32.9 million in 1995. The
majority of the increase was achieved in the fourth quarter of 1996 with sales
of $11.2 million, the highest quarterly sales in the Company's history. For the
first nine months of 1996, sales were at levels below the comparable period of
1995. The sharp increase in the fourth quarter of 1996 resulted from sales of
the SVGA zoom focus model of the DLP projector which was introduced in the third
quarter of 1996. Contributing to the SVGA DLP projector sales was an original
equipment manufacturer (OEM) agreement with Polaroid Corporation signed during
the third quarter of 1996. Also contributing to the SVGA DLP projector sales was
increased demand from existing European and Pacific Rim customers, as well as
expanded distribution in these countries. Sales outside of the United States
(US), including sales to Polaroid Corporation, were $16.4 million or 48% of 1996
sales compared to $9.5 million or 29% of 1995 sales.
Although favorably accepted in the European and Pacific Rim countries, the SVGA
DLP projector was not received as favorably in the US. US sales were $18.1
million or 52% of 1996 sales compared to $23.4 million or 71% of 1995 sales. The
decrease in US sales began early in 1996 and intensified throughout the year, as
new competitors entered the projection market and new product introductions
increased pricing pressures on the Company's products, particularly VGA
resolution products.
The Company also experienced decreased demand for its LCD panel products, which
accounted for 29% of 1996 sales verses 63% of 1995 sales. Management believes
sales of LCD panels will continue to decline in absolute dollars and as a
percentage of total sales.
Increased sales through US distributors were achieved in 1996, although below
management's expectations. The entry into this channel occurred late in 1995.
Consistent with the Company's goal of reducing operating expenses and returning
to profitability, the Company was unable to commit an appropriate level of
resources for marketing and promotion to increase demand in the distribution
channel during 1996.
During 1996, management re-defined the products and partners in the Company's
nonprojection product lines. This decision resulted in the loss of certain low
volume customers. Management intends to focus on products that it believes will
ultimately result in higher volume, higher margin opportunities, where the
projected return on the research and development investment is appropriate.
Gross profit as a percentage of sales was 20% and 18% for 1996 and 1995,
respectively. Among other things, the 18% profit in 1995 was attributable to a
$2.8 million write down of certain inventory to estimated net realizable value.
Had this write down not occurred, 1995 gross profit would have been 27%.
In 1996, the Company's gross profit percentage decreased from a high of 26% for
the quarter ended June 30, 1996 to a low of 17% for the quarter ended December
31, 1996. Several factors caused this decrease in gross profit in 1996. First,
the Company entered into OEM agreements which typically generate lower sales
prices than sales of the Company's branded products. Second, increased pricing
pressure resulting from the entry of new competitors into the projection market,
as well as the number of new competitive products in the market for the
Company's branded products, resulted in decreased sales prices. Third, the
Company purchased the L-500 projector series from a supplier and marketed it
under the nVIEW label, resulting in both lower operating costs as well as lower
profits. Lastly, the Company continued to sell older, more mature products at
reduced prices.
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Operating expenses decreased 44% to $7.8 million (22% of sales) in 1996 from
$13.9 million (42% of sales) in 1995. Overall, 1996 operating expenses decreased
significantly due to management's implementation of significant cost reduction
measures.
Marketing and promotion expenses decreased 46% to $3.7 million (11% of sales) in
1996 from $6.8 million (21% of sales) in 1995. In 1995, significant marketing
and promotion dollars were spent to support the anticipated launch of the DLP
projector. In 1996, management's overall plan to improve the Company's
performance, which included targeted expense reduction, resulted in decreased
marketing and promotion expenses, consisting primarily of outside advertising
agency costs, print advertising and other promotional expenditures. The decrease
in advertising was consistent with the Company's entrance into OEM selling
arrangements, which require only limited marketing and promotional support
costs.
Research and development expenses decreased 58% to $2.0 million (6% of sales) in
1996 from $4.7 million (14% of sales) in 1995. The decrease was primarily
related to the timing of new product development. In 1995, the nFINITY and the
Z350 products were designed and introduced, and the nFINITY was redesigned later
in the year. Additionally, the Company performed substantially all development
related to the first projector utilizing DLP subsystems in 1995. In 1996, the
D400 series was successfully introduced to market with minimal additional
development investment. Furthermore, the Company introduced the L-500 series of
projectors in 1996 which were manufactured by a supplier and private labeled by
the Company. As a result, minimal research and development dollars were incurred
internally.
General and administrative expenses decreased 13% to $2.1 million (6% of sales)
in 1996 from $2.4 million (7% of sales) in 1995. The majority of the decrease
was caused by management's decision to reduce the outsourcing of certain
services as well as a decrease in executive compensation.
Other expense was $107 thousand at December 31, 1996, compared to other income
of $20 thousand at December 31, 1995. The net decrease reflected increased
interest expense under the Company's borrowing agreement with a bank. The
interest expense primarily consisted of non-performance fees and the
amortization of loan origination costs.
No income tax expense was recorded for the year ended December 31, 1996 compared
to a $35 thousand benefit in 1995. On both a pre-tax and after-tax basis, the
Company incurred losses of $805 thousand in 1996 and $7.8 million in 1995. The
amount of the net operating loss carryforward at December 31, 1996 was
approximately $4.1 million.
Liquidity and Capital Resources
Cash balances on hand at December 31, 1996 as well as cash generated from
accounts receivable collections during 1997 were sufficient to fund operations
in 1997.
In 1998, the Company's needs for capital will include not only paying on-going
operating expenses, but also funding letters of credit in favor of at least two
key component suppliers. As part of the Company's plans to enter new vertical
markets with the P1500 projector, capital will also be required to fund initial
"ramp up" purchases of the key components used to build the P1500. ln addition,
the Company will require cash resources of approximately $400 thousand to
purchase tooling and test equipment to support the P1500. These combined needs
will be funded through existing cash balances, future accounts receivable
collections and the Company's line of credit (subject to the availability
described below). The Company believes such sources will be adequate to meet the
needs described herein. However, there can be no assurance that these sources of
funds will be sufficient.
16
<PAGE>
The Company's sales are generated from a relatively small number of products. In
addition, the markets in which the Company competes are characterized by rapidly
changing technology, requiring constant product innovation. Most of the
Company's existing products are at or near the end of their respective product
life cycles. The Company is currently in the process of developing a new product
line, which is expected to be available for sale in the second quarter of 1998.
Although management believes that this new product line will gain acceptance in
the marketplace and will provide the Company access to new markets, there can be
no assurance that the new product line will be completed on a timely basis or
that the products will be accepted in the marketplace. Lack of acceptance of the
new product line, especially in light of the age of the Company's existing
products, could have a material adverse effect on the Company's results of
operations and financial position.
At December 31, 1997, the Company was under a forbearance agreement with its
lender. On February 23, 1998, the Company terminated the $2.5 million line of
credit to which the forbearance agreement related and simultaneously entered
into a new loan and security agreement which is described below. There were no
amounts outstanding under the terminated credit agreement as of the termination
date.
The Company entered into a Loan and Security Agreement (the "Agreement") with a
lender on February 23, 1998. Amounts available to borrow under the Agreement are
based upon the results of an advance percentage applied to eligible receivables,
as defined by the lender, and are capped at $2 million until the Company begins
selling its new P1500 projector and until the lender is satisfied such sales are
eligible for inclusion in the borrowing base. The advance percentage will
decrease if the Company exceeds a minimum formula defined in the Agreement.
Availability under the Agreement as of the date of this filing is approximately
$1.2 million, of which $650 thousand is assigned to support a stand-by letter of
credit in favor of a supplier. The maximum amount that may be advanced under the
Agreement is $5 million. Availability under the Agreement will fluctuate on a
daily basis and will decrease if accounts receivable become ineligible, as
defined in the Agreement. This availability will also decrease if sales of the
P1500 do not occur or if such sales do occur but the lender does not allow the
Company to immediately borrow against them, as defined in the Agreement. The
Agreement expires February 23, 2001. As of the date of this filing, no amounts
have been advanced under the Agreement.
Total assets decreased to $10 million at December 31, 1997 from $24.2 million at
December 31, 1996. This $14.2 million decrease consisted principally of
decreases in inventory and accounts receivable. Working capital on December 31,
1997 was $7.4 million. The Company's current ratio increased to 4.8 at December
31, 1997 from 3.4 at December 31, 1996.
Cash and cash equivalents decreased to $742 thousand on December 31, 1997 from
$1.8 million on December 31, 1996. The net decrease in cash and cash equivalents
was used to meet current liabilities and to fund capital equipment purchases in
1997.
Net receivables decreased by $4.7 million from December 31, 1996 to December 31,
1997. This decrease resulted from lower sales during the second six months of
1997. Even though net receivables decreased, the Company's total days sales
outstanding increased to 104 days at December 31, 1997 as compared to 71 days at
December 31, 1996.
Inventories decreased to $4 million at December 31, 1997 from $12 million at
December 31, 1996. This $8 million decrease included a $4.4 million write-down
of inventory to net realizable value. Throughout 1997, management reacted to
decreased sales by limiting new inventory purchases and focusing the Company on
selling older model products. These sales of older model products were typically
at higher volume, but lower average selling prices. At December 31, 1997
approximately 67% of the Company's finished goods inventory is comprised of
older model products. The Company intends to sell a majority of this inventory
by June 30, 1998, at which time the new P1500 projector
17
<PAGE>
series is scheduled for shipment.
Current liabilities decreased by 71% to $2 million at December 31, 1997. This
significant decline represents reduced inventory purchases during the second six
months of 1997, as well as the timing of product purchases from Matsushita
Corporation and raw materials receipts used in the DLP product.
Shareholders' equity decreased to $8 million at December 31, 1997 from $17.3
million at December 31, 1996. This decrease is the result of the $9.3 million
net loss incurred for the year ended December 31, 1997.
The Company had no outstanding material commitments for capital expenditures at
December 31, 1997. As of December 31, 1997 the Company had noncancellable
purchase order arrangements with suppliers to purchase inventory at a total cost
of approximately $821 thousand. The inventory is scheduled to be received during
1998.
Inflation has not had a significant impact on the Company's results of
operations.
Year 2000 Compliance
The Company has performed a preliminary internal review to identify and address
the impact on its operating and application software and products related to the
year 2000. Based on the results of the initial review, the Company does not
anticipate year 2000 issues relating to the products the Company produces and
distributes. Year 2000 compliance issues relating to the Company's material
requirements planning and other application software can be resolved primarily
through replacement and normal upgrades of its software and hardware. The cost
of such replacements and upgrades is not expected to be material and the Company
anticipates completing these installations during 1999; however, there can be no
assurance that such replacements and upgrades can be completed on schedule and
within estimated costs.
Risk Factors
In addition to the risk factors noted in liquidity and capital resources, the
following discussion of risk factors describes certain aspects of the business
environment in which the Company operates. These risk factors, along with other
information in this report, should be carefully considered by users of this
report.
During 1998 the Company intends to enter new markets in which it has not
previously competed. The P1500 projector is the first product in the
Professional Series developed by the Company for sale into these new markets.
Management has devoted all product development resources of the Company on the
new series and the success of the Company is largely dependent on successful
launch and market acceptance of the series in the new markets.
The markets in which the Company operates are characterized by rapidly changing
technology, resulting in short product lives. Actual or anticipated product
releases by the Company or its competitors could cause customers to delay
purchases until the new products are available and/or to discontinue purchases
of existing products altogether. The Company's competitors may introduce
products which utilize new technologies to which the Company does not have
access. Any of these factors could have a material affect on the Company's
business and results of operations.
Revenue from the sale of products is recognized at the time of shipment to the
customer. The Company accrues for sales returns and allowances based upon
historical rates of returns. While the Company believes its estimated accrual
for sales returns and allowances is adequate, future
18
<PAGE>
returns could be greater than the accruals and may materially affect future
results of operations.
The Company will continue its efforts to sell older inventory. Price reductions
of certain of the Company's older products have resulted in lower gross margins.
While the Company believes it has adequately reserved its current inventory,
rapidly changing technology and short product lives could cause this trend to
continue as the Company's current products are superseded in the market place
through the introduction of new products by the Company or its competitors.
The trading price of the Company's common stock has been and is expected to
continue to be subject to immediate and wide fluctuations due to factors both
within and outside of the Company's control. These factors include, but are not
limited to, the following: Fluctuations in operating results or financial
position, availability of financing, new product introductions by the Company or
its competitors, product reviews by trade publications, estimates or statements
made by analysts regarding the Company or the industry and markets in which the
Company operates and stock market price fluctuations.
19
<PAGE>
The Nasdaq Stock Market instituted new initial and continued listing
requirements, effective February 23, 1998. The Company has been notified that it
is not in compliance with certain of the continued listing requirements for the
Nasdaq National Market and is evaluating steps to bring the Company into
compliance and is researching alternative trading mechanisms.
Item 8. Financial Statements and Supplementary Data
Refer to the index to Consolidated Financial Statements and Financial
Statement Schedule on page F-1 for the required information.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
20
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
Stephen C. Adams, age 47, director since 1987. Mr. Adams has been Group
Vice President of the POMOCO Group, Inc., a holding company for automobile, real
estate, insurance and development concerns, since 1986. Prior to that, he was a
partner in the public accounting firm of Hart, Adams and Toney. He is a
Certified Public Accountant and received B.S. and M.S. degrees in Accounting
from the University of Virginia.
Edgar M. Cortright, age 74, director since 1987. Mr. Cortright retired
in 1983 as President of Lockheed California Company, and is a past Director of
the Langley Research Center of the National Aeronautics and Space Administration
("NASA"). He received B.S. and M.S. degrees in Aeronautics from Rensselaer
Polytechnic Institute ("RPI") and has received honorary Ph.D. degrees from RPI
and George Washington University.
Angelo Guastaferro, age 65, director since 1994, Chairman since May
1995, President and Chief Executive Officer, April 1996. Mr. Guastaferro retired
in 1995 as Vice President - NASA and Federal Systems, Lockheed Missiles and
Space Company, Inc. ("Lockheed"), and is a past Deputy Director of NASA Ames
Research Center. He received a bachelor's degree from New Jersey Institute of
Technology, an MBA from Florida State University, and an AMP from Harvard
University.
James H. Vogeley, age 39, director since 1987. Mr. Vogeley, founder of
the Company, served as Chairman of the Board from the Company's inception until
May of 1995. He was President and CEO from January 1994 until July 1995. He
holds a B.S. degree in Electrical Engineering with Distinction from Duke
University.
Joseph G. Morone, age 44, director since 1996. Dr. Morone has been
President of Bentley College, Waltham, Massachusetts, since August 1997. Prior
to his arrival at Bentley, he served as Dean of the Lally School of Management
and Technology at RPI, from 1993 to 1997. Dr. Morone serves on the Board of
Directors of Albany International, the securities of which are traded on the New
York Stock Exchange, Transworld Entertainment, and the Board of Directors of New
England Medical Center. Dr. Morone received his bachelor's degree from Hamilton
College and his doctorate degree from Yale University.
Grant T. Hollett, Jr., age 45, director since 1996. Mr. Hollett is Vice
President and General Manager of Vickers Electronic Systems, an electronics
manufacturing firm, a position he has held since 1996. From 1990 until 1996, Mr.
Hollett was President of Cherry Electrical Products, a major supplier of
electronic components to the automotive industry. Mr. Hollett has extensive
experience in administration and quality control management with Energy
Pollution Controls, Inc. and Proctor and Gamble Company. A graduate of the
United States Navy's nuclear power program, he currently holds the rank of Rear
Admiral in the U.S. Naval Reserve. Mr. Hollett is a graduate of Duke University
with a bachelor's degree in Mechanical Engineering.
Executive Officers
Angelo Guastaferro, (see above), Chairman, President, and Chief
Executive Officer.
James H. Vogeley, (see above), Chief Technology Officer.
21
<PAGE>
Jerry W. Stubblefield, age 49, Chief Financial Officer and Executive
Vice President. Mr. Stubblefield joined the Company in January 1992 and became
Chief Financial Officer in February 1992, and Executive Vice President in May
1997. He served as Chief Financial Officer of Trico USA, Inc., and Source
Telecomputing, Inc., companies wholly or partially owned by a New York based
capital investment firm, from July 1988 until September 1991. He graduated in
1980 from Christopher Newport College, with degrees in Business Management and
Accounting.
Diane H. Lingo, age 31, Vice President - Finance and Administration.
Ms. Lingo joined the Company in 1992, serving as Accounting Manager, and
Director of Finance. Prior to 1992, she was a senior auditor for Ernst & Young
LLP in Norfolk, Virginia. She holds a Bachelor of Science in Business
Administration with Honors from Old Dominion University and is a Certified
Public Accountant.
Item 11. Executive Compensation
The following table presents an overview of executive compensation
awarded, earned, or paid during 1997, 1996 and 1995 to the Company's President
and Chief Executive Officer, and the Company's other executive officers that
earned in excess of $100,000 in 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Securities Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Options (#) Compensation($)
- --------------------------- ---- ---------- --------- ----------- ---------------
<S> <C>
Angelo Guastaferro 1997 171,000 -- 10,000 2,248 (1)
President and Chief Executive 1996 176,823 -- 25,000 --
Officer 1995 -- -- 25,000(2) --
Jerry W. Stubblefield 1997 134,500 -- 17,500 7,380 (1)
Chief Financial Officer and 1996 101,000 -- 6,000 6,060 (1)
Executive Vice President 1995 100,846 -- 20,000 5,594 (1)
John Malone 1997 133,698 -- -- 35,955 (4)
Vice President - Sales and 1996 17,308 -- 60,000 --
Marketing (3) 1995 -- -- -- --
</TABLE>
(1) Includes the Company's matching contribution to its 401(k)
retirement savings plan.
(2) Mr. Guastaferro became an employee of the Company in 1996, serving
as a director since 1994 and Chairman since 1995.
(3) Mr. Malone was employed by the Company from November 1996 until
December 1997.
(4) Relocation reimbursement.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee was comprised of the following directors
during 1997: Stephen C. Adams, Edgar M. Cortright and Joseph G. Morone. During
1997, no executive officer of the Company served as a member of the Compensation
Committee of another entity, nor did any executive officer of the Company serve
as a director of another entity.
22
<PAGE>
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of
% of Total Exercise Stock Price
Options Options Granted or base Appreciation for
Granted to Employees in price Option Term
Name (#) Fiscal Year ($/sh.) Expiration Dates 5% 10%
---- --- ----------- ------- ---------------- ------- -----
<S> <C>
Angelo Guastaferro 10,000 6.06% $2.10 9/10/03 $4,971 $13,333
Jerry Stubblefield 5,000 3.03 4.10 1/16/03 - 1/16/04 $5,886 $14,382
7,500 4.55 2.10 9/10/03 3,728 10,000
5,000 3.03 1.07 7/1/03 - 1/1/04 3,254 5,789
</TABLE>
Retirement Savings Plan
The Company has a defined contribution plan ("nVIEW Retirement Savings Plan")
under Section 401(k) of the Internal Revenue Code in which employees of the
Company are eligible to participate. The plan permits employees to elect to
invest not more than 15% of their qualified compensation (subject to a maximum
imposed on highly-compensated employees each year by the Internal Revenue Code)
on a tax-deferred basis in a fixed income fund, a balanced fund, an intermediate
bond fund, a small company fund or an equity fund. Participants in the plan have
matching Company contributions made to the plan on their behalf equal to 100% of
their contributions not to exceed 6% of their base salary. The preceding Summary
Compensation Table shows the value of Company contributions made to the plan
with respect to the named executive officers in the column marked "All Other
Compensation."
In years when operational results warrant, the Company may make a discretionary
profit sharing contribution, in addition to the 401(k) match. Participants must
have worked a minimum of 1,000 hours and be employed on the last day of the year
to receive profit sharing contributions. Contributions are also made to the
accounts of participants who have retired, deceased, or become disabled during
the plan year. Both the 401(k) match and the profit sharing contributions vest
according to the following schedule:
23
<PAGE>
<TABLE>
<CAPTION>
Years of Service Vesting %
---------------- ---------
<S> <C>
0-1 0
1 10
2 40
3 70
4 100
</TABLE>
24
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of February 27, 1998, beneficial
ownership of shares of Common Stock of the Company of (i) each of the Company's
directors and named executive officers who own Common Stock; and (ii) all
directors and executive officers as a group. Except as set forth below, the
Company is not aware of any person (or group of affiliated persons) who owns
beneficially more than 5% of the Common Stock. All directors and executive
officers of the Company receive mail at the Company.
<TABLE>
<CAPTION>
Total Number Percent of
Shares Common
Name of Individual or Beneficially Stock
Number of Persons in Group Owned Owned
- ------------------------------------------------- ---------------------- -----------------
<S> <C>
Stephen C. Adams (1)(2) 21,994 *
Edgar M. Cortright (3)(2) 52,356 1.04
Angelo Guastaferro (4) 53,522 1.06
Grant T. Hollett, Jr. (2) 8,000 *
Diane H. Lingo (5) 9,145 *
Joseph G. Morone (2) 8,000 *
Jerry W. Stubblefield (6) 43,700 *
James H. Vogeley (7) 772,000 15.42
Directors and executive officers as a
group (8 persons) 968,717 18.94
</TABLE>
*Less than 1% ownership.
(1) Includes 2,118 shares owned by Mr. Adams' wife, Nancy B. Adams. Mr.
Adams disclaims beneficial ownership of these shares. Mr. Adams is a director of
the Company.
(2) Includes currently exercisable options to purchase 8,000 shares
granted under the Director Plan.
(3) Includes 27,356 shares owned by a revocable trust for the benefit
of Mr. Cortright. Also includes 17,000 shares owned by a revocable trust for the
benefit of Mr. Cortright's wife, for which Mr. Cortright disclaims beneficial
ownership. Mr. Cortright is a director of the Company.
(4) Includes 26,000 shares that may be purchased pursuant to incentive
stock options granted by the Company.
(5) Includes 9,125 shares that may be purchased pursuant to incentive
stock options granted by the Company.
(6) Includes 43,500 shares that may be purchased pursuant to incentive
stock options granted by the Company.
(7) Does not include 94,850 shares owned by the Estate of Arthur W.
Vogeley, Mr. Vogeley's deceased father and 168,448 shares owned by Mr. Vogeley's
mother, Julia B. Vogeley. All of these individuals disclaim beneficial ownership
of shares owned by each other.
25
<PAGE>
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements.
See index to Consolidated Financial Statements and
Financial Statement Schedule on page F-1 of this
Report.
2. Consolidated Financial Statement Schedule.
See index to Consolidated Financial Statements and
Financial Statement Schedule on page F-1 of this
Report.
26
<PAGE>
<TABLE>
<CAPTION>
3. EXHIBIT INDEX
Exhibit
No. Description
<S> <C>
3.1 Articles of Incorporation of nVIEW Corporation, as amended. *
(Incorporated by reference to the Registrant's Registration
Statement on Form S-18, Commission File No. 33-39471,
previously filed with the Commission on March 15, 1991.)
3.2 Bylaws of nVIEW Corporation. (Incorporated by reference to the *
Registrant's Registration Statement on Form S-18, Commission
File No. 33-39471, previously filed with the Commission on
March 15, 1991.)
3.2.1 Amendment to Bylaws of nVIEW Corporation. (Incorporated by *
reference to the Registrant's Form 10-K for the fiscal year ended
December 31, 1995, Commission File No. 0-19492, previously filed
with the Commission.)
4. Form of the nVIEW Corporation Common Stock Certificate. *
(Incorporated by reference to Amendment No. 3 to the
Registrant's Registration Statement on Form S-18, Commission
File No. 33-39471, previously filed with the Commission on April
17, 1991.)
10.1 Incentive Stock Option Plan of nVIEW Corporation, dated April *
15, 1991. (Incorporated by reference to Amendment No. 3 to
the Registrant's Registration Statement on Form S-18,
Commission File No. 33-39471, previously filed with the
Commission on April 17, 1991.)
10.2 Amended and Restated Incentive Stock Option Plan of nVIEW *
Corporation, dated April 15, 1991. (Incorporated by reference to
the Registrant's Registration Statement on Form S-1, Commission
File No. 33-44442, previously filed with the Commission on
December 17, 1991.)
10.3 Form of Confidentiality Agreement in effect for 1995 executed by *
employees of nVIEW Corporation. (Incorporated by reference to the
Registrant's Form 10-K for the fiscal year ended December 31,
1995, Commission File No. 0-19492, previously filed with the
Commission.)
10.4 Lease Agreement, as amended, between Alfred J. Cenname, as *
lessor and nVIEW Corporation, as lessee. (Incorporated by
reference to the Registrant's Registration Statement on Form S-18,
Commission File No. 33-39471, previously filed with the Commission
on April 17, 1991.)
27
<PAGE>
Exhibit
No. Description
10.5 nVIEW Corporation 1992 Stock Option Plan. (Incorporated by *
reference to the Registrant's Form 10-K for the fiscal year ended
December 31, 1992, Commission File No. 0-19492, previously filed
with the Commission.)
10.6 1994 Long-Term Incentive Plan. (Incorporated by reference to the *
Registrant's Form 10-Q for the quarter ended June 30, 1994,
Commission File No. 0-19492, previously filed with the
Commission.)
10.7 Loan and Security Agreement, dated February 6,1996, by and *
between nVIEW Corporation and Signet Bank. (Incorporated by
reference to the Registrant's Form 10-K for the fiscal year ended
December 31, 1995, Commission File No. 0-19492, previously filed
with the Commission.)
10.8 Nonqualified Option Agreement, nVIEW Corporation 1994 *
Incentive Stock Plan - Angelo Guastaferro. (Incorporated by
reference to the Registrant's Form 10-K for the fiscal year
ended December 31, 1995, Commission File No. 0-19492,
previously filed with the Commission.)
10.9 Form of nVIEW Corporation Incentive Stock Option Agreement - *
Robert Hoke (Incorporated by reference to the Registrant's Form
10-K for the fiscal year ended December 31, 1995, Commission File
No. 0-19492, previously filed with the Commission.)
10.10 Form of nVIEW Corporation Incentive Stock Option Agreement - *
Robert Hoke (Incorporated by reference to the Registrant's Form
10-K for the fiscal year ended December 31, 1995, Commission File
No. 0-19492, previously filed with the Commission.)
10.11 nVIEW Corporation Incentive Stock Option Agreement - Wayne *
Bailey, dated May 10, 1995. (Incorporated by reference to the
Registrant's Form 10-K for the fiscal year ended December 31,
1995, Commission File No. 0-19492, previously filed with the
Commission.)
10.12 nVIEW Corporation Incentive Stock Option Agreement - Jerry *
Stubblefield, dated May 10, 1995. (Incorporated by reference to
the Registrant's Form 10-K for the fiscal year ended December 31,
1995, Commission File No. 0-19492, previously filed with the
Commission.)
10.13 nVIEW Corporation 1996 Employee Stock Option Plan (Incorporated *
by reference to the Registrant's Form 10-Q for the quarter ended
June 30, 1996, Commission File No. 0- 19492, previously filed with
the Commission.)
28
<PAGE>
Exhibit
No. Description
10.14 nVIEW Corporation 1996 Non-Employee Director Stock Option Plan. *
(Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 1996, Commission File No. 0- 19492,
previously filed with the Commission.)
10.15 nVIEW Corporation Incentive Stock Option Agreement - Angelo *
Guastaferro, dated May 10, 1996
10.16 nVIEW Corporation Incentive Stock Option Agreement - Jerry *
W. Stubblefield, dated May 10, 1996
10.17 nVIEW Corporation Incentive Stock Option Agreement - John *
F. Malone, dated November 4, 1996
10.18 Form of nVIEW Corporation Non-employee Director Stock *
Option Agreement
10.19 Agreement, dated January 21, 1998, between nVIEW Corporation **
and Snell & Wilcox Limited.
10.20 Loan and Security Agreement, dated February 23,1998, by and **
between nVIEW Corporation and The C.I.T. Group.
21. Subsidiaries of nVIEW Corporation. **
23. Consent of Independent Auditors. **
24. Power of Attorney (appears on Page 26 herein). **
- ----------------------------------------------------------------------
* Not filed herewith. In accordance with Rule 12(b)-32 of the General
Rules and Regulations under the Securities Exchange Act of 1934, the
exhibit is incorporated by reference.
** Filed herewith.
(b) The registrant did not file any reports on Form 8-K during the
fourth quarter of the fiscal year ended December 31, 1997.
29
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
nVIEW Corporation
By: /s/ Angelo Guastaferro
----------------------
Angelo Guastaferro
President and Chief Executive Officer
Date: 4/13/98
By: /s/ Jerry W. Stubblefield
-------------------------
Jerry W. Stubblefield
Chief Financial Officer
Date: 4/13/98
30
<PAGE>
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Angelo Guastaferro and Jerry W.
Stubblefield, and each of them individually, as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for his and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this report, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent of his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
/s/ Angelo Guastaferro Director, Chairman 4/13/98
- ---------------------- President and
Angelo Guastaferro Chief Executive Officer
/s/ Jerry W. Stubblefield Chief Financial Officer 4/13/98
- ------------------------- (& Principal Accounting Officer)
Jerry W. Stubblefield
/s/ Stephen C. Adams Director 4/13/98
- --------------------
Stephen C. Adams
/s/ Edgar M. Cortright Director 4/13/98
- ----------------------
Edgar M. Cortright
/s/ James H. Vogeley Director 4/13/98
- --------------------
James H. Vogeley
/s/ Joseph Morone Director 4/13/98
- -----------------
Joseph Morone
/s/ Grant T. Hollett, Jr. Director 4/13/98
- -------------------------
Grant T. Hollett, Jr.
31
<PAGE>
Index to nVIEW Corporation and Subsidiaries
Consolidated Financial Statements and
Financial Statement Schedule
Consolidated Financial Statements:
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years ended F-4
December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the years ended F-5
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended F-6
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements F-8
Consolidated Financial Statement Schedule -
Schedule II - Valuation and Qualifying Accounts F-18
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
nVIEW Corporation:
We have audited the consolidated financial statements of nVIEW Corporation and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of nVIEW Corporation
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG Peat Marwick LLP
Norfolk, Virginia
February 17, 1998, except
as to note 7, which is
as of March 8, 1998
F-2
<PAGE>
nVIEW Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 1997 and 1996
1997 1996
============= ===========
Assets (note 7)
Current assets:
Cash and cash equivalents $742,063 $1,802,596
Receivables, net (note 3) 4,317,967 9,057,646
Inventories (note 4) 3,975,958 11,997,760
Prepaid expenses 346,180 331,306
============= ===========
Total current assets 9,382,168 23,189,308
------------- -----------
Property and equipment, net (note 5) 459,724 801,641
Other assets, net 123,819 191,388
============= ===========
$9,965,711 $24,182,337
============= ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $1,020,760 $5,890,860
Accrued warranties 197,611 197,611
Accrued sales returns and allowances 170,429 203,013
Accrued co-op 120,419 105,009
Accrued payroll 206,768 244,358
Accrued legal fees 154,586 33,227
Other accrued expenses 102,158 206,387
============= ===========
Total current liabilities 1,972,731 6,880,465
============= ===========
Shareholders' equity: (note 8)
Common stock, no par value.
Authorized 20,000,000 shares;
5,005,166 issued and outstanding at
December 31, 1997 and 1996. -- --
Additional paid-in capital 25,060,978 25,060,978
Accumulated deficit (17,067,998) (7,759,106)
============= ===========
Total shareholders' equity 7,992,980 17,301,872
Commitments, contingencies and subsequent events
(notes 2, 4, 6, 7 and 11)
============= ===========
$9,965,711 $24,182,337
============= ===========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
nVIEW Corporation and Subsidiaries
Consolidated Statements of Operations
Years ended December 31, 1997, 1996 and 1995
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
================= ================= ==================
<S> <C>
Sales $19,883,705 $34,524,562 $32,875,800
Cost of goods sold 21,575,304 27,468,563 26,793,828
================= ================= ==================
Gross profit (1,691,599) 7,055,999 6,081,972
================= ================= ==================
Operating expenses:
Marketing and promotion 3,252,713 3,687,925 6,841,191
Research and development 1,917,947 1,993,508 4,704,348
General and administrative 2,279,478 2,072,386 2,368,790
================= ================= ==================
Total operating expenses 7,450,138 7,753,819 13,914,329
================= ================= ==================
Loss from operations (9,141,737) (697,820) (7,832,357)
================= ================= ==================
Other income (expense):
Interest expense (190,997) (190,954) (113,480)
Interest income 57,049 103,934 132,627
Other income (expense), net (33,207) (20,443) 1,200
================= ================= ==================
(167,155) (107,463) 20,347
================= ================= ==================
Loss before income taxes (9,308,892) (805,283) (7,812,010)
Income tax benefit (note 9) -- -- (34,765)
================= ================= ==================
Net loss ($9,308,892) ($805,283) ($7,777,245)
================= ================= ==================
Net loss per share - basic and diluted ($1.86) ($0.16) ($1.59)
================= ================= ==================
Weighted average
common shares outstanding 5,005,166 4,941,643 4,898,830
================= ================= ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
nVIEW Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Retained
=================================
Additional Earnings Total
Number of Paid-In (Accumulated Shareholders'
Shares Amount Capital Deficit) Equity
================== =========== ============== ================ ===============
<S> <C>
Balance at December 31, 1994 4,892,361 -- $24,435,843 $ 823,422 $25,259,265
Issuance of restricted stock 480 -- 3,486 -- 3,486
Stock options exercised (note 8) 11,400 -- 56,738 -- 56,738
Net loss -- -- -- (7,777,245) (7,777,245)
================== =========== ============== ================ ===============
Balance at December 31, 1995 4,904,241 -- 24,496,067 (6,953,823) 17,542,244
Stock options exercised (note 8) 100,925 -- 564,911 -- 564,911
Net loss -- -- -- (805,283) (805,283)
================== =========== ============== ================ ===============
Balance at December 31, 1996 5,005,166 -- 25,060,978 (7,759,106) 17,301,872
Net loss -- -- -- (9,308,892) (9,308,892)
================== =========== ============== ================ ===============
Balance at December 31, 1997 5,005,166 -- $25,060,978 ($17,067,998) $ 7,992,980
================== =========== ============== ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
nVIEW Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
================ ================ ===============
<S> <C>
Cash flows from operating activities:
Net loss ($9,308,892) ($805,283) ($7,777,245)
================ ================ ===============
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 618,347 807,013 690,189
Loss on disposal of assets 34,356 19,326 --
Deferred tax expense -- -- 534,000
Other adjustments -- -- 4,686
Change in assets and liabilities increasing
(decreasing) cash flows from operating activities:
Receivables, net 4,739,679 (1,226,251) (776,968)
Inventories 8,021,802 (1,995,170) 5,903,675
Prepaid expenses (14,874) 12,190 74,285
Income taxes receivable -- 587,000 (396,000)
Accounts payable (4,870,100) 3,003,963 (2,969,473)
Accrued warranties -- (37,389) --
Accrued sales returns and allowances (32,584) (84,487) 37,500
Accrued co-op 15,410 (9,088) (33,008)
Accrued payroll (37,590) (115,394) (166,271)
Accrued legal fees 121,359 3,332 (32,227)
Other accrued expenses (104,229) 75,040 36,839
Other 6,362 1,957 2,381
---------------- ---------------- ---------------
Total adjustments 8,497,938 1,042,042 2,909,608
================ ================ ===============
Net cash provided by (used in) operating activities (810,954) 236,759 (4,867,637)
================ ================ ===============
(continued)
F-6
<PAGE>
nVIEW Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Years ended December 31, 1997, 1996 and 1995
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
================= ================== ==================
<S> <C>
Cash flows from investing activities:
Purchase of marketable securities -- -- (195,715)
Sale of marketable securities -- -- 2,390,593
Additions to property and equipment (243,765) (393,154) (499,839)
Payment of deferred patent costs (5,814) (10,736) (50,924)
------------------ ------------------ ------------------
Net cash provided by (used in)
investing activities (249,579) (403,890) 1,644,115
----------------- ------------------ ------------------
Cash flows from financing activities:
Proceeds from revolving line of credit -- -- $9,068,000
Repayments of revolving line of credit -- -- (9,068,000)
Stock options exercised -- 564,911 56,738
----------------- ------------------ ------------------
Net cash provided by financing activities -- 564,911 56,738
================= ================== ==================
Net increase (decrease) in cash and cash equivalents ($1,060,533) $397,780 ($3,166,784)
Cash and cash equivalents at beginning of year 1,802,596 1,404,816 4,571,600
================= ================== ==================
Cash and cash equivalents at end of year $742,063 $1,802,596 $1,404,816
================= ================== ==================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $207,336 $145,396 $113,855
================= ================== ==================
Cash paid during the year for income taxes $27,056 $40,326 $9,251
================= ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Business Activity
The Company designs, manufactures and markets products to project high
quality images from a variety of computer and video sources. The Company's
products facilitate large screen viewing of multimedia information in group
settings for business, educational, entertainment and other purposes.
(b) Principles of Consolidation
The consolidated financial statements include the financial statements
of nVIEW Corporation and its wholly-owned subsidiaries after elimination of
intercompany accounts and transactions.
(c) Cash Equivalents
Cash equivalents consist of certificates of deposit and amounted to
$50,600 and $521,404 at December 31, 1997 and December 31, 1996, respectively.
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(d) Inventories
Inventories are stated at the lower of cost or market. Cost is computed
on a currently adjusted standard basis (which approximates actual cost on a
first-in, first-out basis). Cost of work in process and finished goods includes
raw materials, direct labor and manufacturing overhead.
(e) Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the lesser of the estimated useful life of the
asset or the lease term. Estimated useful lives range between one and five
years.
(f) Other Assets
Other assets consist principally of patents which are stated at cost
and amortized using the straight-line method over the estimated useful lives of
the respective patents. The total accumulated amortization at December 31,1997
and 1996 was $176,901 and $125,453, respectively.
(g) Revenue Recognition
Revenue from product sales is recognized upon shipment. The Company
provides an allowance for estimated future returns, exchanges and price
protection.
(h) Warranties
F-8
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company's warranty policy provides one-year coverage on parts,
excluding bulbs, and labor from the date of sale to the end-user. Estimated
warranty costs are accrued at the time of sale and are periodically adjusted to
reflect actual experience.
(i) Research and Development
Research and development costs are expensed as incurred.
(j) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss tax carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
(k) Net Income (Loss) Per Share
Beginning December 31, 1997, basic earnings per share (EPS) and diluted
EPS are computed using the methods prescribed by Statement of Financial
Accounting Standard No. 128, EARNINGS PER SHARE (SFAS 128). Basic EPS is
calculated using the weighted average number of common shares outstanding for
the period and diluted EPS is computed using the weighted average number of
common shares and dilutive common shares outstanding. Prior period amounts have
been restated to conform with the presentation requirements of SFAS 128.
(l) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reported periods to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates. Management believes that the estimates used are
reasonable.
(m) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future undiscounted cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
F-11
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(n) Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS 123, "Accounting for Stock-Based Compensation."
Under APB 25, compensation cost is recognized over the vesting period based on
the difference, if any, on the date of grant between the fair value of the
Company's stock and the amount an employee must pay to acquire the stock.
(o) Reclassification
Certain reclassifications have been made to the 1995 and 1996
consolidated financial statements to conform to the 1997 financial statement
presentation.
(2) Certain Risks and Uncertainties
The Company's sales are generated from a relatively small number of
products. In addition, the markets in which the Company competes are
characterized by rapidly changing technology, requiring constant product
innovation. Most of the Company's existing products are at or near the end of
their respective product life cycles. The Company is currently in the process of
developing a new product line, which is expected to be available for sale in the
second quarter of 1998. Although management believes that this new product line
will gain acceptance in the marketplace and will provide the Company access to
new markets, there can be no assurance that the new product line will be
completed on a timely basis or that the products will be accepted in the
marketplace. Lack of acceptance of the new product line, especially in light of
the age of the Company's existing products, could have a material adverse effect
on the Company's results of operations and financial position.
Certain components used in the manufacturing of the Company's products
are available from a single source. An extended lack of availability of the
components supplied by this single source would adversely affect the Company's
results of operations. Additionally, all of the components used in the Company's
products are purchased from outside sources, some of which are located outside
the United States. There is no assurance that trading policies adopted by the
United States or foreign governments will not restrict the availability of such
components or increase their costs.
(3) Receivables
Receivables at December 31, 1997 and 1996 consist of the following:
F-12
<PAGE>
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C>
Trade accounts receivable, net of allowance
for doubtful accounts of $416,000, and
$240,000 for 1997 and 1996, respectively $4,201,154 $8,521,398
Due from customer finance companies -- 28,549
Due from suppliers 19,995 481,262
Other 96,818 26,437
------------- -------------
Receivables, net $4,317,967 $9,057,646
========== ==========
</TABLE>
(4) Inventories
Inventories at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C>
Raw material $1,158,830 $6,734,966
Work in process 201,919 211,399
Finished goods 2,615,209 5,051,395
--------- ------------
Inventories $3,975,958 $11,997,760
========== ===========
</TABLE>
F-13
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During 1997, the Company wrote down its inventories to estimated net
realizable value by $4.4 million. As of December 31, 1997, the Company had
non-cancelable open purchase order arrangements with suppliers to purchase
inventory at a total cost of approximately $821,000. The inventory items are
scheduled to be received during 1998.
(5) Property and Equipment
Property and equipment at December 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C>
Furniture and fixtures $358,013 $406,517
Equipment 2,585,975 2,506,363
Leasehold improvements 349,956 310,813
----------- -----------
3,293,944 3,223,693
Less accumulated depreciation and
amortization 2,834,220 2,422,052
---------- ----------
Property and equipment, net $459,724 $801,641
========== ==========
</TABLE>
(6) Lease Commitments
The Company has various operating lease arrangements for equipment and
office space. Included in the consolidated statements of operations is
approximately $515,000, $588,000, and $567,000 of net rent expense for 1997,
1996 and 1995, respectively. At December 31, 1997, future minimum lease payments
under non-cancelable operating leases are as follows:
1998 $ 439,000
1999 405,000
2000 413,000
2001 429,000
2002 446,000
-------------
$ 2,132,000
Certain office space for which the Company was committed was sublet to
others under subleases until December 31, 1997, using the same terms as those
offered to the Company. Included in the consolidated statements of operations is
approximately $ 262,000, $254,000, and $247,000 of sublease income for 1997,
1996, and 1995, respectively.
(7) Line of Credit and Letter of Credit
At December 31, 1997, the Company had a line of credit agreement which
expired on February 6, 1998. The line of credit agreement provided for borrowing
of up to $7 million at the prime rate plus 1 1/2%. Accounts receivable,
equipment, intangibles, inventory and other assets were pledged as collateral.
Throughout 1997, the Company was not in compliance with certain financial
covenants contained in the borrowing agreement. The lender declined to waive the
non-compliance but agreed to forbear from enforcing its rights and remedy until
February 6, 1998, the expiration date of the line of credit. Terms of the
forbearance agreement included reducing the line of credit from $7 million to
$2.5 million, with all advances at the discretion of the lender. At December 31,
1997 there were no borrowings outstanding under the line of credit.
F-14
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Subsequent to year end, the Company entered into a loan and security
Agreement (the "Agreement") with an asset based lender. The Agreement, which
expires on February 23, 2001, allows for maximum borrowing of $5 million,
subject to certain borrowing base limitations, at the prime rate plus 1 1/2%.
Accounts receivable, equipment, inventory, intangibles and other assets are
pledged as collateral. The terms of the Agreement contain no financial
covenants. At March 8, 1998 the Company had unused borrowing capacity of $1.2
million of which $650 thousand was assigned to support a stand-by letter of
credit in favor of a supplier. At March 8, 1998 the Company had not borrowed
against the line of credit.
(8) Stock Option Plans
In March 1991, the Company adopted the nVIEW Stock Option Plan (1991
Plan) which provides for the grant of incentive stock options to selected
employees and officers to purchase up to 300,000 shares. In 1992, the Company
adopted the 1992 Stock Option Plan (1992 Plan). The 1992 Plan provides for the
grant of stock options to prospective directors as an inducement to serve as a
director of the Company, selected employees, consultants and officers to
purchase up to 80,000 shares. In May 1994, the Company adopted the 1994 Long
Term Incentive Plan (1994 Plan). The 1994 Plan provides for the grant of stock
options to selected officers and employees of the Company. This plan defines the
number of shares for which options may be granted under the 1994, 1992 and 1991
Plans in the aggregate, as not greater than 10% of the issued and outstanding
common stock of the Company at any time. Grants under the 1991, 1992 and 1994
Plans typically vest over a four year period and expire five years after
vesting.
The 1996 Employee Stock Option Plan provides for the grant of incentive
stock options to selected employees to purchase up to 120,000 shares. Options
granted under this plan use a variety of vesting schedules and expire five years
after vesting. The 1996 Non-employee Directors Stock Option Plan provides for
the grant of non-qualified stock options to non-employee directors to purchase
up to 100,000 shares. Grants under the Non-employee Directors Plan vest and
become fully exercisable on the date of grant and expire in five years.
At December 31, 1997, the Plans authorize grants to purchase up to
720,517 shares of authorized but unissued common stock, of which 186,184 shares
remain available for grant.
The per share weighted-average fair value of stock options granted
during 1997, 1996 and 1995 were $1.08, $1.95 and $3.01 on the date of grant
using the Black Scholes multiple option-pricing model with the following
weighted average assumptions: expected dividend yield 0.0%, volatility factor
range of 70% to 86%, risk-free interest rate of 5.5% to 6.3%, and an expected
life of 1.18 to 5.18 years.
The Company applies APB Opinion No. 25 in accounting for its Plans. Had
the Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net loss and loss
per share would have been increased to the pro forma amounts indicated below:
F-15
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C>
Net loss:
As reported ($9,308,892) ($805,283) ($7,777,245)
Pro Forma ($9,515,569) ($1,076,951) ($8,015,716)
Basic net loss per share:
As reported ($1.86) ($0.16) ($1.59)
Pro forma ($1.90) ($0.22) ($1.64)
Diluted net loss per share:
As reported ($1.86) ($0.16) ($1.59)
Pro forma ($1.90) ($0.22) ($1.64)
</TABLE>
Pro forma net loss and net loss per share reflect only options granted
in 1997, 1996 and 1995. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the pro forma net
loss and net loss per share amounts presented above for options granted prior to
January 1, 1995.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
------ --------------
<S> <C>
Balance at December 31, 1994 226,710 $6.15
Granted 281,500 6.19
Exercised 11,400 4.98
Canceled 64,700 6.28
Balance at December 31, 1995 432,110 6.20
Granted 250,700 4.32
Exercised 100,925 5.60
Canceled 235,840 6.00
Balance at December 31, 1996 346,045 5.21
Granted 164,988 2.59
Exercised --- ---
Canceled 94,260 4.40
Balance at December 31, 1997 416,773 4.36
</TABLE>
F-16
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------- ----------------------------------
Weighted average Weighted Number of Weighted
Range of Number remaining average shares average
exercise Outstanding contractual life exercise exercisable exercise
prices at 12/31/97 (years) price at 12/31/97 price
- ---------------- ------------------ ------------------------ -------------- ---------------- ------------
<S> <C>
$1.07-1.07 21,488 5.75 $1.07 0 $0.00
1.96-2.28 89,500 5.53 $2.13 12,000 $2.28
3.49-4.53 127,675 4.57 $3.90 86,175 $3.80
5.51-7.78 178,110 3.87 $6.21 132,110 $6.27
- ---------------- ------------------ ------------------------ -------------- ---------------- ------------
1.07-7.78 416,773 4.53 $4.36 230,285 $5.14
</TABLE>
(9) Income Taxes
Income tax benefit attributable to income from continuing operations
for the year ended December 31, 1995 consisted of:
1995
----
Current tax expense (benefit):
U.S. Federal ($428,765)
State (140,000)
Deferred tax expense (benefit):
U.S. Federal 514,000
State 20,000
------
($34,765)
=========
No tax benefit or expense was recorded in 1997 or 1996.
F-17
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of the components of income tax benefit for the years
ended December 31, 1997, 1996 and 1995, computed at the statutory U.S. Federal
income tax rate of 34% in 1997, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C>
Income tax benefit at Federal
statutory rate ($3,165,000) ($273,800) ($2,656,000)
Increase (decrease) resulting from:
Change in the valuation allowance
for deferred tax assets 3,485,000 315,000 2,906,000
State income tax benefit, net of
effect of Federal income taxes (285,000) (20,700) (87,000)
Stock options exercised --- (71,700) (4,000)
Other (35,000) 51,200 (193,765)
-------- ---------- ---------
Total tax expense (benefit) $ --- $ --- ($34,765)
=============== =============== =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are presented below:
<TABLE>
<CAPTION>
Deferred tax assets: 1997 1996
---- ----
<S> <C>
Accounts receivable, principally due to allowance for doubtful
accounts, and sales returns and allowances 158,000 $91,000
Inventories, principally due to inventory write downs
and amounts capitalized for tax purposes 2,061,000 1,330,000
Warranties, principally due to accrual for financial reporting
purposes 75,000 75,000
Other accrued expenses, principally due to accruals for financial
reporting purposes 163,000 117,000
Property and equipment, principally due to differences in
depreciation 244,000 202,000
Net operating loss, alternative minimum tax credit and general
business credit carryforwards 4,489,000 1,890,000
--------- ---------
Total gross deferred tax assets 7,190,000 3,705,000
Less valuation allowance (7,190,000) (3,705,000)
---------- ------------
Net deferred tax assets $ --- $ ---
------------- ------------
</TABLE>
The valuation allowance for the years ended December 31, 1997 and 1996
increased $3,485,000 and $315,000, respectively. The Company continually reviews
the adequacy of the valuation allowance and is recognizing these benefits only
as a reassessment, indicating that it is more likely than not that the benefits
will be realized.
At December 31, 1997, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $11,000,000 which are available
to offset future federal taxable income, if any, through 2011. The Company also
has an alternative minimum tax credit of approximately $60,000, which is
available to offset future federal regular income taxes, if any, over an
indefinite period. Additionally, the Company has a research and development tax
credit carryforward of $248,000 which is available to offset future federal
regular income taxes, if any, through 2009.
F-18
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Retirement Savings Plan
The Company has a retirement savings (401k) plan. All employees who
have completed 90 days of service are eligible under the plan (as amended) and
after one year of service, matching contributions are provided by the Company.
Eligible employees may contribute up to 15% of their compensation annually with
the Company providing an additional contribution equal to the employee
contribution, not to exceed 6% of compensation. The Company also has the option
of making a discretionary contribution as determined by the Company. The Company
expensed contributions of $53,889, $48,051, and $114,604 relating to the
retirement savings plan for the years ended December 31, 1997, 1996 and 1995,
respectively.
(11) Subsequent Event
On January 21, 1998, the Company signed an agreement with Snell &
Wilcox Limited ("S&W"). Under the terms of the agreement, S&W will develop and
manufacture a certain component (the "S&W component") for use in nVIEW's new
product which is under development. Upon nVIEW's acceptance of the S&W
component, S&W will receive 750,000 shares of nVIEW's common stock. The delivery
date for the S&W component as stated in the agreement is May 15, 1998. The
750,000 shares will be reduced in accordance with the "penalty schedule" as
described in the agreement if S&W fails to meet certain time deadlines for
delivery and acceptance of the S&W component. Additionally, S&W will receive
250,000 additional shares of nVIEW's common stock if nVIEW orders between 1,000
and 2,000 units of the S&W component. If nVIEW orders more than 2,000 units of
the S&W component, S&W will receive an additional 500,000 shares of nVIEW's
common stock.
(12) Geographic Information (Unaudited)
The following table presents sales by geographic area for each of the
years ended December 31, 1997, 1996 and 1995:
F-19
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C>
United States $10,949,218 $18,080,863 $23,386,240
Europe 4,738,821 11,990,178 5,839,614
Pacific Rim 1,689,659 2,090,433 2,264,254
Other International 2,506,007 2,363,088 1,385,692
-------------- ------------- -------------
Consolidated $19,883,705 $34,524,562 $32,875,800
=========== =========== ===========
F-20
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Quarterly Results of Operations (Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Quarter
======================================================================
First Second Third Fourth
----- ------ ----- ------
<S> <C>
1997
- ----
Sales $7,163,449 5,197,395 3,464,537 4,058,324
Gross profit 1,625,249 409,808 (1,781,230) (1,945,426)
Net loss (158,178) (1,356,022) (3,842,224) (3,952,469)
Weighted average common
shares outstanding 5,005,166 5,005,166 5,005,166 5,005,166
Net loss per share - basic and diluted $ (0.03) (0.27) (0.77) (0.79)
1996
- ----
Sales $7,489,438 7,371,031 8,483,201 11,180,892
Gross profit 1,312,365 1,911,158 1,902,807 1,929,668
Net earnings (loss) (1,096,632) 17,887 28,846 244,615
Weighted average common
shares outstanding - basic 4,904,241 4,922,488 4,936,416 5,002,688
Weighted average common and
potentially dilutive shares outstanding -
diluted 4,904,241 4,983,588 4,969,491 5,015,367
Net earnings (loss) per share - basic
and diluted $ (0.22) 0.00 0.01 0.05
1995
- ----
Sales $8,421,795 9,612,615 7,113,271 7,728,119
Gross profit 2,762,169 2,673,246 634,401 12,156
Net loss (592,397) (711,347) (2,820,776) (3,652,725)
Weighted average common
shares outstanding 4,893,918 4,895,998 4,901,024 4,904,241
Net loss per share - basic and diluted $ (0.12) (0.15) (0.58) (0.74)
</TABLE>
F-21
<PAGE>
nVIEW Corporation and Subsidiaries
Valuation and Qualifying Accounts
For the Three Years ended December 31, 1997
<TABLE>
<CAPTION>
Balance at Charged to Balance
beginning of costs and at end of
Description period expenses Deductions period
===================================== ================ =============== ================== ================
<S> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts $240,000 266,069 90,349 $415,720
Year ended December 31, 1996:
Allowance for doubtful accounts $390,000 (40,114) 109,886 $240,000
Year ended December 31, 1995:
Allowance for doubtful accounts $300,000 141,735 51,735 $390,000
</TABLE>
F-22
<PAGE>
EXHIBIT 10.19
AGREEMENT
This Agreement made and entered into by and between Snell & Wilcox Limited
("S&W") and nVIEW Corporation ("nVIEW"), a Virginia corporation, this 21st day
of January 1998.
Whereas, S&W is an engineering-led, electronics group specializing in the
invention, design and manufacture of high-quality, multi-standard, digital image
processing products; and
Whereas, nVIEW is in the business of developing and marketing high quality
electronic projectors and visual display solutions; and
Whereas, S&W is willing to develop, in cooperation with nVIEW, a video board to
be incorporated into nVIEW's projector products; and
Whereas, S&W and nVIEW intend to work together in the development, marketing and
production of an nVIEW projector incorporating S&W's new video board.
Now, therefore, the parties hereto hereby agree as follows:
1. Development of Video Board. Immediately following execution of this
Agreement, S&W will commence development of a video board (the "Video
Board") to fulfill the criteria and functions described in Appendix A
(Product Specification #106715) to the Supply Agreement dated December
11, 1997, between the parties hereto of (the "Supply Agreement"), which
Video Board will be incorporated into nVIEW's projector (the
"Projector"). The Video Board will provide high quality enhancement of
projected images and will permit a variety of input signals. S&W will
strive to complete the development of Beta units of the Video Board by
April 17, 1998, and to produce production units of the Video Board for
shipment as soon as practicable after the Beta Video Board is approved
by nVIEW. Both S&W and nVIEW will work towards completion of production
units of the Video Board on or before May 8, 1998.
2. Collaboration. S&W and nVIEW shall collaborate their efforts towards
joint engineering and marketing, including but not limited to (i)
evaluating the possibility of building the Projector at S&W's
manufacturing facility, (ii) evaluating other joint development and
manufacturing opportunities, such as nVIEW manufacturing a projector
for sale under S&W's name, and (iii) engaging in joint marketing (cost
sharing) opportunities.
3. Exclusivity. S&W covenants and agrees that it will not sell the Video
Board described in Appendix A to the Supply Agreement during the
Exclusive Period (as defined below). The Exclusive Period shall
commence on the date of execution of this Agreement. The Exclusive
Period shall end 12 months from delivery of the first production units;
provided,
1
<PAGE>
however, if nVIEW fails to purchase at least the number of Video Boards
set forth below during the periods set forth below, S&W may, at its
option, terminate the Exclusive Period by providing nVIEW with written
notice of such election within thirty (30) days after the end of a
period during which nVIEW fails to purchase the minimum number of Video
Boards as set forth below:
Minimum number of Video Boards
Period to be ordered during the period
First 90 day period following delivery of 100
first production units
Second 90 day period following delivery 200
of first production units
Third 90 day period following delivery of 300
first production units
Fourth 90 day period following delivery 400
of first production units
Prior to expiration of the Exclusive Period, S&W and nVIEW may mutually
agree in writing to extend the Exclusive Period for one or more
additional six month periods on such terms and conditions as the
parties shall determine at the time. In the event S&W receives an offer
that it considers commercially advantageous from a third party to
purchase the Video Board, S&W shall advise nVIEW of such offer and
nVIEW may, but shall not be obligated to, agree in writing to permit
such sale at similar margins and on such terms as S&W and nVIEW shall
agree. Any agreement by nVIEW to permit specific sales of the Video
Board to third parties during the Exclusive Period shall not limit or
adversely affect the enforceability of this paragraph with respect to
other sales of the Video Board.
4. Pricing. During the period of the Supply Agreement and any successor
agreement(s) thereto, S&W shall sell Video Boards to nVIEW at the
lowest price at which Video Boards are then being sold to other
projector manufacturers.
5. Advertising. The products that include the Video Board may be marketed
in a manner to indicate to the public that S&W's product is
incorporated into it. The exact words used in such advertising or
marketing shall be approved in advance by S&W.
6. Consideration.
(a) In consideration for S&W's agreements contained herein and
without cash consideration, nVIEW shall issue up to 750,000 shares of
nVIEW's common stock,
2
<PAGE>
without par value (the "Shares") to S&W, or its nominees, upon the date
S&W receives notification of acceptance of the Video Board by nVIEW
(the "Measurement Date"). Acceptance of the Video Board by nVIEW must
be in writing and signed by the CEO and the CFO of the Company.
Acceptance may be determined at the discretion of nVIEW on receipt of a
prototype board, but not later than the date on which nVIEW first
demonstrates, offers for sale or sells the Projector. The Measurement
Date shall be the date used for valuation of the Shares to be issued.
Recognizing the importance of time to market and achieving the
Measurement Date in the first quarter of 1998, the number of Shares
issued to S&W shall be reduced according to the penalty schedule below,
for failure by S&W to timely deliver the Video Board. The penalty may
only be enforced if nVIEW has completed development of its Projector
and is delivering the Projector to customers with nVIEW's own video
board in place. nVIEW may also, in its own discretion, determine the
cause for delay was reasonable and/or beyond the control of S&W and
waive all or any portion of the penalty.
Measurement Date Penalty Cumulative Penalty
May 1 - May 15 0 0
May 16- May 31 150,000 150,000
June 1 - June 15 150,000 300,000
June 16 - June 30 200,000 500,000
July 1 - July 15 250,000 750,000
An additional 500,000 Shares may be issued based on projected
unit sales of the nVIEW Projector incorporating the S&W Video Board. A
forecast of the number of units expected to be sold during the twelve
month period immediately following the Measurement Date will be jointly
prepared by nVIEW and S&W. The parties must mutually agree to the
number of units to ensure conformance with nVIEW's marketing
projections and S&W's production plans. If the number of units is equal
to or greater than 1,000 but less than 2,000, an additional 250,000
Shares will be issued. In the alternative, if the number of units is
equal to or greater than 2,000, a total of 500,000 Shares will be
issued. If the parties are unable to agree on the number of units in
the forecast within 45 days, then the Chief Executive of each company
will meet within 10 days to resolve the difference.
(b) Shares issued pursuant to this paragraph shall not be
registered and the certificate evidencing the Shares shall contain the
appropriate legends indicating such fact. The Shares issued to S&W
shall rank pari-parsu with all of nVIEW's existing Shares. In the event
that prior to the date Shares are issued, nVIEW subdivides its
outstanding Shares or issues a stock dividend on its outstanding
Shares, the number of Shares to be
3
<PAGE>
issued pursuant to this paragraph 6 in effect immediately prior to such
subdivision or the issuance of such dividend shall be proportionately
increased in order to provide S&W the same percentage ownership of
nVIEW that it would have had immediately prior to such subdivision or
the issuance of such dividend. Similarly, in the event prior to
issuance of the Shares nVIEW engages in a reverse stock split or
similar transaction that decreases the number of Shares outstanding for
all shareholders, then the number of Shares to be issued pursuant to
this paragraph 6 in effect immediately prior to such reverse stock
split or similar transaction shall be proportionately decreased in
order to provide S&W the same percentage ownership of nVIEW that it
would have had immediately prior to such reverse stock split or similar
transaction.
(c) Simultaneously with the issuance of the Shares, S&W and
nVIEW shall enter into an agreement granting S&W piggy-back
registration rights and demand registration rights which agreement
shall be in substantially the form attached hereto as Exhibit A.
(d) nVIEW represents and warrants to S&W that the Shares
issued pursuant to this Agreement shall, subject to the approval
contemplated under Section 8 hereof, be validly issued, fully paid and
nonassessable. nVIEW further represents and warrants that the issuance
of Shares to S&W pursuant to this Agreement will not (i) conflict with
or violate the articles of incorporation or bylaws of nVIEW, (ii)
except as set forth in Exhibit B, conflict with, breach, or constitute
a default under any instrument or agreement to which nVIEW is a party
or by which it is bound, (iii) cause nVIEW to be in violation of any
applicable law, regulation, or order of any governmental authority,
(iv) except as set forth in Exhibit B hereto and as contemplated under
Section 8 hereof, require the consent or approval of any shareholder or
creditor of nVIEW or any other entity, or (v) be subject to any
pre-emptive or similar rights in favor of any shareholder or any other
entity. nVIEW agrees to defend, indemnify and hold S&W harmless against
any claim by any shareholder or creditor of nVIEW regarding the
issuance of Shares contemplated by this Agreement.
7. Board Seat. S&W will recommend a candidate to observe nVIEW's Board of
Directors' meetings in order to enhance the two firms' ability to
pursue joint efforts. If the candidate is acceptable to nVIEW's Board
of Directors, such candidate shall be invited to all nVIEW Board
meetings. After the Shares are issued to S&W, the candidate shall be
elected to the nVIEW Board as soon as is practicable, and shall be
nominated and recommended for reelection as a Director at the next
nVIEW Annual Shareholders' Meeting. S&W's candidate shall initially
waive all director compensation, associated with services as a
director.
8. Board Approval. The effectiveness of this Agreement shall be subject to
both S&W and nVIEW obtaining approval of this Agreement by the Board of
Directors of nVIEW and the Chief Executive of S&W within twenty (20)
days after execution of this Agreement.
4
<PAGE>
9. Entire Understanding. Apart from the Supply Agreement dated December
11, 1997, this Agreement represents the entire understanding between
the parties and supersedes any prior agreement, discussions or
negotiations between the parties.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with English law. The parties agree to submit any disputes
in relation to this Agreement to binding arbitration to agreed rules.
11. Notices. Any notice under this Agreement shall be in writing and may be
served by:
(a) personal delivery; including First Class Mail with receipt
acknowledgment; or
(b) facsimile, with confirmation of receipt
Notices will be delivered to the CEO or CFO of nVIEW at 860 Omni
Boulevard, Newport News, Virginia 23606-4238 OR to the Chief Executive
or Commercial Director of Snell & Wilcox at Durford Mill, Petersfield,
Hampshire GU31 5AZ UK.
Any notice so given shall be deemed to have been received on the next
business day following the date it was hand delivered or transmitted by
facsimile, or if mailed, on the fifth business day following the date
of posting.
Executed the day and date set forth above.
nVIEW Corporation
by:___________________________
Snell & Wilcox
by:____________________________
5
<PAGE>
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement ("Agreement") dated as of ______________,
199_, among nVIEW Corporation, a Virginia corporation (the "Company"), and Snell
& Wilcox (the "Holder"), the holder of shares of Common Stock of the Company.
WHEREAS, pursuant to that certain Agreement dated December__, 1997, by
and between the Company and the Holder (the "Issuance Agreement"), the Company
today issued _____ shares of Common Stock to the Holder; and
WHEREAS, the parties hereto hereby desire to set forth the Holder's
rights and the Company's obligations to cause the registration of the Shares
pursuant to the Securities Act;
NOW, THEREFORE, in consideration of the agreement by the Holder to
provide the benefits under the Issuance Agreement and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Agreements and Representations of the Company.
1.1. The Company represents and warrants to the Holder that it
has the requisite power and authority to execute, deliver and carry out this
Agreement. This Agreement has been duly and properly executed and delivered by
the Company and constitutes the legally valid and binding obligation of the
Company, enforceable in accordance with its terms.
Section 2. Definitions. As used in this Agreement:
Agent. "Agent" means the principal placement agent on an
agented placement of Shares.
Board. "Board" means the Board of Directors of the Company.
Commission. "Commission" shall mean the Securities and
Exchange Commission.
Common Stock. "Common Stock" shall mean (i) the common stock,
no par value, of the Company, and (ii) shares of capital stock of the Company
issued by the Company in respect of or in exchange for shares of such common
stock in connection with any stock dividend or distribution, stock split-up,
recapitalization, recombination or exchange by the Company generally of shares
of such common stock.
Continuously Effective. "Continuously Effective", with
respect to a specified registration statement, shall mean that it shall not
cease to be effective for longer than either
6
<PAGE>
(i) any ten ( 10) consecutive business days, or (ii) an aggregate of fifteen
(15) business days during the period specified in the relevant provision of this
Agreement.
Demand Registration. "Demand Registration" shall have the
meaning set forth in Section 3.1(i).
Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended and the rules and regulations promulgated
thereunder.
Person. "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or other agency or
political subdivision thereof.
Piggyback Registration. "Piggyback Registration" shall have
the meaning set forth in Section 4.
Securities Act. "Securities Act" shall mean the Securities
Act of 1933, as amended and the rules and regulations promulgated thereunder
Shares. "Shares" shall mean (i) the shares owned by Holder on
the date hereof and (ii)aany shares of Common Stock or other securities issued
as a dividend or other distribution with respect to such Shares; provided,
however, that Shares shall not include any Common Stock which has theretofore
been registered and sold pursuant to the Securities Act or which has been sold
to the public pursuant to Rule 144 or any similar rule promulgated by the
Commission pursuant to the Securities Act.
Underwriters' Representative. "Underwriters' Representative"
shall mean the managing underwriter, or, in the case of a co-managed
underwriting, the managing underwriter designated as the Underwriters'
Representative by the co-managers.
Section 3. Demand Registration.
3.1. (i) If at any time after the first anniversary of the
date, the Holder makes a written request to the Company, the Company shall cause
there to be filed with the Commission a registration statement meeting the
requirements of the Securities Act (a "Demand Registration"), and Holder shall
be entitled to have included therein all or such number of such Holder's Shares,
as the Holder shall direct in writing; provided, however, that no request may be
made pursuant to this Section 3.1 if within six (6) months prior to the date of
such request a Demand Registration Statement pursuant to this Section 3.1 shall
have been declared effective by the Commission. Any request made pursuant to
this Section 3.1 shall be addressed to the attention of the Secretary of the
Company, and shall specify the number of Shares to be registered, the intended
methods of disposition thereof and that the request is for a Demand Registration
pursuant to this Section 3.1(i). The Holder shall be entitled to no more than
two
7
<PAGE>
Demand Registrations.
(ii) The Company shall be entitled to postpone for up to
ninety (90) days the filing of any Demand Registration statement otherwise
required to be prepared and filed pursuant to this Section 3.1, if the Board
determines, in its good faith reasonable judgment (with the concurrence of the
managing underwriter, if any), that such registration would materially interfere
with, or require premature disclosure of, any financing, acquisition or
reorganization involving the Company or any of its wholly owned subsidiaries and
the Company promptly gives the Holder notice of such determination; provided,
however, that the Company shall not have postponed pursuant to this Section
3.1(ii) the filing of any other Demand Registration statement otherwise required
to be prepared and filed pursuant to this Section 3.1 during the twelve (12)
month period ended on the date of the relevant request pursuant to Section
3.1(i).
(iii) In connection with an underwritten offering, the Company
and, with the approval of the Company, other holders of Common Stock shall be
given the opportunity to include shares of Common Stock in such offering ("Other
Included Shares"); provided, however, if the Underwriters' Representative or
Agent advises Holder in writing that, in its opinion, the amount of securities
requested to be included in such offering exceeds the amount which can be sold
in such offering within a price range acceptable to the Holder, securities shall
be included in such offering and the related registration, to the extent of the
amount which can be sold within such price range, first for the account of the
Holder, and second by the Company and other holders with respect to the Other
Included Shares.
3.2. Following receipt of a request for a Demand
Registration, the Company shall:
(i) File the registration statement with the
Commission as promptly as practicable, and shall use the Company's best efforts
to have the registration declared effective under the Securities Act as soon as
reasonably practicable, in each instance giving due regard to the need to
prepare current financial statements, conduct due diligence and complete other
actions that are reasonably necessary to effect a registered public offering.
(ii) Use the Company's best efforts to keep the
Demand Registration Statement Continuously Effective for up to ninety (90) days
or until such earlier date as of which all the Shares under the Demand
Registration Statement shall have been disposed of in the manner described in
the Registration Statement, or such earlier time as the Company would not have
an) obligation to include the Shares that have not been disposed of in the
manner described in the Registration Statement in a registration pursuant to
Section 3 or Section 4 pursuant to the definition of "Shares."
3.3. The Company shall be obligated to effect no more than a
total of two Demand Registrations. If the Company shall have complied with its
obligations under this Agreement, a right to a Demand Registration pursuant to
this Section 3 shall be deemed to have
8
<PAGE>
been satisfied upon the earlier of the date as of which all of the Shares
included therein shall have been disposed of pursuant to the Registration
Statement, and the date as of which such Demand Registration shall have been
Continuously Effective for a period of ninety (90) days.
3.4. If any registration pursuant to Section 3 involves an
underwritten offering, the Holder shall have the right to select the
underwriters and managers to administer such underwritten offering or the
placement agents for an offering through agents; provided, however, that each
Person so selected shall be reasonably acceptable to the Company.
Section 4. Piggyback Registration
4.1. If at any time the Company proposes to register shares of
Common Stock under the Securities Act in connection with a public offering
solely for cash on Form S-l, S-2 or S-3 (or any replacement or successor forms),
the Company shall promptly give Holder written notice of such registration (a
"Piggyback Registration"). Upon the written request of Holder given within 20
days following the date of such notice, the Company shall cause to be included
in such registration statement and use its best efforts to be registered under
the Securities Act all the Shares that Holder shall have requested to be
registered; provided, however, that such right of inclusion shall not apply to
the registration statement unless the Underwriters' Representative or Agent
expressly consents thereto. Holder shall be entitled to request its Shares be
included in an unlimited number of Piggyback Registrations pursuant to this
Section 4. The Company shall have the absolute right to withdraw or cease to
prepare or file any registration statement for any offering referred to in this
Section 4 without any obligation or liability to Holder.
4.2. If the Underwriters' Representative or Agent advises the
Company that, in its opinion, the amount of Shares requested to be included in
such registration would materially adversely affect such offering, or the timing
thereof, then the Company will include in such registration, to the extent of
the amount which the Company is so advised can be sold without such material
adverse effect in such offering: First, all securities proposed to be sold by
the Company for its own account and, if applicable, all securities proposed to
be sold by the holder of securities for which such registration is made, in
accordance with the agreement between the Company and such holder; second, the
Shares requested to be included in such registration by Holder pursuant to this
Section 4, third, all other securities requested to be included in such
registration.
4.3. If the Company has previously filed a registration
statement with respect to the Shares pursuant to Section 3 or pursuant to this
Section 4, and if such previous registration has not been withdrawn or
abandoned, the Company will not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-4, S-8 or any equivalent or successor form), whether on
its own behalf or at the request of any holder or Holder of such securities,
until a period of 180 days has elapsed from the effective date of such a
previous registration, or, if such registration was for an underwritten
offering, such shorter period of days
9
<PAGE>
as the Underwriter's Representative or Agent shall have given its consent.
Section 5. Registration Procedures. Whenever required under
Section 3 or Section 4 to effect the registration of any Shares, the Company
shall, as expeditiously as practicable:
5.1. Prepare and file with the Commission a registration
statement with respect to such Shares and use the Company's best efforts to
cause such registration statement to become effective.
5.2. Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act and rules thereunder with respect to the
disposition of all securities covered by such registration statement. The
Company shall amend the registration statement or supplement the prospectus so
that it will remain current and in compliance with the requirements of the
Securities Act for the period after its effective date during which the Demand
Registration is to be kept continuously effective by the Company pursuant to
Section 3.3(ii), and if during such period any event or development occurs as a
result of which the registration statement or prospectus contains a misstatement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, the Company
shall promptly notify Holder, amend the registration statement or supplement the
prospectus so that it will thereafter comply with the Securities Act and furnish
to Holder such amended or supplemented prospectus, which Holder shall thereafter
use in the sale of Shares covered by such registration statement. Pending such
amendment or supplement, Holder shall cease making offers of Shares pursuant to
the prior prospectus. In the event that any Shares included in a registration
statement subject to, or required by, this Agreement remain unsold at the end of
the period during which the Company is obligated to use its best efforts to
maintain the effectiveness of such registration statement, the Company may file
a post-effective amendment to remove such Shares from registered status.
5.3. Use the Company's best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such states or jurisdictions as shall be
reasonably requested by the Underwriters' Representative or Agent; provided,
however, that the Company shall not be required to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
5.4. In the event of any underwritten or agented offering,
enter into and perform the Company s obligations under an underwriting or agency
agreement (including indemnification and contribution obligations of
underwriters or agents)' in usual and customary form. The Company shall also
cooperate with the Holder and the Underwriters' Representative or Agent for such
offering in the marketing of the Shares, including making available the
Company's officers, accountants, counsel, premises, books and records for such
purpose, but the Company shall not be required to incur any material
out-of-pocket expense pursuant to this sentence.
10
<PAGE>
5.5. Promptly notify Holder of any stop order issued or
threatened to be issued by the Commission and take all reasonable actions
required to prevent the entry of such stop order or to remove it if entered.
Section 6. Holder' Obligations. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
with respect to the Shares that Holder shall:
6.1. Furnish to the Company such information regarding Holder,
the number of the Shares owned by it, and the intended method of disposition of
such Shares as shall be required to effect the registration of the Shares, and
to cooperate with the Company in preparing such registration.
6.2. Agree to sell the Shares to the underwriters at the same
price and on substantially the same terms and conditions as the Company or the
other Persons on whose behalf the registration statement was being filed have
agreed to sell their securities, and to execute the underwriting agreement
agreed to by the Holder (in the case of a registration under Section 3), or the
Company and the Holder (in the case of a registration under Section 4).
Section 7. Expenses of Registration. Expenses in connection
with registrations pursuant to this Agreement shall be allocated and paid as
follows:
7.1. With respect to each Demand Registration, the Holder
shall bear and pay all expenses incurred in connection with any registration,
filing, or qualification of Shares with respect to such Demand Registration for
Holder, including all registration, filing and National Association of
Securities Dealers, Inc. fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the reasonable fees and disbursements
of counsel for the Company, and of the Company's independent public accountants,
including the expenses of "cold comfort" letters required by or incident to such
performance and compliance, and the fees and disbursements of counsel for Holder
(the "Fixed Registration Expenses") and the underwriting discounts and
commissions relating to Shares.
7.2. The Company shall bear and pay the Fixed Registration
Expenses incurred in connection with any Piggyback Registrations pursuant to
Section 4, but excluding underwriting discounts and commissions relating to
Shares (which shall be paid on a pro rata basis by the Holder).
Section 8. Indemnification; Contribution. In the event a registration
pursuant to the provision of this Agreement, the Company and the Holder shall
enter into a cross-indemnity and contribution agreement, in customary form, with
each other and each underwriter, if any.
Section 9. Holdback. If so requested by the Underwriters'
Representative or Agent in
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connection with an offering of any Shares, the Holder shall not effect any
public sale or distribution of Shares, including a sale pursuant to Rule 144
under the Securities Act (except as part of such underwritten or agented
registration), during the 5-day period prior to, and during such period as the
Underwriter's Representative or Agent may request, not to exceed a period of 180
days, beginning on, the date such registration statement is declared effective
under the Securities Act by the Commission. In order to enforce the foregoing
covenant, the Company shall be entitled to impose stop-transfer instructions
with respect to the Shares of Holder until the end of such period.
Section 10. Amendment Modification and Waivers; Further
Assurances.
(i) This Agreement may be amended by a written
document executed by the Holder and the Company.
(ii) No waiver of any terms or conditions of this
Agreement shall operate as a waiver of any other breach of such terms and
conditions or any other term or condition, nor shall any failure to enforce any
provision hereof operate as a waiver of such provision or of any other provision
hereof. No written waiver hereunder, unless it by its own terms explicitly
provides to the contrary, shall be construed to effect a continuing waiver of
the provisions being waived and no such waiver in any instance shall constitute
a waiver in any other instance or for any other purpose or impair the right of
the party against whom such waiver is claimed in all other instances or for all
other purposes to require full compliance with such provision.
(iii) Each of the parties hereto shall execute all
such further instruments and documents and take all such further action as any
other party hereto may reasonably require in order to effectuate the terms and
purposes of this Agreement
Section 11. Assignment; Benefit. This Agreement and all of the
provisions hereof shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, assigns, executors, administrators or
successors; provided, however, neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned or delegated by the Company
or the Holder without the prior written consent of the other party hereto.
Section 12. Miscellaneous.
12.1. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia, without
giving regard to the conflict of laws principles thereof.
12.2. Notices. Any notice under this Agreement shall be in
writing and may be served by:
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(a) personal delivery; including First Class
Mail with receipt acknowledgment; or
(b) facsimile, with confirmation of receipt.
Notices will be delivered to the CEO or CEO of nVIEW
at 860 Omni Boulevard, Newport News, Virginia 23606-4238 OR to the Commercial
Director or CEO of Snell & Wilcox at Durford Mill, Petersfield, Hampshire GU31
5AZ UK.
Any notice so given shall be deemed to have been
received on the next business day following the date it was hand delivered or
transmitted by facsimile, or if mailed, on the fifth business day following the
date of posting.
12.3. Injunctive Relief. Each of the parties hereto
acknowledges that in the event of a breach of any material provision of this
Agreement, the aggrieved party may be without an adequate remedy at law. Each of
the parties therefore agrees that in such event the aggrieved party may elect to
institute and prosecute proceedings to enforce specific performance or to enjoin
the continuing breach hereof. By seeking or obtaining any such relief, the
aggrieved party shall not be precluded from seeking or obtaining any other
relief to which it may be entitled.
12.4. Section Headings. Section headings are for
convenience of reference only and shall not affect the meaning of any provision
of this Agreement.
12.5. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, and all of which
shall together constitute one and the same instrument. All signatures need not
be on the same counterpart.
12.6. Severability. If any provision of this Agreement shall
be invalid or unenforceable, such invalidity or unenforceability shall not
affect the validity and enforceability of the remaining provisions of this
Agreement, unless the result thereof would be unreasonable, in which case the
parties hereto shall negotiate in good faith as to appropriate amendments
hereto.
12.7. Termination. This Agreement may be terminated at any
time by a written instrument signed by the parties hereto. Unless sooner
terminated in accordance with the preceding sentence, this Agreement shall
terminate in its entirety at the earlier of (i) such date as there shall be no
Shares owned by Holder or (ii ) the eighth anniversary of the date hereof.
12.8. Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees (including any fees incurred in any appeal) in
addition to its costs and expenses and any other available remedy.
12.9. No Third Party Beneficiaries. Nothing herein
expressed or implied is
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intended to confer upon any person, other than the parties hereto or their
respective permitted assigns, successors, heirs and legal representatives, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
IN WITNESS WHEREOF the undersigned have executed this Registration
Rights Agreement as of the date first written above.
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EXHIBIT B
nVIEW is a party to an Agreement (the "Signet Agreement") entered by
and between nVIEW and Signet Bank ("Signet") dated February 6, 1996, pursuant to
which Signet provides a line of credit to nVIEW. Currently no funds are
outstanding under the Signet Agreement. The terms of the Signet Agreement
prohibit issuance of shares under this Agreement without Signet's consent.
The Signet Agreement will expire by its own terms on February 6, 1998,
and Signet advised nVIEW it will not continue the Agreement. nVIEW is currently
negotiating a loan with a replacement lender and will provide in such loan
document that nVIEW may fulfill the terms of this Agreement.
15
EXHIBIT 10.20
LOAN AND SECURITY AGREEMENT
This Agreement is between the undersigned Borrower and the undersigned
Lender concerning loans and other credit accommodations to be made by Lender to
Borrower.
SECTION 1. PARTIES
1.1 The "Borrower" is the person, firm, corporation or other entity,
identified as the Borrower in Section 10.6(c) and its successors and assigns. If
more than one Borrower is specified in Section 10.6(c), all references to
Borrower shall mean each of them, jointly and severally, individually and
collectively, and the successors and assigns of each.
1.2 The "Lender" is The CIT Group/Credit Finance, Inc. and its
successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms and conditions
contained herein, make revolving loans to Borrower ("Revolving Loans") in
amounts requested by Borrower from time to time, but not in excess of the Net
Availability existing immediately prior to the making of the requested loan and
provided the requested loan would not cause the outstanding Obligations to
exceed the Maximum Credit; provided, however, that maximum borrowings hereunder
outstanding at any one time shall be limited to two million dollars ($2,000,000)
and not the Maximum Credit until: (i) Borrower begins selling the Ruby XGA
Projector, and, (ii) Lender is satisfied in its sole discretion that the
turnover, dilution and other aspects of Borrower's sales and receipts therefor
support and justify the advance formula set forth in this Agreement.
(a) The "Maximum Credit" is set forth in Section 10.1(a) hereof,
subject to the limiting provisions of 2.1, above.
(b) The "Gross Availability" shall be calculated at any time as (i) the
product obtained by
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multiplying the outstanding amount of Eligible Accounts, net of all taxes,
discounts, allowances and credits given or claimed, by the Eligible Accounts
Percentage set forth in Section 10.1(b),
plus: (ii) the product(s) obtained by multiplying the applicable
Eligible Inventory Percentage(s), if any, set forth in Section
10.1(b) by the values (as determined by Lender based on the
lower of cost or market) of Eligible Inventory, but the amount
so added shall not exceed any sublimits set forth in Section
10.1(c),
(c) The "Net Availability" shall be calculated at any time as an amount
equal to the Gross Availability minus the aggregate amount of all
then-outstanding Obligations to Lender other than the then outstanding principal
balance of the Term Loan, if any.
(d) "Eligible Accounts" are accounts created by Borrower in the
ordinary course of its business which are and remain acceptable to Lender for
lending purposes. General criteria for Eligible Accounts are set forth below but
may be revised from time to time by Lender, in its sole judgment, on fifteen
(15) days' prior written notice to Borrower. Lender shall, in general, deem
accounts to be Eligible Accounts if: (1) such accounts arise from bona fide
completed transactions and have not remained unpaid for more than the number of
days after the invoice date set forth in Section 10.1(d); (2) the amounts of the
accounts reported to Lender are absolutely owing to Borrower and do not arise
from sales on consignment, guaranteed sale or other terms under which payment by
the account debtors may be conditional or contingent; (3) the account debtor's
chief executive office or principal place of business is located in the United
States (subject to ss.10.1(b), below); (4) such accounts do not arise from
progress billings, retainages or bill and hold sales; (5) there are no contra
relationships, setoffs, counterclaims or disputes existing with respect thereto
and there are no other facts existing or threatened which would impair or delay
the collectibility of all or any portion thereof; (6) the goods giving rise
thereto were not at the time of the sale subject to any liens except those
permitted in this Agreement; (7) such accounts are not accounts with respect to
which the account debtor or any officer or employee thereof is an officer,
employee or agent of or is affiliated with Borrower,
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directly or indirectly, whether by virtue of family membership, ownership,
control, management or otherwise; (8) such accounts are not accounts with
respect to which the account debtor is the United States or any State or
political subdivision thereof or any department, agency or instrumentality of
the United States, any State or political subdivision, unless there has been
compliance with the Assignment of Claims Act or any similar State or local law,
if applicable; (9) Borrower has delivered to Lender or Lender's representative
such documents as Lender may have requested pursuant to Section 5.8 hereof in
connection with such accounts and Lender shall have received a verification of
such account, satisfactory to it, if sent to the account debtor or any other
obligor or any bailee pursuant to Section 5.4 hereof; (10) there are no facts
existing or threatened which might result in any adverse change in the account
debtor's financial condition; (11) such accounts owed by a single account debtor
or its affiliates do not represent more than twenty percent (20%) of all
otherwise Eligible Accounts (accounts excluded from Eligible Accounts solely by
reason of this subsection (11) shall nevertheless be considered Eligible
Accounts to the extent of the amount of such accounts which does not exceed
twenty percent (20%) of all otherwise Eligible Accounts); (12) such accounts are
not owed by an account debtor who is or whose affiliates are past due more than
sixty (60) days upon other accounts owed to Borrower comprising more than fifty
percent (50%) of the accounts of such account debtor or its affiliates owed to
Borrower; (13) such accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the amount of any customer credit
limits as established, and changed, from time to time by Lender on notice to
Borrower (accounts excluded from Eligible Accounts solely by reason of this
subsection (13) shall nevertheless be considered Eligible Accounts to the extent
the amount of such accounts does not exceed such customer credit limit); and
(14) such accounts are owed by account debtors deemed creditworthy at all times
by Lender.
(e) "Eligible Inventory" is inventory owned by Borrower which is and
remains acceptable to Lender for lending purposes and is located at one of the
addresses set forth in Section 10.6(e).
(f) Lender shall have a continuing right to deduct reserves in
determining the Gross
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Availability ("Reserves"), and to increase and decrease such Reserves from time
to time, if and to the extent that, in Lender's sole judgment, such Reserves are
necessary to protect Lender against any state of facts which does, or would,
with notice or passage of time or both, constitute an Event of Default or have
an adverse effect on any Collateral. Lender may, at its option, implement
Reserves by designating as ineligible a sufficient amount of accounts or
inventory which would otherwise be Eligible Accounts or Eligible Inventory so as
to reduce Gross Availability by the amount of the intended Reserve.
(g) Subject to the terms and conditions hereof, including but not
limited to the existence of sufficient Gross and Net Availability, Borrower
agrees to borrow sufficient amounts from time to time so that the outstanding
Revolving Loans and the Term Loan, shall at all times equal or exceed the
principal amount set forth in Section 10.1(e) as the Minimum Borrowing;
provided, that if Borrower fails to do so, interest shall nevertheless accrue on
the Obligations as if Borrower had borrowed such amounts as would have been
sufficient to maintain the outstanding Revolving Loans and Term Loan at an
amount equal to the Minimum Borrowing (and Lender shall have the right to charge
Borrower's loan account for such additional interest), and provided further that
such accrual shall not impose upon Lender any obligation to make loans to
Borrower to increase the outstanding Revolving Loans or Term Loan to such
Minimum Borrowing. Minimum Borrowing is defined to include average loan balance
and average letters of credit outstanding.
2.2 Term Loan. Any term loan and the terms of such loan, made by Lender
to Borrower are set forth in Section 10.2 ("Term Loan").
2.3 Accommodations
(a) Lender may, in its sole discretion, issue or cause to be issued,
from time to time at Borrower's request and on terms and conditions and for
purposes satisfactory to Lender (such as the purchase of inventory in the
ordinary course of business), credit accommodations consisting of letters of
credit, bankers' acceptances, merchandise purchase guaranties or other
guaranties or indemnities
4
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for Borrower's account ("Accommodations"). Borrower shall execute and perform
additional agreements relating to the Accommodations in form and substance
acceptable to Lender and the issuer of any Accommodations, all of which shall
supplement the rights and remedies granted herein. Any payments made by Lender
or any affiliate of Lender in connection with the Accommodations shall
constitute additional Revolving Loans to Borrower.
(b) In addition to the fees and costs of any issuer in connection with
issuing or administering Accommodations, Borrower shall pay monthly to Lender,
on the first day of each month, a charge on open Accommodations at the rate per
annum set forth in Section 10.3(a) (the "Accommodation Charges").
(c) No Accommodation will be issued unless the full amount of the
Accommodation requested, plus fees and costs for issuance, is less than the Net
Availability existing immediately prior to the issuance of the requested
Accommodation, or if the requested Accommodation would cause the outstanding
Obligations to exceed the Maximum Credit, or cause the open amount of
Accommodations to exceed, at any time, the Accommodation sublimit set forth in
Section 10.3(b).
(d) All indebtedness, liabilities and obligations of any sort
whatsoever, however arising, whether present or future, fixed or contingent,
secured or unsecured, due or to become due, paid or incurred, arising or
incurred in connection with any Accommodation shall be included in the term
"Obligations", as defined herein, and shall include, without limitation, (i) all
amounts due or which may become due under any Accommodation; (ii) all amounts
charged or chargeable to Borrower or to Lender by any bank, other financial
institution or correspondent bank which opens, issues or is involved with such
Accommodations; (iii) Lender's Accommodation Charges and all fees, costs and
other charges of any issuer of any Accommodation; and (iv) all duties, freight,
taxes, costs, insurance and all such other charges and expenses which may
pertain directly or indirectly to any Obligations or Accommodations or to the
goods or documents relating thereto.
5
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(e) Borrower unconditionally agrees to indemnify and hold Lender
harmless from any and all loss, claim or liability (including reasonable
attorneys' fees) arising from any transactions or occurrences relating to any
Accommodation established or opened for Borrower's account, the Collateral
relating thereto and any drafts or acceptances thereunder, including any such
loss or claim due to any action taken by an issuer of any Accommodation.
Borrower further agrees to indemnify and hold Lender harmless for any errors or
omissions in connection with the Accommodations, whether caused by Lender, by
the issuer of any Accommodation or otherwise. Borrower's unconditional
obligation to indemnify and hold Lender harmless under this provision shall not
be modified or diminished for any reason or in any manner whatsoever, except for
Lender's gross negligence or willful misconduct. Borrower agrees that any
charges made to Lender by any issuer of any Accommodation shall be conclusive on
Borrower and may be charged to Borrower's account.
(f) Lender shall not be responsible for: the conformity of any goods to
the documents presented; the validity or genuineness of any documents; delay,
default, or fraud by the Borrower or shipper and/or anyone else in connection
with the Accommodations or any underlying transaction.
(g) Borrower agrees that any action taken by Lender, if taken in good
faith, or any action taken by an issuer of any Accommodation, under or in
connection with any Accommodation, shall be binding on Borrower and shall not
create any resulting liability to Lender. In furtherance thereof, Lender shall
have the full right and authority to clear and resolve any questions of
non-compliance of documents; to give any instructions as to acceptance or
rejection of any documents or goods; to execute for Borrower's account any and
all applications for steamship or airway guarantees, indemnities or delivery
orders; to grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents; and to agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications or Accommodations. All of
the foregoing actions may be taken in Lender's sole name, and the issuer thereof
shall be entitled to comply with and honor any and all such documents or
instruments executed by or received solely from Lender, all without any notice
to or any consent from
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Borrower. None of the foregoing actions described in this subsection (g) may be
taken by Borrower without Lender's express written consent.
SECTION 3. INTEREST AND FEES
3.1 Interest. (a) Interest on the Revolving Loans and Term Loans shall
be payable by Borrower on the first day of each month, calculated upon the
closing daily balances in the loan account of Borrower for each day during the
immediately preceding month, at the per annum rate set forth as the Interest
Rate in Section 10.4(a). The Interest Rate shall increase or decrease by an
amount equal to each increase or decrease, respectively, in the Prime Rate (as
defined below), effective as of the date of each such change. On and after any
Event of Default or termination or non-renewal hereof, interest on all unpaid
Obligations shall accrue at a rate equal to two percent (2%) per annum in excess
of the Interest Rate otherwise payable until such time as all Obligations are
indefeasibly paid in full (notwithstanding entry of any judgment against
Borrower or the exercise of any other right or remedy by Lender), and all such
interest shall be payable on demand. In no event shall charges constituting
interest exceed the rate permitted under any applicable law or regulation, and
if any provision of this Agreement is in contravention of any such law or
regulation, such provision shall be deemed amended to conform thereto.
(b) The "Prime Rate" is the rate of interest publicly announced by
Chase Manhattan Bank in New York, New York, or its successors, and assigns from
time to time as its prime rate (the Prime Rate is not intended to be the lowest
rate of interest charged by Chase Manhattan Bank to its borrowers).
3.2 Closing Commitment Letter Fee. Borrower shall pay Lender a
Closing Commitment Letter Fee in the amount and in the manner set forth in
Section 10.4(c)
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3.3 Facility Fee. Not applicable
3.4 Account Servicing Fee. Borrower shall pay Lender monthly, on the
first day of each month during the initial and each renewal Term an Account
Servicing Fee for the immediately preceding month (or part thereof) in the
amount set forth in Section 10.4(e).
3.5 Success Fee. Borrower shall pay Lender annually, a Success Fee as
is set forth in ss. 10.4(d), on account of each year of the Term hereof and any
renewal thereof.
3.6 Charges to Loan Account. At Lender's option, all payments of
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement, or in any other agreement now or hereafter existing between
Lender and Borrower, may be charged on the date when due, as principal to any
loan account of Borrower maintained by Lender. Interest, fees for
Accommodations, the Unused Line Fee and any other amounts payable by Borrower to
Lender based on a per annum rate shall be calculated on the basis of actual days
elapsed over a 360-day year.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 Grant of Security Interest. To secure the payment and
performance in full of all Obligations, Borrower hereby grants to Lender a
continuing security interest in and lien upon, and a right of setoff against,
and Borrower hereby assigns and pledges to Lender, all of the Collateral,
including any Collateral not deemed eligible for lending purposes.
4.2 "Obligations" shall mean any and all Revolving Loans, Term Loans,
Accommodations and all other indebtedness, liabilities and obligations of every
kind, nature and description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees and expenses, however evidenced,
8
<PAGE>
whether as principal, surety, endorser, guarantor or otherwise, whether arising
under this Agreement or otherwise, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal Term or after
the commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended and whether
arising directly or howsoever acquired by Lender including from any other entity
outright, conditionally or as collateral security, by assignment, merger with
any other entity, participations or interests of Lender in the obligations of
Borrower to others, assumption, operation of law, subrogation or otherwise and
shall also include all amounts chargeable to Borrower under this Agreement or in
connection with any of the foregoing.
4.3 "Collateral" shall mean all of the following property of Borrower:
All now owned and hereafter acquired right, title and interest of
Borrower in, to and in respect of all: accounts, interests in goods represented
by accounts, returned, reclaimed or repossessed goods with respect thereto and
rights as an unpaid vendor; contract rights; chattel paper; investment property;
general intangibles (including, but not limited to, tax and duty refunds,
registered and unregistered patents, trademarks, service marks, copyrights,
trade names, applications for the foregoing, trade secrets, goodwill, processes,
drawings, blueprints, customer lists, licenses, whether as licensor or licensee,
choses in action and other claims, and existing and future leasehold interests
in equipment and fixtures); documents; instruments; letters of credit, bankers'
acceptances or guaranties; cash monies, deposits, securities, bank accounts,
deposit accounts, credits and other property now or hereafter held in any
capacity by Lender, its affiliates or any entity which, at any time,
participates in Lender's financing of Borrower or at any other depository or
other institution; agreements or property securing or relating to any of the
items referred to above;
All now owned and hereafter acquired right, title and interest of
Borrower in, to and in respect of goods, including, but not limited to:
All inventory, wherever located, whether now owned or hereafter
acquired, of whatever kind, nature or description, including all raw materials,
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work-in-process, finished goods, and materials to be used or consumed in
Borrower's business; and all names or marks affixed to or to be affixed thereto
for purposes of selling same by the seller, manufacturer, lessor or licensor
thereof;
All equipment and fixtures, wherever located, whether now owned or
hereafter acquired, including, without limitation, all machinery, equipment,
motor vehicles, furniture and fixtures, and any and all additions,
substitutions, replacements (including spare parts), and accessions thereof and
thereto;
All consumer goods, farm products, crops, timber, minerals or the like
(including oil and gas), wherever located, whether now owned or hereafter
acquired, of whatever kind, nature or description;
All now owned and hereafter acquired right, title and interests of
Borrower in, to and in respect of any personal property in or upon which Debtor
has or may hereafter have a security interest, lien or right of setoff;
All present and future books and records relating to any of the above
including, without limitation, all computer programs, printed output and
computer readable data in the possession or control of the Borrower, any
computer service bureau or other third party;
All products and proceeds of the foregoing in whatever form and
wherever located, including, without limitation, all insurance proceeds and all
claims against third parties for loss or destruction of or damage to any of the
foregoing.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Collections. Borrower shall, at Borrower's expense and in the
manner requested by Lender from time to time, direct that remittances and all
other proceeds of accounts and other Collateral be sent to a lock box designated
by and/or maintained in the name of Lender, and deposited into a bank account
now or hereafter selected by Lender and maintained in the name of Lender under
arrangements with the depository bank under which all funds deposited to such
bank account are required to be transferred solely to Lender. Borrower shall
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bear all risk of loss of any funds deposited into such account unless such loss
is the result of Lender's willful misconduct. In connection therewith, Borrower
shall execute such lock box and bank account agreements as Lender shall specify.
Any collections or other proceeds received by Borrower shall be held in trust
for Lender and immediately remitted to Lender in kind.
5.2 Payments. All Obligations shall be payable at Lender's office set
forth below or at Lender's bank designated in Section 10.6(b) or at such other
bank or place as Lender may expressly designate from time to time for purposes
of this Section. Lender shall apply all proceeds of accounts or other Collateral
received by Lender and all other payments in respect of the Obligations to the
Revolving Loans whether or not then due or to any other Obligations then due, in
whatever order or manner Lender shall determine. For purposes of determining
Gross and Net Availability and for the calculation of the Minimum Borrowing,
remittances and other payments with respect to the Collateral and Obligations
will be treated as credited to the loan account of Borrower maintained by Lender
and Collateral balances to which they relate, upon the date of Lender's receipt
of advice from Lender's bank that such remittances or other payments have been
credited to Lender's account or in the case of remittances or other payments
received directly in kind by Lender, upon the date of Lender's deposit thereof
at Lender's bank, subject to final payment and collection. In computing interest
charges, the loan account of Borrower maintained by Lender will be credited with
remittances and other payments the number of days set forth in Section 10.4(b)
after the day Lender has received advice of receipt of remittances in Lender's
account at Lender's Bank. For purposes of this Agreement, "Business Day" shall
mean any day other than a Saturday, Sunday or any other day on which banks
located in states where Lender has its offices, are authorized to close.
5.3 Loan Account Statements. Lender shall render to Borrower monthly a
loan account statement. Each statement shall be considered correct and binding
upon Borrower as an account stated, except to the extent that Lender receives,
within sixty (60) days after the mailing of such statement, written notice from
Borrower of any specific exceptions by Borrower to that statement.
5.4 Direct Collections. Lender may, at any time, whether or not an
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Event of Default has occurred, without notice to or assent of Borrower, (a)
notify any account debtor that the accounts and other Collateral which includes
a monetary obligation have been assigned to Lender by Borrower and that payment
thereof is to be made to the order of and directly to Lender, (b) send, or cause
to be sent by its designee, requests (which may identify the sender by a
pseudonym) for verification of accounts and other Collateral directly to any
account debtor or any other obligor or any bailee with respect thereto, and (c)
demand, collect or enforce payment of any accounts or such other Collateral, but
without any duty to do so, and Lender shall not be liable for any failure to
collect or enforce payment thereof. At Lender's request, all invoices and
statements sent to any account debtor, other obligor or bailee, shall state that
the accounts and such other Collateral have been assigned to Lender and are
payable directly and only to Lender.
5.5 Attorney-in-Fact. Borrower hereby appoints Lender and any designee
of Lender as Borrower's attorney-in-fact and authorizes Lender or such designee,
at Borrower's sole expense, to exercise at any times in Lender's or such
designee's discretion all or any of the following powers, which powers of
attorney, being coupled with an interest, shall be irrevocable until all
Obligations have been paid in full: (a) receive, take, endorse, assign, deliver,
accept and deposit, in the name of Lender or Borrower, any and all cash, checks,
commercial paper, drafts, remittances and other instruments and documents
relating to the Collateral or the proceeds thereof, (b) transmit to account
debtors, other obligors or any bailees notice of the interest of Lender in the
Collateral or request from account debtors or such other obligors or bailees at
any time, in the name of Borrower or Lender or any designee of Lender,
information concerning the Collateral and any amounts owing with respect
thereto, (c) notify account debtors or other obligors to make payment directly
to Lender, or notify bailees as to the disposition of Collateral, (d) take or
bring, in the name of Lender or Borrower, all steps, actions, suits or
proceedings deemed by Lender necessary or desirable to effect collection of or
other realization upon the accounts and other Collateral, (e) after an Event of
Default, change the address for delivery of mail to Borrower and to receive and
open mail addressed to Borrower, (f) after an Event of Default, extend the time
of payment of, compromise or settle for cash, credit, return of merchandise, and
upon any terms or conditions, any and all accounts or other Collateral which
includes a monetary obligation and discharge or release the account debtor or
other obligor, without affecting any of the Obligations, and (g) execute in the
name of Borrower and file against Borrower in favor of Lender financing
statements or amendments with respect to the Collateral.
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5.6 Liability. Borrower hereby releases and exculpates Lender, its
officers, employees and designees, from any liability arising from any acts
under this Agreement or in furtherance thereof, whether as attorney-in-fact or
otherwise, whether of omission or commission, and whether based upon any error
of judgment or mistake of law or fact, except for its own gross negligence or
willful misconduct. In no event will Lender have any liability to Borrower for
lost profits or other special or consequential damages.
5.7 Administration of Accounts. After at least two (2) days prior
written notice by Lender to Borrower and automatically, without notice, after an
Event of Default, Borrower shall not, without the prior written consent of
Lender in each instance, (a) grant any extension of time of payment of any of
the accounts or any other Collateral which includes a monetary obligation, (b)
compromise or settle any of the accounts or any such other Collateral for less
than the full amount thereof, (c) release in whole or in part any account debtor
or other person liable for the payment of any of the accounts or any such other
Collateral, or (d) grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any of the accounts or any such other
Collateral.
5.8 Documents. At such times as Lender may request and in the manner
reasonably specified by Lender, Borrower shall deliver to Lender or Lender's
representative, as Lender shall designate, copies or original invoices,
agreements, proofs of rendition of services and delivery of goods and other
documents evidencing or relating to the transactions which gave rise to accounts
or other Collateral, together with customer statements, schedules describing the
accounts or other Collateral and/or statements of account and confirmatory
assignments to Lender of the accounts or other Collateral, in form and substance
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satisfactory to Lender and duly executed by Borrower. Without limiting the
provisions of Section 5.7, Borrower's granting of credits, discounts,
allowances, deductions, return authorizations or the like will be promptly
reported to Lender in writing in Borrower's usual reporting requirements
hereunder. In no event shall any such schedule or confirmatory assignment (or
the absence thereof or omission of any of the accounts or other Collateral
therefrom) limit or in any way be construed as a waiver, limitation or
modification of the security interests or rights of Lender or the warranties,
representations and covenants of Borrower under this Agreement. Any documents,
schedules, invoices or other paper delivered to Lender by Borrower may be
destroyed or otherwise disposed of by Lender six (6) months after receipt by
Lender, unless Borrower requests their return in writing in advance and makes
prior arrangements for their return at Borrower's expense.
5.9 Access. From time to time as requested by Lender, at the sole
expense of Borrower, Lender or its designee shall have access, prior to an Event
of Default during reasonable business hours and on or after an Event of Default
at any time, to all of the premises where Collateral is located for the purposes
of inspecting the Collateral, and all Borrower's books and records, and Borrower
shall permit Lender or its designee to make such copies of such books and
records or extracts therefrom as Lender may request. Without expense to Lender,
Lender may use such of Borrower's personnel, equipment, including computer
equipment, programs, printed output and computer readable media, supplies and
premises for the collection of accounts and realization on other Collateral as
Lender, in its sole discretion, deems appropriate. Borrower hereby irrevocably
authorizes all accountants and third parties to disclose and deliver to Lender
at Borrower's expense all financial information, books and records, work papers,
management reports and other information in their possession regarding Borrower.
5.10 Environmental Audits. From time to time, as requested by Lender,
at the sole expense of Borrower, Borrower shall provide Lender, or its designee,
complete access to all of Borrower's facilities for the purpose of conducting an
environmental audit of such facilities as Lender or its designees may deem
necessary. Borrower agrees to cooperate with Lender with respect to any
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environmental audit conducted by Lender or its designee pursuant to this Section
5.10.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND
COVENANTS
Borrower hereby represents, warrants and covenants to Lender the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions of the making of loans or other credit accommodations by
Lender to Borrower:
6.1 Financial and Other Reports. Borrower shall keep and maintain its
books and records in accordance with generally accepted accounting principles,
consistently applied. Borrower shall at its expense deliver to Lender on or
before: (a) the fifteenth (15th) day of each month, true and complete monthly
agings of its accounts receivable, accounts payable and notes payable; (b) the
25th day of each month an inventory report and an internally prepared interim
monthly financial statement for the immediately preceding month. Annually,
Borrower shall deliver audited financial statements of Borrower accompanied by
the report and opinion thereon of independent certified public accountants
acceptable to Lender, as soon as available, but in no event later than ninety
(90) days after the end of Borrower's fiscal year. All of the foregoing shall be
in such form and together with such information with respect to the business of
Borrower or any guarantor, as Lender may in each case request.
6.2 Trade Names. Borrower may from time to time render invoices to
account debtors under its trade names set forth in Section 10.6(g) after Lender
has received prior written notice from Borrower of the use of such trade names
and as to which, Borrower agrees that: (a) each trade name does not refer to
another corporation or other legal entity, (b) all accounts and proceeds thereof
(including any returned merchandise) invoiced under any such trade names are
owned exclusively by Borrower and are subject to the security interest of Lender
and the other terms of this Agreement, and (c) all schedules of accounts and
confirmatory assignments including any sales made or services rendered using the
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trade name shall show Borrower's name as assignor and Lender is authorized to
receive, endorse and deposit to any loan account of Borrower maintained by
Lender all checks or other remittances made payable to any trade name of
Borrower representing payment with respect to such sales or services.
6.3 Losses. Borrower shall promptly notify Lender in writing of any
loss, damage, investigation, action, suit, proceeding or claim relating to a
material portion of the Collateral or which may result in any material adverse
change in Borrower's business, assets, liabilities or condition, financial or
otherwise.
6.4 Books and Records. Borrower's books and records concerning accounts
and its chief executive office are and shall be maintained only at the address
set forth in Section 10.6(d). Borrower's only other places of business and the
only other locations of Collateral, if any, are and shall be the addresses set
forth in Section 10.6 hereof, except Borrower may change such locations or open
a new place of business after thirty (30) days prior written notice to Lender.
Prior to any change in location or opening of any new place of business,
Borrower shall execute and deliver or cause to be executed and delivered to
Lender such financing statements, financing documents and security and other
agreements as Lender may reasonably require, including, without limitation,
those described in Section 6.14.
6.5 Title. Borrower has and at all times will continue to have good and
marketable title to all of the Collateral, free and clear of all liens, security
interests, claims or encumbrances of any kind except in favor of Lender and
except, if any, those set forth on Schedule A hereto.
6.6 Disposition of Assets. Borrower shall not directly or indirectly
without the written consent of CIT: (a) sell, lease, transfer, assign, abandon
or otherwise dispose of any part of the Collateral or any material portion of
its other assets (other than sales of inventory to buyers in the ordinary course
of business) or (b) consolidate with or merge with or into any other entity, or
permit any other entity to consolidate with or merge with or into Borrower or
(c) form or acquire any interest in any firm, corporation or other entity.
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6.7 Insurance. Borrower shall at all times maintain, with financially
sound and reputable insurers, insurance (including, without limitation, at the
option of Lender, earthquake and flood insurance) with respect to the Collateral
and other assets. All such insurance policies shall be in such form, substance,
amounts and coverage as may be satisfactory to Lender and shall provide for
thirty (30) days' prior written notice to Lender of cancellation or reduction of
coverage. Borrower hereby irrevocably appoints Lender and any designee of Lender
as attorney-in-fact for Borrower to obtain at Borrower's expense, any such
insurance should Borrower fail to do so and, after an Event of Default, to
adjust or settle any claim or other matter under or arising pursuant to such
insurance or to amend or cancel such insurance. Borrower shall deliver to Lender
evidence of such insurance and a lender's loss payable endorsement satisfactory
to Lender as to all existing and future insurance policies with respect to the
Collateral. Borrower shall deliver to Lender, in kind, all instruments
representing proceeds of insurance received by Borrower. Lender may apply any
insurance proceeds received at any time to the cost of repairs to or replacement
of any portion of the Collateral and/or, at Lender's option, to payment of or as
security for any of the Obligations, whether or not due, in any order or manner
as Lender determines.
6.8 Compliance With Laws. Borrower is and at all times will continue to
be in compliance with the requirements of all material laws, rules, regulations
and orders of any governmental authority relating to its business (including
laws, rules, regulations and orders relating to taxes, payment and withholding
of payroll taxes, employer and employee contributions and similar items,
securities, employee retirement and welfare benefits, employee health and
safety, or environmental matters) and all material agreements or other
instruments binding on Borrower or its property. All of Borrower's inventory
shall be produced in accordance with the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto. Borrower shall pay and discharge all taxes, assessments and
governmental charges against Borrower or any Collateral prior to the date on
which penalties are imposed or liens attach with respect thereto, unless the
same are being contested in good faith and, at Lender's option, Reserves are
established for the amount contested and penalties which may accrue thereon.
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6.9 Accounts. With respect to each account deemed an Eligible Account,
except as reported in writing to Lender, Borrower has no knowledge that any of
the criteria for eligibility are not or are no longer satisfied. As to each
account, except as disclosed in writing to Lender at the time such account
arises (a) each is valid and legally enforceable and represents an undisputed
bona fide indebtedness incurred by the account debtor for the sum reported to
Lender, (b) each arises from an absolute and unconditional sale of goods,
without any right of return or consignment, or from a completed rendition of
services, (c) each is not, at the time such account arises, subject to any
defense, offset, dispute, contra relationship, counterclaim, or any given or
claimed credit, allowance or discount, and (d) all statements made and all
unpaid balances and other information appearing in the invoices, agreements,
proofs of rendition of services and delivery of goods and other documentation
relating to the accounts, and all confirmatory assignments, schedules,
statements of account and books and records with respect thereto, are true and
correct and in all respects what they purport to be.
6.10 Equipment. With respect to Borrower's equipment, Borrower shall
keep the equipment in good order and repair, and in running and marketable
condition, ordinary wear and tear excepted.
6.11 Financial Covenants. Borrower shall at all times maintain working
capital and net worth (each as determined in accordance with generally accepted
accounting principles, in effect on the date hereof, consistently applied) in
the amounts set forth in Section 10.5(a) and (b) and Borrower shall not,
directly or indirectly, expend or commit to expend, for fixed or capital assets
(including capital lease obligations) an amount in excess of the capital
expenditure limit set forth in Section 10.5(c) in any fiscal year of Borrower.
6.12 Affiliated Transactions. Borrower will not, without the prior
written consent of Lender, directly or indirectly: (a) lend or advance money or
property to, guarantee or assume indebtedness of, or invest (by capital
contribution or otherwise) in any person, firm, corporation or other entity; or
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(b) declare, pay or make any dividend, redemption or other distribution on
account of any shares of any class of stock of Borrower now or hereafter
outstanding; or (c) make any payment of the principal amount of or interest on
any indebtedness owing to any officer, director, shareholder, or affiliate of
Borrower; or (d) make any loans or advances to any officer, director, employee,
shareholder or affiliate of Borrower, (e) enter into any sale, lease or other
transaction with any officer, director, employee, shareholder or affiliate of
Borrower on terms that are less favorable to Borrower than those which might be
obtained at the time from persons who are not an officer, director, employee,
shareholder or affiliate of Borrower. Excluded from the foregoing prohibitions
are payments to or for the benefit of Borrower's subsidiaries or affiliates made
in the ordinary course of business and not exceeding in the aggregate fifty
thousand dollars ($50,000) in any calendar year.
6.13 Fees and Expenses. Borrower shall pay, on Lender's demand, all
costs, expenses, filing fees and taxes payable in connection with the
preparation, execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Lender's rights in the
Collateral, this Agreement and all other existing and future agreements or
documents contemplated herein or related hereto, including any amendments,
waivers, supplements or consents which may hereafter be made or entered into in
respect hereof, or in any way involving claims or defense asserted by Lender or
claims or defense against Lender asserted by Borrower, any guarantor or any
third party directly or indirectly arising out of or related to the relationship
between Borrower and Lender or any guarantor and Lender, including, but not
limited to the following, whether incurred before, during or after the initial
or any renewal Term or after the commencement of any case with respect to
Borrower or any guarantor under the United States Bankruptcy Code or any similar
statute: (a) all costs and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all
title insurance and other insurance premiums, appraisal fees, fees incurred in
connection with any environmental report, audit or survey and search fees; (c)
all fees as then in effect relating to the wire transfer of loan proceeds and
other funds and fees then in effect for returned checks and credit reports; (d)
all expenses and costs heretofore and from time to time hereafter incurred by
Lender during the course of periodic field examinations of the Collateral and
Borrower's operations, plus a per diem charge at the rate set forth in Section
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10.4(g) for Lender's examiners in the field and office; and (e) the costs, fees
and disbursements of in-house and outside counsel to Lender, including but not
limited to such fees and disbursements incurred as a result of litigation
between the parties hereto, any third party and in any appeals arising therefrom
6.14 Further Assurances. At the request of Lender, at any time and from
time to time, at Borrower's sole expense, Borrower shall execute and deliver or
cause to be executed and delivered to Lender, such agreements, documents and
instruments, including waivers, consents and subordination agreements from
mortgagees or other holders of security interests or liens, landlords or
bailees, and do or cause to be done such further acts as Lender, in its
discretion, deems necessary or desirable to create, preserve, perfect or
validate any security interest of Lender or the priority thereof in the
Collateral and otherwise to effectuate the provisions and purposes of this
Agreement. Borrower hereby authorizes Lender to file financing statements or
amendments against Borrower in favor of Lender with respect to the Collateral,
without Borrower's signature and to file as financing statements any carbon,
photographic or other reproductions of this Agreement or any financing
statements signed by Borrower.
6.15 Revolving Loans. The Revolving Loans will not at any time exceed
the Gross Availability for three (3) consecutive days unless Lender has
consented.
6.16 Environmental Condition. None of Borrower's properties or assets
has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower. Borrower has not received a summons, citation, notice, or directive
from the Environmental Protection Agency or any other federal or state
governmental agency any action or omission by Borrower resulting in the
releasing, or otherwise exposing of hazardous waste or hazardous substances into
the environment. Borrower is in compliance (in all material respects) with all
statutes, regulations, ordinances and other legal requirements pertaining to the
production, storage, handling, treatment, release, transportation or disposal of
any hazardous waste or hazardous substance.
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SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. All Obligations shall be immediately due and
payable, without notice or demand, and any provisions of this Agreement as to
future loans and credit accommodations by Lender shall terminate automatically,
upon the termination or non-renewal of this Agreement or, at Lender's option,
upon or at any time after the occurrence or existence of any one or more of the
following "Events of Default":
(a) Borrower fails to pay when due any of the Obligations or fails to
perform any of the terms of this Agreement or any other existing or future
financing, security or other agreement between Borrower and Lender or any
affiliate of Lender;
(b) Any representation, warranty or statement of fact made by Borrower
to Lender in this Agreement or any other agreement, schedule, confirmatory
assignment or otherwise, or to any affiliate of Lender, shall prove inaccurate
or misleading;
(c) Any guarantor revokes, terminates or fails to perform any of the
terms of any guaranty, endorsement or other agreement of such party in favor of
Lender or any affiliate of Lender;
(d) Any judgment or judgments aggregating in excess of $100,000 or any
injunction or attachment is obtained against Borrower or any guarantor which
remains unstayed for a period of ten (10) days or is enforced;
(e) Borrower or any guarantor or a general partner of a guarantor or
Borrower (which is a partnership), being a natural person, dies, or Borrower or
any guarantor which is a partnership or corporation, is dissolved, or Borrower
or any guarantor which is a corporation fails to maintain its corporate
existence in good standing, or the usual business of Borrower or any guarantor
ceases or is suspended;
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(f) Any change in the controlling ownership of Borrower unless approved
by Lender in advance;
(g) Borrower or any guarantor becomes insolvent, makes an assignment
for the benefit of creditors, makes or sends notice of a bulk transfer or calls
a general meeting of its creditors or principal creditors;
(h) Any petition or application for any relief under the bankruptcy
laws of the United States now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed by or against Borrower or any guarantor;
(i) The indictment or threatened indictment of Borrower or any
guarantor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any guarantor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such guarantor;
(j) Any default or event of default occurs on the part of Borrower
under any agreement, document or instrument to which Borrower is a party or by
which Borrower or any of its property is bound, creating or relating to any
indebtedness of Borrower to any person or entity other than Lender in an amount
exceeding $100,000, if the effect of such default is to accelerate, or to permit
the acceleration of, the maturity of all or any part of such indebtedness, or
all or any part of any such indebtedness shall be declared to be due and payable
or required to be prepaid or any other reason, in either event prior to the
stated maturity thereof.
(k) Lender in good faith believes that either (i) the prospect of
payment or performance of the Obligations is impaired or (ii) the Collateral is
not sufficient to secure fully the Obligations; or
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(l) any material adverse change occurs in the nature or conduct of
Borrower's business.
7.2 Remedies. Upon the occurrence of an Event of Default and at any
time thereafter, Lender shall have all rights and remedies provided in this
Agreement, any other agreements between Borrower and Lender, the Uniform
Commercial Code or other applicable law, all of which rights and remedies may be
exercised without notice to Borrower, all such notices being hereby waived,
except such notice as is expressly provided for hereunder or is not waivable
under applicable law. All rights and remedies of Lender are cumulative and not
exclusive and are enforceable, in Lender's discretion, alternatively,
successively, or concurrently on any one or more occasions and in any order
Lender may determine. Thereupon and thereafter and without limiting the
foregoing, Lender may (a) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender, (b) with or without judicial process or the
aid or assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral,
(c) require Borrower, at Borrower's expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time designated by
Lender, (d) collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral, (e) extend the time of payment of, compromise or settle
for cash, credit, return of merchandise, and upon any terms or conditions, any
and all accounts or other Collateral which includes a monetary obligation and
discharge or release the account debtor or other obligor, without affecting any
of the Obligations, (f) sell, lease, transfer, assign, deliver or otherwise
dispose of any and all Collateral (including, without limitation, entering into
contracts with respect thereto, by public or private sales at any exchange,
broker's board, any office of Lender or elsewhere) at such prices or terms as
Lender may deem reasonable, for cash, upon credit or for future delivery, with
the Lender having the right to purchase the whole or any part of the Collateral
at any such public sale, all of the foregoing being free from any right or
equity of redemption of Borrower, which right or equity of redemption is hereby
expressly waived and released by Borrower. If any of the Collateral is sold or
leased by Lender upon credit terms or for future delivery, the Obligations shall
not be reduced as a result thereof until payment therefor is finally collected
by Lender. If notice of disposition of Collateral is required by law, seven (7)
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days prior notice by Lender to Borrower designating the time and place of any
public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrower waives any other notice. In the event Lender institutes an
action to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.
7.3 Application of Proceeds. Lender may apply the cash proceeds of
Collateral actually received by Lender from any sale, lease, foreclosure or
other disposition of the Collateral to payment of any of the Obligations, in
whole or in part (including reasonable attorneys' fees and legal expenses
incurred by Lender with respect thereto or otherwise chargeable to Borrower) and
in such order as Lender may elect, whether or not then due. Borrower shall
remain liable to Lender for the payment of any deficiency together with interest
at the highest rate provided for herein and all costs and expenses of collection
or enforcement, including reasonable attorneys' fees and legal expenses.
7.4 Lender's Cure of Third Party Agreement Default. Lender may, at its
option, cure any default by Borrower under any agreement with a third party or
pay or bond on appeal any judgment entered against Borrower, discharge taxes,
liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and pay any amount, incur any expense or
perform any act which, in Lender's sole judgment, is necessary or appropriate to
preserve, protect, insure, maintain, or realize upon the Collateral. Lender may
charge Borrower's loan account for any amounts so expended, such amounts to be
repayable by Borrower on demand. Lender shall be under no obligation to effect
such cure, payment, bonding or discharge, and shall not, by doing so, be deemed
to have assumed any obligation or liability of Borrower.
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SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST
THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE
OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER,
OR, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE
RELATIONSHIP BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR
LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
8.2 Counterclaims. Borrower waives all rights to interpose any claims,
deductions, setoffs or counterclaims of any kind, nature or description in any
action or proceeding instituted by Lender with respect to this Agreement, the
Obligations, the Collateral or any matter arising therefrom or relating thereto,
except compulsory counterclaims.
8.3 Jurisdiction. Borrower hereby irrevocably submits and consents to
the nonexclusive jurisdiction of the State and Federal Courts located in the
State in which the office of Lender designated in Section 10.6(a) is located and
any other State where any Collateral is located with respect to any action or
proceeding arising out of this Agreement, the Obligations, the Collateral or any
matter arising therefrom or relating thereto. In any such action or proceeding,
Borrower waives personal service of the summons and complaint or other process
and papers therein and agrees that the service thereof may be made by mail
directed to Borrower at its chief executive office set forth herein or other
address thereof of which Lender has received notice as provided herein, service
to be deemed complete five (5) days after mailing, or as permitted under the
rules of either of said Courts. Any such action or proceeding commenced by
Borrower against Lender will be litigated only in a Federal Court located in the
district, or a State Court in the State and County, in which the office of
Lender designated in Section 10.6(a) is located and Borrower waives any
objection based on forum non conveniens and any objection to venue in connection
therewith.
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8.4 No Waiver by Lender. Lender shall not, by any act, delay, omission
or otherwise be deemed to have expressly or impliedly waived any of its rights
or remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. A waiver by Lender of any right or remedy on any one occasion
shall not be construed as a bar to or waiver of any such right or remedy which
Lender would otherwise have on any future occasion, whether similar in kind or
otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective upon execution and
delivery by Borrower and Lender and shall continue in full force and effect for
a term set forth in Section 10.7 from the date hereof.
9.2 Early Termination. At any time seventy-five (75) days prior to the
end of the then current Term, Borrower may also terminate this Agreement by
giving Lender at least thirty (30) days prior written notice and payment in full
of all of the Obligations as provided herein, including the Early Termination
Fee, unpaid Closing Commitment Letter Fee and all other fees that may then or
thereafter be due to Lender under this Agreement; provided, however, that the
Success Fee for unexpired Term subsequent to Termination shall be computed based
upon the $25,000 minimum set forth in sub-section 10.4 (d), below. Lender shall
also have the right to terminate this Agreement at any time upon or after the
occurrence of an Event of Default. If Lender terminates this Agreement upon or
after the occurrence of an Event of Default, Borrower shall pay Lender
forthwith, in full, payment of all Obligations, including Early Termination Fee,
unpaid Closing Commitment Fee and all other fees that may then or thereafter be
due to Lender under this Agreement. In view of the impracticality and extreme
difficulty of ascertaining actual damages and by mutual agreement of the parties
as to a reasonable calculation of Lender's lost profits, the Early Termination
fee shall be equal to three percent (3%) of the Maximum Credit if termination
26
<PAGE>
occurs during the first year of the Term of this Agreement, two percent (2%) of
the Maximum Credit if termination occurs during the second year of the Term of
this Agreement and one percent (1%) of the Maximum Credit thereafter.
9.3 Termination Indemnity Deposit. Upon termination of this Agreement
by Borrower, as permitted herein, in addition to payment of all Obligations
which are not contingent, Borrower shall deposit such amount of cash collateral
as Lender determines is necessary to secure Lender from loss, cost, damage or
expense, including reasonable attorneys' fees, in connection with any open
Accommodations or remittance items or other payments provisionally credited to
the Obligations and/or to which Lender has not yet received final and
indefeasible payment.
9.4 Notices. Except as otherwise provided, all notices, requests and
demands hereunder shall be (a) made to Lender at its address set forth in
Section 10.6(a) and to Borrower at its chief executive office set forth in
Section 10.6(d), or to such other address as either party may designate by
written notice to the other in accordance with this provision, and (b) deemed to
have been given or made: if by hand, immediately upon delivery; if by telex,
telegram or telecopy (fax), immediately upon receipt; if by overnight delivery
service, one day after dispatch; and if by first class or certified mail, three
(3) days after mailing.
9.5 Severability. If any provision of this Agreement is held to be
invalid or unenforceable, such provision shall not affect this Agreement as a
whole, but this Agreement shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable.
9.6 Entire Agreement; Amendments; Assignments. This Agreement
contains the entire agreement of the parties as to the subject matter hereof,
all prior commitments, proposals and negotiations concerning the subject matter
hereof being merged herein. Neither this Agreement nor any provision hereof
shall be amended, modified or discharged orally or by course of conduct, but
only by a written agreement signed by an authorized officer of Lender. This
Agreement shall be binding upon and inure to the benefit of each of the parties
27
<PAGE>
hereto and their respective successors and assigns, except that any obligation
of Lender under this Agreement shall not be assignable nor inure to the
successors and assigns of Borrower.
9.7 Discharge of Borrower. No termination of this Agreement shall
relieve or discharge Borrower of its Obligations, grants of Collateral, duties
and covenants hereunder or otherwise until such time as all Obligations to
Lender have been indefeasibly paid and satisfied in full, including, without
limitation, the continuation and survival in full force and effect of all
security interests and liens of Lender in and upon all then existing and
thereafter-arising or acquired Collateral and all warranties and waivers of
Borrower.
9.8 Usage. All terms used herein which are defined in the Uniform
Commercial Code shall have the meanings given therein unless otherwise defined
in this Agreement and all references to the singular or plural herein shall also
mean the plural or singular, respectively.
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State in which the office of Lender set forth in
Section 10.6(a) below is located.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 (a) Maximum Credit: $5,000,000, subject to the limiting
conditions in 2.1 and 2.1(a), above.
(b) Gross Availability Formulas:
Eligible Accounts Percentage: Seventy-three percent (73%)
of eligible
accounts not more than 60 days from due date, so long as the accounts dilution
does not exceed twelve percent (12%). If dilution calculated on a rolling ninety
(90) day average exceeds twelve percent (12%), then the advance formula will be
reduced by one percentage point (1%) for each one percentage point (1%), or
28
<PAGE>
fraction thereof, increase in dilution above twelve percent (12%). After a first
field examination six (6) months after the date of Closing, Lender will
re-evaluate Borrower's dilution and may increase the Eligible Accounts
Percentage one percentage point for each percentage point, or fraction thereof,
decrease in dilution below twelve percent (12%) to a maximum advance of eighty
percent (80%) against Eligible Accounts. Eligible Accounts shall exclude foreign
accounts unless insured by credit insurance or secured by a Letter of Credit
issued or confirmed by a bank acceptable to Lender. "Dilution" as used herein
shall mean the quotient obtained by dividing the aggregate of all credits,
allowances, discounts, write-offs, contra accounts and setoffs reducing the
amounts collectible from all accounts receivable of Borrower from the period
selected, by the gross sales for such period.
Eligible Inventory Percentages Not Applicable.
Finished Goods Not Applicable.
Raw Materials Not Applicable.
(c) Inventory Sublimit(s): Not applicable.
(d) Maximum days after due date for Eligible Accounts: Sixty (60) days.
(e) Minimum Borrowing: One million dollars ($1,000,000), with any
minimum borrowing charge under ss. 2.1 (g), above, to be charged annually.
10.2 Term Loan: None.
a) amount $ Zero (0)
b) monthly amortization Not applicable.
c) maturity date Not applicable.
29
<PAGE>
10.3 Accommodations:
(a) Lender's Charge for Accommodations: 1.75% per annum of the face
amount of all standby and documentary letters of credit outstanding plus
reimbursement to Lender of all charges and fees charged by the issuing bank,
payable monthly.
(b) Sublimit for Accommodations: $ 2,000,000.
10.4 Interest, Fees & Charges:
(a) Interest Rate: Prime Rate plus 1 1/2% per annum.
(b) Clearance: One (1) Business Day.
(c) Closing Commitment Letter Fee: Seventy-five thousand dollars
($75,000), of which $12,500 is earned and payable upon issuance of a Commitment
Letter by Lender, $12,500 is earned and payable upon Closing, $25,000 earned at
Closing but payable at the end of the first year of the Term hereof and $25,000
earned at Closing but payable at the end of the second year of the Term hereof.
(d) Success Fee: The greater of: (i).Twenty-five thousand dollars
($25,000) and (ii) the increase (if any) in the closing asked price on NASDAQ
(or other exchange or appropriate quotation, if Borrower ceases being listed on
NASDAQ) of Borrower's capital stock, accounting from Closing (and after the
first year accounting from the last anniversary of Closing) to each (next)
anniversary of Closing, but not to exceed One hundred thousand dollars
($100,000) annually, payable on the day immediately following each anniversary
of Closing.
(e) Account Servicing Fee: Not applicable.
(f) Unused Line Fee: per annum Not applicable.
(g) Field Examination per diem
charge per examiner $650. But limited to $6,500 per year so
long as Borrower is not in default
hereunder
10.5 Financial Covenants:
(a) Working Capital: Not Applicable.
(b) Net Worth: Not Applicable.
(c) Capital Expenditures: per fiscal year Not Applicable.
10.6 (a) Lender's Office: The CIT Group/Credit Finance, Inc.
STAR Division, Att'n.: Mr. Richard A. Simons
10 South LaSalle Street
Chicago, IL 60603
30
<PAGE>
(b) Lender's Bank: Bank of America, Illinois
231 South LaSalle Street
Chicago, IL 60697
(c) Borrowers: nView Corporation
nView International Corporation
(d) Borrowers' Chief
Executive Office: 860 Omni Boulevard
Newport News, Virginia 23606-4238
(e) Locations of Eligible
Inventory Collateral: No Eligible Inventory for loan
advances.
(f) Borrowers' Other Offices and Locations of Collateral: None.
(g) Borrowers' Trade Names for Invoicing: None other than corporate
names.
10.7 Term: three (3) Years from date hereof.
IN WITNESS WHEREOF, Borrowers and Lender have duly executed this
Agreement this 23rd day of February, 1998
LENDER: BORROWER:
THE CIT GROUP/CREDIT FINANCE, INC. NVIEW CORPORATION
<TABLE>
<S> <C>
By: By:
Richard A. Simons, Senior Vice-President Diane H. Lingo, Vice-President, Finance
</TABLE>
BORROWER:
NVIEW INTERNATIONAL CORPORATION
By:
Diane H. Lingo, Executive Vice-President
31
<PAGE>
SCHEDULE A
Permitted Liens:
Equipment leases now and hereafter entered into by Borrower to acquire
equipment in the ordinary course of business, so long as no such lease causes or
requires Borrower to encumber any of its assets other than the leased equipment.
Inchoate liens created by statute for taxes, which liens are discharged
by Borrower's timely payment of such taxes or contesting same in good faith and
in accordance with law.
EXHIBIT 21
Subsidiaries of nVIEW Corporation
Name Jurisdiction of Incorporation
---- -----------------------------
nVIEW International Corporation Virginia
nVIEW International Limited United Kingdom
NV Projection Products Corporation U.S. Virgin Islands
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
nVIEW Corporation:
We consent to incorporation by reference in the registration statements on Forms
S-8 (No. 33- 44682, No. 33-76904, No. 33-38349 and No. 333-20023) of nVIEW
Corporation and subsidiaries of our report dated February 17, 1998, except as to
note 7, which is as of March 8, 1998, relating to the consolidated balance
sheets of nVIEW Corporation and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997, and all related schedules, which report appears in the December 31, 1997
annual report on Form 10-K of nVIEW Corporation.
/s/ KPMG Peat Marwick LLP
Norfolk, Virginia
April 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 742063
<SECURITIES> 0
<RECEIVABLES> 4733687
<ALLOWANCES> (415720)
<INVENTORY> 3975958
<CURRENT-ASSETS> 9382168
<PP&E> 3293943
<DEPRECIATION> (2834219)
<TOTAL-ASSETS> 9965711
<CURRENT-LIABILITIES> 1972731
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7992980
<TOTAL-LIABILITY-AND-EQUITY> 9965711
<SALES> 19883705
<TOTAL-REVENUES> 19883705
<CGS> 21575304
<TOTAL-COSTS> 21575304
<OTHER-EXPENSES> 7450138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167155
<INCOME-PRETAX> (9308892)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9308892)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9308892)
<EPS-PRIMARY> (1.86)
<EPS-DILUTED> (1.86)
</TABLE>
